Financial advisors play a significant role in their clients’ lives, including counseling them through major life changes including changing jobs, moving and buying and selling real estate, retirement, and in some cases, divorce.

If your client is negotiating a child support and/or spousal support package and/or proceeding through a divorce, make sure that they are considering the ramifications of inflation. As you know, prices are now rising at the fastest rate in over 40 years. As such, both those receiving and paying support should negotiate a cost-of-living adjustment also known as “COLA.”

Inflation is affecting all of us, from the price of groceries to gas to just about everything else. Add to that a scarcity of many goods and services, and all of that equals the general cost of living—from food and energy to childcare, to tuition for school or camp or sports—is going up. And let’s not overlook the cost of college tuition, room and board, which is now through the roof. Just recently, a client told me that their child’s tuition, room and board and expenses at a well-known New York City university was over $80,000 annually. That doesn’t include items such as tickets to fly home on school breaks or allowance.

If you consider any expense in your life, it is likely affected in some way by inflation. And for your clients negotiating a divorce settlement, how can they predict if they are receiving ample support and/or paying too much?

And how, as their financial advisor, can you help?

As a matrimonial and family law attorney, I now counsel clients to utilize the consumer price index (CPI) as the standard of whether to decrease or increase child support in the future. What does that mean? Once you have determined the base amount of support, then your client should be sure to include a provision allowing for the increase or decrease of support annually based upon the CPI. The CPI is a measure of the average change in prices over time in a fixed market basket of goods and services published by the Bureau of Labor Statistics.

In the latest report available for New York and New Jersey, dated March 10, for example, area prices are up 0.3% over the month and 5.1% over the year. This is an extraordinary number, and while the Federal Reserve is certainly trying to address the problem, no one expects this to end anytime soon.

So, it stands to reason that this means the amount needed for child and spousal support might be greater than it was just a short time ago, and remain elevated, or rise higher, in the months and possibly years ahead. That being said, it can also decrease over time. Remember, what goes up must also come down.

If your client is going through a family law matter and in the process of negotiating a settlement, you would be doing your client a significant service to make sure they are including a COLA in their agreement.

Here is what I recommend you do:
• If your client will be receiving child support or alimony, they need to make sure that the base amount is recalculated each year on a fixed date—perhaps the anniversary of the agreement—by the change in the CPI.  

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