Dividing Assets: What Should Be Considered?
Many divorcing spouses give away their “fair-share” of a financial settlement by not knowing what the division of property includes and not understanding the present and future value of that property. Beware of a proposed settlement that is followed by a phrase such as: “It is a 50% – 50% settlement, of course; it is fair”. Know and understand the consequences of what you are agreeing to.
Marital property assets are considered to be anything that was acquired during the marriage and will be divided in the settlement. Your Certified Financial Divorce Analyst® CDFA™ will play an important role in the valuation of marital assets. A CDFA™ will analyze present value and potential for future appreciation. Primary marital assets include:
- Bank Accounts: Checking, Savings, CD’s (certificate of deposit)
- Retirement Accounts: IRA, Roth IRA, 401k, 403(b), 457, pension
- Family-owned business
- Investment accounts
- Stock Options
- Employer paid benefits
- Tax Refunds
- Homes and real estate
- Automobiles, motorcycles, motor homes, boats, airplanes…..
- Antiques and collections – jewelry, art, stamps, coins….
- Life Insurance cash values
- Frequent Flyer miles
Separate property owned before the marriage is not considered in the divorce. Inherited property that is acquired during the marriage, but never co-mingled with a spouse is also considered separate property and is not divided.
* Caution to any person considering filing a false declaration of assets. Falsifying or hiding assets may be cause for revisiting a divorce settlement agreement at a later date. It could be very costly.
Debt and Taxes
Debt and taxes are probably two of the most overlooked considerations when working out a settlement. If they originated during the marriage, they are a shared responsibility and will be divided between the spouses’ right along with the division of assets.
Marital debt most commonly falls into one of the following categories:
- Mortgage/real estate loans
- Credit cards/credit lines
- Vehicle loans
- Student loans
- Personal loans
- Legal settlements
- Liens on property
- Business debt
- Prior spousal support/child support
Tax considerations that may impact you:
- Tax filing status change
- Loss of some or all dependents
- Deductions both personal and business
- Payment or receipt of spousal support (alimony)
- Taxable event related to liquidation of an asset
- Unpaid taxes
Take time to research and discuss these debt and tax considerations with your Certified Financial Divorce Analyst® CDFA™. Insure that your financial settlement agreement addresses the items that apply to your divorce.
Child Support/Spousal Support (Alimony)
Child support is based on a variety of factors and can be different by state. In California and a number of other states, the legal system specifies guidelines for the courts to use in calculating child support payments. Factors used in the calculation include each parent’s net disposable income and the amount of time each parent will have custody of the child/children.
Income calculations include:
- Self-employment income
- Bonuses / Incentive plans
- Interest / Dividends
- Public assistance
- Pensions / Social Security
- Workers Comp
- Disability Insurance
- Unemployment Benefits
- Credits / Payments – rentals, lottery, royalties
Income Reductions include:
- Mandatory union dues
- Retirement contributions
- Health insurance
- Spousal support (alimony)
The state considers the total income less the total reductions to calculate the amount of child support to be paid. Child support can be paid by one spouse or divided proportionately between both spouses.
Spousal support is less common today than it was years ago when many households had only one wage earner. Today, many households have two working spouses. Spousal support is best negotiated between the divorcing spouses based on input from a financial planner. If spousal support is determined by the court, it is based primarily on ability to pay; length of marriage; level of education (an indicator of earning capability); and the ages of the dependent child/children. Another important consideration is that judges use a lot of discretion in deciding whether to grant spousal support.
Why is cash flow important? A good financial settlement plans for a reasonable influx and out-flow of cash to maintain a reasonable lifestyle. Will your proposed settlement afford you a regular cash flow to meet those needs? A Certified Financial Divorce Analyst® CDFA™ can work with you to initiate a lifestyle plan that demonstrates whether a proposed financial settlement will cover your cash flow needs. Together you determine your income and expenses and use that information to determine monthly and annual needs. Download our Lifestyle Planner to begin your plan.
Divorcing spouses usually don’t know or can’t agree on what is best for them and their family when it comes to dividing the marital assets/debt and planning for the future. They may rely on professionals to explain and interpret the information for them, but far too many people assume that their accountant or financial planner has the knowledge to advise them about divorce. These professionals may excel in their respective fields, but they have no specific training for the issues unique to divorce.
For financial questions and settlement options, the best person to consult with is a Certified Financial Divorce Analyst® (CDFA™) . CDFA’s™ are required to have at least three years prior financial experience and must also complete a rigorous training/testing program in divorce finances to become a Certified Financial Divorce Analyst®. A CDFA™ is a financial services specialist trained to educate and advise an individual or couple on the best options for a financial marital settlement agreement.