Most divorcing spouses start out thinking they want a fair divorce settlement. Attorneys prefer to call it an “equitable” divorce settlement. Couples typically say, “I just want a fair and equal division of our marital assets.” Now, this sounds reasonable enough, but what divorcing couples don’t realize is that there are numerous hurdles to jump in order to reach that goal. For example, they may require specialized financial and legal advice to achieve this.
Fully grasping the landscape and complexity of each couple’s finances can be a real challenge. There’s usually more to this than meets the eye initially. And what you don’t know about divorce law and finances can hurt you for many years to come. However, engaging a certified divorce financial analyst with specialized training and experience can really help couples secure equitable settlements.
For example, determining a couple’s separate and community property, and developing a complete list of debts and assets may entail specialized research, deeper analysis and then, evaluation. So, just getting to a true bottom line can be arduous.
Also, if there is a family business in the mix, the value of that business may have to be determined by an appraisal, if the company is an on-going business that isn’t only based solely on the owner’s expertise. Real estate and valuable collections, or art are usually appraised to determine its value. However, other assets such as household goods and vehicles are rarely appraised.
In addition, if one spouse is a highly paid corporate executive with a unique compensation structure that includes bonuses, deferred compensation, stock options, restricted stock options, Supplemental Executive Retirement Plan, etc., all of this must be valued and factored into the settlement, including prorating separate and community interest in future vestings.
Then there are the myths and misconceptions surrounding what couples believe to be an “equitable” divorce settlement. For example, many believe it’s simply a matter of dividing everything 50-50 and calling it a day. Well, there’s nothing in the Texas Family code that prescribes this formula in dividing assets in a divorce. If your case is one of the few that goes to court, these laws can be somewhat fuzzy.
Another factor to consider is all marital assets are not created equal. A dollar of equity in a home is not the same as a dollar invested in a 401(k). Maintenance and repair costs and the expense of property taxes and utilities all require a homeowner with enough income to afford to live there. A retirement account just sits there and typically appreciates until its owner is ready to retire. However, the equity in the home is tax-free, while the retirement account is fully taxable. So, how the assets and debts are divided is crucial to an equitable settlement.
If a couple includes one major bread winner and one spouse who is not employed but has stayed home to raise the children, manage the household and support the other spouse’s professional goals, a divorce settlement will likely include compensation in the form of a disproportionate share of the assets, or contractual alimony to support the non-working spouse, or help him or her to get post-divorce job training.
As described, the process of divorce in today’s complex financial landscape requires a great deal more than simple math. Besides having competent legal assistance, having the guidance of an experienced financial guide with specific knowledge of divorce law can be invaluable in securing a truly equitable divorce settlement.
Patricia Barrett will be presenting at upcoming Guide to Good Divorce seminars on Feb. 27, May 21, July 23, 2016, and Sept. 24, 2016, and at Leisure Learning Unlimited on Mar. 28, 2016. For more information, visit Patricia’s website, Lifetime Planning.
This article is designed to provide readers with a general overview of the issues discussed and is not a substitute for legal or financial representation.