A simple marital estate looks like two people gainfully employed, who have a couple of children, own a home and have money in retirement accounts. On the surface this looks pretty straightforward. One might suggest all you need to do is figure out how to calculate child support, determine alimony requirements, if any, and allocate the assets in your marital estate while managing your tax ramifications. If all you do is go down this path you will likely find yourself in hot water. Why? There are more details you will have to address that are not always apparent on the surface. To make sure you don’t pay for something later in life, this process requires diligence.
Once you peel back the onion ever so slightly on this ‘simple’ situation and ask some relatively simple questions you find there is more under the surface that can impact the financial outcomes of your divorce.
Some of the more straight forward questions which have financial risk associated to them, and need to be included in your settlement structure, are:
- New housing costs – Who should move out of the home and when? Who will pay for extra housing costs and for how long?
- Future mortgage payments – When will the mortgage be paid off? Who contributes to the payoff of the mortgage? How is the mortgage structured? Is there a variable rate or fixed rate associated to the mortgage? What ramifications does this have on your divorce? How do you remove your spouse from the mortgage and related deed while preserving your current banking relationship? How do you handle a home equity line of credit?
- Retirement accounts – What type of retirement accounts do you have? Who has contributed to the retirement accounts over time? Who will continue to build the retirement accounts in the future? What is your tax basis in your retirement accounts? What happens if you need to draw on your retirement assets for medical purposes?
- Income differential – Do the parties make the same amount of income? Is one person more skilled than the other to generate income in the future? What will each party’s future income potential yield? Should one spouse’s skill set and position in the market have an impact on the settlement structure?
- Different credit scores – Did someone come into the marriage with a lower credit score? Were decisions made that influenced one person’s credit score during the marriage? How do you build in different credit profiles into your settlement structure? How will a different credit profile impact your future purchasing power?
- Hidden liabilities – Who bears the responsibility to replace the roof, the furnace, among other things that have not yet been repaired in the house? Do you have any hidden tax liabilities you are not aware of? How will you handle future college funding requirements? What about unplanned living expenses for your children after they graduate college?
- Deferred compensation – Does anyone have any stock options available? How much are those stock options worth in today’s dollars? What happens when those stock options are exercised? Should the stock options be included in the marital estate or not? Does either spouse have compensation that will be realized at a future point in time or built-in escalation clauses that could impact their future earnings stream that you could benefit from?
- Contractual obligations – What types of contracts have you signed in the past? What types of contracts do you still have to sign in the future? How do you incorporate the implications of prior agreements, that you may have been coerced to agree to during your marriage, into your settlement structure? What about constraints posed by future agreements with other parties?
The situation above represents a ‘simple divorce’. A simple divorce does not necessarily have to take any more time than a more complex divorce. You just have to make sure you are asking the right questions and incorporating your life’s issues into how you design your settlement. Divorces become more complex, yet can be managed, when:
- More stakeholders are involved
- Different types of investment properties exist
- One or more businesses exist with more than one owner
- Someone is suspected of hiding money
- Relations are highly strained
- Among other factors
About the Author
Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.
For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.
If You Have a Question
If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.
About Divorce Outcomes
Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:
- unfold, analyze and repackage their financial life so they are well positioned after their divorce
- preserve the value of their business or marital estate
- continuously strive to provide a return on our services
- build balanced financial solutions grounded in evidence
- find ways to make our client, and at times both parties, money through the process
- design their divorce to work for them and their family’s life
- provide mental clarity to make decisions
- reduce the total process time from start to close
- minimize the stress and unpleasant memories that can last a lifetime
As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.
This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.