Divorce Money Matters

How a CDFA™ Can Help

This sample case serves to illustrate the value of working with a Certified Divorce Financial Analyst professional trained in matters of finance and divorce as a means of reaching a more equitable divorce settlement.  Working with Lisa C. Decker, CDFA™ can help you to “Divorce Your Spouse, Not Your Money™.”                     

                          _____________________

Jane and John are both 45 years old with two children.  They have been married for 16 years.  Recently, John came home and told Jane that he was not happy in their marriage and wanted a divorce.

One of the first considerations will be examining the finances of the family.  Looking at their marital assets we see they own a home worth $165,000 with a mortgage of $87,500 which leaves net equity of $77,500. Their IRAs and 401(k) retirement plan total $165,500 in value.

John earns $90,000 a year and has take-home pay of about $64,800 a year. Jane has always been a stay at home mom and has never worked outside the home; therefore she has no experience in the work world and has had no time to establish job skills. She assumes that she can get a job for minimum wage with take-home pay of about $10,100 a year.

The following settlement has been suggested. After the divorce, Jane and the children will live in the house, which will be deeded to her. She will also receive $44,000 of the retirement moneys with John getting the remaining balance of $121,500, thus dividing the assets equally. 

In essence, this appears to be a 50/50 split with each getting a total of $121,500 of value in assets.  (A side note - a CDFA™ would notice immediately that it does not take into account any taxes that will be owed by Jane if she uses some or all of the retirement assets to live off of today or any capital gains taxes that may be due on the sale of the home if she decides to move. These issues could potentially cost Jane thousands of dollars in taxes.)

In addition, John has offered to pay Jane alimony of $600 per month for 5 years and child support of $225 per month per child. He will also pay college costs which start in 4 years. John’s expenses include his normal living expenses, spousal support, child support, and college costs. Jane’s expenses include support of the children and are reduced when each child leaves home.

·     Increased alimony of $1,500 per month for 10 years. This would actually cost John $1,005 per month in after-tax dollars.

·     The correct child support according to the Child Support Guidelines of their state is $1,125 per month for two children for a couple with their income.

·     Jane also could be awarded an additional $24,300 from the retirement plans.

·     She may also need to cut her expenses by 10% to achieve her long term goals, which the CDFA helped her do with the preparation of a spending and savings plan.

These changes from the original settlement will produce the results illustrated in graph #2. John will still have a surplus which he can add to his investments. If John stays within his budget and invests all of his extra income, his investments have the capacity to grow to $2.5 million by the time he is age 60.

As for Jane, she will have a positive net worth going into her retirement years, rather than the bleak outlook of poverty that she was sure to find with the first proposal, leaving her a financial future that now looks much brighter!

This case study serves to underscore the importance of consulting with a CDFA™ BEFORE your divorce is settled. 

Contact Lisa C. Decker now to see how she can help you to “Divorce Your Spouse, Not Your Money™.”