The COVID-19 pandemic has accelerated the gig economy over the past year. As people started to re-evaluate their current work and lifestyle, businesses began to leverage the economic benefits of hiring more freelance and contract workers. So, what does that mean for divorce? The gig economy and remote work presents new challenges and complexities for separating couples – and their advisers.
Assessing and calculating support
One of the biggest challenges facing separating couples is determining appropriate support levels. Each spouse’s annual earnings need to be established before this can be determined.
Historically, we’ve used standards to predict if someone’s income would likely stay the same for a period of time so that we could establish long term spousal support arrangements. While child support arrangements can be reviewed each year by law, a long-term arrangement with a fixed amount is usually desirable because it is emotionally draining and expensive for separated couples to negotiate this issue on an ongoing basis. For example, if there is an important milestone such as a child graduating from high school in five years, couples find it beneficial to have an arrangement in place for that five-year term.
However, the shifting job market and new economies have made it difficult – and more complex – to predict someone’s income and earning potential in the future. Sectors that were previously thought to be secure or predictable have been severely impacted by in-person restrictions during the pandemic, something no one could have predicted.
Now more than ever, each client’s circumstance must be analyzed carefully. For instance, a person working in the gig economy will likely see their annual salary fluctuate depending on how successful their year was; whether their industry is impacted, either positively or negatively, by the pandemic; or if they are working in a completely new industry. As a result, it becomes challenging to craft long term support arrangements, leading to a potentially costly and frustrating process for clients who must revisit their income levels and support amounts every few years.
To avoid yearly reviews, separating couples are invited to think outside the box and compromise. A popular option for dealing with this is to provide a “financial zone” within which there is no review of the support arrangement, with the objective of creating a fair range that can absorb the income variations people might have from time to time. This requires playing with hypotheses and formulas and evaluating them in real life circumstances.
For example, say the recipient spouse recently found a contract in the gig economy as a designer and was able to earn approximately $40,000 per year. The support that this spouse receives is calculated based on that salary, but it may be desirable to indicate that there will be no review of the support amount so long as this person earns between $35,000 and $45,000 per year.
It’s also important to perform simulations of what support would look like if the person earned close to the edges of the zone. So, at $44,000 per annum, is it still fair for the payor to pay the same amount that was calculated when the recipient earned $40,000? Test several scenarios to evaluate whether the zone is too broad so as to render the initial support calculation unfair. An unfair zone in this example may be a range of $20,000 to $80,000, which is much too wide. The support recipient would certainly suffer hardship if they were only able to earn $20,000 yet had spousal support calculated on $40,000 in earnings. Similarly, it would be unfair for the support payor to pay the same amount if the recipient suddenly earned $80,000.
Adding to the complexity of the gig economy is evaluating how many “gigs” someone should take. It’s not as simple as declaring that a person should get as many as are required to fill 40 hours a week. It can be very stressful and tiring to stitch together several jobs with varying hours of the day – and even locations. Yet at the same time, the person who’s working in a traditional employment setting who has to give up a percentage of their income to the other, is exhausted too. Of course, childcare responsibilities add more challenges. If the couple shares responsibility for the children, the gig worker can’t work as much when they have the kids, and when they don’t have the kids, they are exhausted from scrambling to make up the hours to earn an income, with little personal time to destress.
For all these reasons, each case is complex and needs to be evaluated on its own circumstances.
Understanding the industry and economic factors
As many sectors impacted by the pandemic may return to “normal,” is it fair to rely on someone’s historical income to assess their ability to pay support? The answer is: it depends on what they do. If the person has a stable income in a unionized environment, for example, then yes. But for someone who works in the gig economy, or even a sector like construction where the hours may differ significantly, their income can fluctuate considerably year to year. We need to examine economic factors, industry by industry, and go from there.
Why lawyers and mediators should work with financial advisers
Lawyers and mediators frequently work with certified business valuators, accountants and financial advisers, who can help calculate income for more complex cases and shed light on people’s financial needs.
Originally published in The Lawyer’s Daily.