• Chicago Downtown Office
    • 20 N. Clark Street, Suite 3300 Chicago, IL 60602
  • Northbrook, IL Office
    • 5 Revere Drive, Suite 200 Northbrook, IL 60062
inflation impact on chicago divorce

How Inflation Could Impact My Chicago Divorce

Published
Categorized as Divorce

Inflation impacts nearly every aspect of life, from rising prices for everyday necessities to increased financial uncertainty. If you’re divorcing or revisiting divorce agreements, inflation can also affect key financial decisions, including alimony, child support, and property division.

Understanding how inflation shapes divorce outcomes is essential to protecting your financial future. With careful planning, you can address these challenges and secure agreements that account for the realities of today’s economy. At Anderson Boback & Marshall, we guide families through these challenges with personalized legal strategies designed to protect your financial stability.

This guide explores the many ways inflation can affect your divorce and offers strategies to address these challenges effectively

Ways Inflation Impacts a Chicago Divorce

Inflation impacts those facing divorce in Chicago. Here are some things you will want to consider when planning for a divorce during this current period of inflation.  

1. Selling a House With Rising Interest Rates  

It’s common for divorcing couples to divide proceeds from the sale of their marital home or for one spouse to buy out the other’s share. Divorce settlement agreements often include provisions for refinancing, where one party refinances the mortgage into their name. If refinancing is not possible, the agreement typically requires selling the home.

However, rising interest rates often complicate these processes. Higher mortgage rates increase monthly payments, making refinancing or purchasing a home more expensive. At the same time, fewer people can afford new homes, which slows the housing market and may reduce home values.

Risks of Refinancing During a Divorce

Refinancing comes with several risks, especially when housing markets fluctuate:

Increased Costs: Higher interest rates can make monthly mortgage payments unaffordable for the spouse keeping the home.
Equity Concerns: If the market declines, spouses may struggle to refinance without bringing additional funds to closing. For example, a homeowner with 10% equity could lose their refinancing eligibility if the home’s value drops.
Pro Tip: Review current mortgage and equity details with a financial advisor before finalizing agreements about home retention.

What this Means for Divorce Agreements

When negotiating settlement agreements involving real estate, it’s important to plan for potential changes in property values and market conditions:

Account for Market Variability: Include terms that account for profits or losses if the home is sold later.
Include Refinancing Deadlines: Specify clear timeframes for refinancing and outline contingencies if it isn’t possible.
Evaluate Selling vs. Keeping the Home: Consider whether selling the home immediately may reduce financial risks.

For more on mortgage rates and housing trends, visit Freddie Mac’s Primary Mortgage Market Survey.

2. Spousal Support and Child Support Considerations 

Inflation can significantly affect spousal and child support calculations, especially when one or both parties’ incomes fluctuate due to changing economic conditions. This is particularly important for individuals in sales or commission-based roles, where income may vary depending on spending trends.

Ultimately, the best way to handle this is to set support on salaried income only and pay a percentage of bonuses and commissions upon receipt, or, conduct an annual true-up on all income each year to pay the differential due to the other party.  This will be the most accurate way to handle support and it is something that should be strongly considered during a period of inflation.  (Additionally, be sure to file your motion to modify support right away if you are laid off or terminated!)

When structuring support agreements, it’s important to account for inflation’s effects to avoid financial disputes or hardships later. Now, let’s address spousal support and child support separately.

Spousal Support and Inflation

Spousal support (also known as alimony) is particularly vulnerable to inflation, as fixed payments lose value over time while living costs increase. For individuals with variable income, such as bonuses or commissions, calculating support can become even more challenging.

One way to protect against inflation is by including a Cost-of-Living Adjustment (COLA) clause in the spousal support agreement. A COLA clause automatically adjusts support payments to reflect increases in the cost of living, typically based on changes in the Consumer Price Index (CPI). This ensures that support payments maintain their value over time without requiring frequent modifications.

The most effective way to handle spousal support during inflation is to base it on salaried income only and address bonuses and commissions separately. This can be done by:

  1. Paying a percentage of bonuses or commissions when they are received.
  2. Using an annual true-up to calculate the difference and adjust payments fairly.

This approach ensures payments remain accurate and avoids relying on projected earnings that may not materialize. It’s especially important during periods of economic uncertainty.

Additionally, if your income decreases significantly—such as due to job loss or termination—file a motion to modify your spousal support order immediately. Courts can only adjust payments retroactively to the date the motion was filed, so acting quickly can prevent unnecessary financial strain.

Child Support and Inflation

Child support is designed to cover a child’s essential needs, such as housing, food, and education. Inflation increases the cost of these necessities, leaving the recipient parent with less purchasing power. At the same time, parents paying child support may face income instability, particularly if they work in sales or commission-based fields.

