You can often come out of a divorce with a much fairer settlement by approaching the whole thing with a cool head and the help of a financial adviser.
This is especially important when there’s an imbalance in the incomes of the two spouses. You and your spouse eventually have to agree to what sort of living standard — or buying power — each of you should have after the divorce is over.
When you go into negotiations, remember that if you and your spouse don’t take control of the situation and agree on the terms of your divorce, a judge will eventually do it for you. That may leave you both less satisfied than you would be if you can agree on something together.
When the marriage has been several decades long and one spouse has stayed home to take care of the home and children while the other spouse works, it may only be fair to end up with an equal living standard going forward.
When the marriage is of a shorter duration, the living standards may end up being somewhat different — which may still be fair, especially if both can expect a comfortable, if not extravagant, lifestyle.
Once you both agree on the living standard differential you can accept –whether it’s none or somewhat higher — figuring out the mechanics of how that will work often requires a hard look and an economist to figure out some important issues:
— The taxes that each spouse will pay. One spouse may be in a significantly higher tax bracket, so 20 percent of his or her gross income paid out as alimony could be a bigger bite in real life than it sounds like on paper.
— Life expectancy issues. If one spouse is significantly younger or in better health than the other, the longer life expectancy may need to figure into financial plans.
— The real-dollar value of other agreements. For example, the wealthier spouse may agree to pay off the house the less-wealthy spouse is living in and turn it over, removing one major expense and simultaneously providing an means of growing wealth.
When dealing with a high-asset divorce, it’s important to rely on things like economic software and financial advisers before coming to any final agreement. Talk the issue over with your attorney in order to help make negotiations go more smoothly.
Source: Waco Tribune-Herald, “Use economic research to call a truce in divorce wars,” Laurence Kotlikoff, March 27, 2017