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Case
Study
John & Jane Case Study
Let’s look at an example on how it all fits in. John and Jane are 40 years old and
have two children. They own a home worth $365,000 in value and John earns $190,000
a year and has take-
The following settlement has been suggested. After the divorce, Jane and the children will live in the marital home, which will be deeded to her. She will also receive $35,000 of the retirement money and John $400,000, thus dividing the assets equally. John will pay Jane spousal support of $4,250 per month for five years and child support of $350 per month per child. He will also pay college costs, which start in four years.
John’s expenses include his normal living expenses, child support, spousal support, and college costs. Jane’s expenses include support for the children and are reduced when each leaves home.
This appears to be a reasonably fair settlement. However, an analysis creates the financial future illustrated in Graph #1. Jane’s assets will be completely depleted within seven years while John’s investments will grow dramatically. The reason is that, soon after the divorce is final, she will need to tap into her assets to make ends meet. An experienced CDFA™ could have anticipated this problem and suggested an alternative settlement that would work for both of them.
To improve Jane’s financial future, the settlement could provide her with increased spousal support of $6,500 per month for ten years instead of $4,250 for five years. After all, a major consideration for determining spousal support is the need of one spouse and the other’s ability to pay. Both numbers are a result of income minus expenses. The correct child support according to the Child Support Guidelines in their state is, $600 per month for each child for a couple with their income. Jane also could be awarded an additional $25,000 from the retirement plan. She may also have to cut her expenses by 10%. These changes in the original settlement will produce the result illustrated in Graph #2. John will still have a surplus, which he can add to his investments each month. If John stays within his budget he may have a nice retirement nest egg by the time he is age 60.
This sample case illustrates the value of preparation as a means of reaching a more financially equitable divorce settlement. If the court’s intent is to treat both parties in a divorce as equitably as possible, it is essential to analyze the marriage as if it were a financial contract, with tangible investment into it by both parties. Without preparation, though, they wouldn’t have been able to argue for more spousal support or and even split of assets.
