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WHEN IS A 50/50 SPLIT NOT EQUAL?

By Lynn M. Vance, CFP

Despite the fact that the net worth of divorcing couples is often split "equally," by a judge, or by the couples and their attorneys themselves, the end result may be a situation where things are not so "equal" years down the road. The husband's financial situation often recovers, and improves, while the wife's situation many times begins a downhill slide into poverty.

The reason . . . Men continue to live on their (increasing) salaries, while women live on their assets, often depleting them well ahead of their later years. Many women have never worked, or have worked at low paying jobs, thereby reducing or eliminating any Social Security Benefits on their own record, or any pension benefits from a company.

Let's look at an example. Mary and Fred have been married for 20 years, and have been used to a standard of living that costs $60,000 per year. Mary works part-time, and earns $12,000 while Fred has a salary of $48,000. It would be almost impossible for Mary to cut her standard of living to $12,000 per years. Just imagine what her house payment, or rent would be. Speaking of houses, it is very likely that she would have received the house as part of the settlement. While it is nice to own the family home, where there is presumably some equity built up, that equity will not buy groceries every week, or pay the property taxes when due.

Unfortunately, judges and attorneys are not trained to project numbers into the future. What looks "equal" today, will probably not look "fair" 10 or 20 years from now. In many cases, all parties want an equitable distribution. The problem is determining what exactly that means, and what effect it will have on the lifetime financial security of both parties. Long-term projections must be made, using computer software to look at the current assets and liabilities, income needs, pension and 401(k) balances, and tax consequences of selling assets, before any divorce settlement is reached, or agreed to in writing.

The bottom line . . . it takes a team to make sure a divorce is settled in a fair and equitable manner: the attorney to interpret the law, protect your rights, and draft the necessary legal documents; the accountant to consider the tax considerations of various proposals; the certified financial planner to take the proposal and project the financial consequences for each party.

Posted on Saturday, February 24, 2007 at 01:57PM by Registered CommenterSite Administrator in | Comments Off

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