Illinois law allows child support orders to be modified if there is a substantial change in circumstances, such as a significant drop in income or rising living expenses. This means parents should document any changes in their financial situation and file a child support modification request promptly if necessary.

Another consideration is the increasing cost of “add-on” expenses, such as out-of-pocket medical bills, extracurricular activities, and childcare. These costs often rise faster than general inflation, and it’s important to account for them in child support agreements. Parents should also include clear language in agreements about how these expenses will be divided to avoid disputes.

Increasing Cost of Add-On Expenses

A more minor, but worth-noting inflation-related concern is the increase in the cost of “add on” expenses.  There are certain expenses that a court may order parties to contribute over and above the child support payment, such as out-of-pocket medical expenses, extra-curricular activities, child care, and mandatory school fees.  With the price of everything on the rise, it is important to also be aware that these types of expenses will become more expensive as well, especially if this is something you have worked into a budget.

3. Employment Concerns

When inflation rises, job loss often follows. Companies experiencing declining sales or profits may cut costs to protect their bottom line, which often includes layoffs. Employees who are newer to a company or hold higher-paying positions are typically at greater risk during these layoffs.

If you or your spouse experiences job instability or a sudden loss of income, it can have a significant impact on your divorce proceedings. For instance, Illinois law allows modifications to child support or, in some cases, spousal support if there is a substantial change in circumstances, such as a job loss or significant reduction in income. However, courts only apply modifications retroactively to the date the motion was filed, so it’s important to act quickly if your employment status changes.

Planning ahead for possible income disruptions is critical during a divorce. If you or your spouse has recently changed jobs, is employed in a volatile industry, or faces other employment concerns, these factors should be considered when creating a budget and structuring financial agreements.

4. Business Owner Concerns

If you or your spouse own a business, inflation may increase costs for goods, labor, or services, which can reduce your profit margins. This may require adjustments to your personal budget and impact financial planning during a divorce.

Business income is also a key factor in determining the value of a business. If the business is valued during an economic downturn, the “buyout” price may be lower than it would be in a period of financial growth. This could benefit the spouse who intends to keep the business, as the reduced valuation may make it more affordable to buy out the other spouse’s share.

However, the impact of inflation on a business depends on its industry and structure. For accurate business valuation and fair division of assets, it’s critical to work with legal and financial professionals during the divorce process.

Key Takeaways and Next Steps

Divorcing during inflation can create unique challenges, from rising costs to fluctuating incomes. Key financial decisions, such as structuring spousal or child support, dividing assets, and planning for housing, all require careful consideration. By understanding how inflation affects divorce, you can take proactive steps to protect your financial well-being and avoid unnecessary disputes.

Key Takeaways:

  • Rising interest rates can complicate real estate decisions, including refinancing or selling marital property.
  • Inflation reduces the value of fixed spousal support payments, making strategies like COLA clauses or true-ups critical for fairness.
  • Child support agreements must account for increasing “add-on” expenses like childcare, medical costs, and extracurricular activities.
  • Job instability or income fluctuations may require modifying support agreements promptly.

How Anderson Boback & Marshall Can Help

At Anderson Boback & Marshall, we understand the financial and emotional strain divorce can bring—especially during periods of economic uncertainty. Our experienced Chicago divorce attorneys can help you:

  • Negotiate fair and inflation-proof spousal and child support agreements.
  • Address real estate challenges and create flexible settlement agreements.
  • Secure accurate business valuations to ensure fair asset division.

If you’re navigating a divorce or revisiting an existing agreement, reach out to Anderson Boback & Marshall for personalized guidance. Call us at [insert phone number] or schedule a consultation today.

 

Was this information helpful?
YesNo

Schedule a Discreet Consultation Today!

    APPOINTMENTS AVAILABLE AT OUR TWO CONVENIENT LOCATIONS

    Chicago Downtown Office

    20 N. Clark Street, Suite 3300 Chicago, IL 60602

    Northbrook, IL Office

    5 Revere Drive, Suite 200 Northbrook, IL 60062

    Firm Overview
    Anderson Boback & Marshall

    Anderson Boback & Marshall is a highly-respected, experienced family law firm, skilled in negotiation and litigation for divorce and other family law issues. With multiple offices in NorthBrook and Chicago Downtown, we make it easy for you to book an appointment in a location near you. Our family and divorce lawyers serve families in Cook County, Lake County, Will County, and DuPage County. Call Now 312-715-0870

    Is Divorce the Right Step for You?

    Take Our Quick Quiz to Find Out in Few Minutes.