Mark was confused: his wife was demanding their co-op apartment in the divorce, and he felt -- deep in his heart -- that she should have it. His friends and coworkers were telling him it was a bad deal to trade-off paying her "alimony" and give her the apartment. And so was I. When Mark came in for our next appointment, I showed him my number one secret weapon in divorce -- and his new best friend: a calculator.
"When you break down the tax benefits to paying 'alimony' and look closely at avoiding capital gains in a sale of the home, you are losing," I told Mark. And so did the calculator. Once Mark and I factored in the costs of litigation (best case and worst case), and examined his investment and retirement accounts, he had a choice: would he give up $175k in exchange for a "quick" settlement? Finally, Mark saw the light and went to a CPA and a realtor to confirm our rough estimates.
Friends and family, and even lawyers, may give you all the advice in the world: from what they think, to what you want to hear. But math doesn't lie. The numbers will guide you when you cannot see beyond the emotions of your divorce. Enter the calculator. Most of us don't want to face the numbers, but in every case crunching the numbers is a pivotal part of reaching a settlement that is fair.
Take Jennie, for example, a client who was too emotionally invested in keeping the marital home. The Long Island house was her dream: a picket fence, wonderful neighbors and a delightful bakery within walking distance. Now that her investment banker husband made it clear he wanted to sell, Jennie clung even harder to the idea of "saving the house." She was even willing to trade alimony for the chance to buy-out her husband from his share of the house. "Let's just prevent the sale now and maybe I can buy him out in four years," she begged. Maybe.
So I gave Jennie some homework: look carefully at the best case and worst case numbers for alimony (and talk to her CPA about the tax consequences), then go talk to three banks about refinancing in four years (when she would need to finalize a buy out or face a sale). Could Jennie -- a stay-at-home-mom for 11 years -- qualify for a mortgage while waiving her right to alimony? Could she even pay the mortgage on just child support and the jobs she was finding for herself? Or was she trading alimony for a pipe-dream that would shatter four years later when the buy out couldn't happen?
Let's look at the numbers:
Jennie's Dream Deal:
- $220k (alimony waived)
+ $350k (half the house -- remainder in a mortgage)
- $15,000 (legal fees)
+ $220k (alimony total)
+ $350k (half the house)
- $6500 (legal fees)
$563,500 = Best Deal
Many times the numbers tell you what you don't want to hear: sell the house, split the retirement, and for heaven's sake just stop fighting about it in court! Jennie wasn't happy about the numbers or my advice to sell the house. We talked about her feelings that the house was stability for her and the kids -- even though that stability was really an illusion. But my advice was to accept the tides of change, because that may be a healthier lesson to teach the kids than stubbornly clinging to a piece of real estate.
If the numbers are telling you something you don't want to hear, try to look deeper at your feelings: why stay in a home filled with memories of a marriage gone bad? Why give up a fair deal that is financially better for you in the long run for a short term "win"? What is the real price of your "quick" settlement?
Maybe you feel like you over invested in the cost of your divorce and so you deserve to get what you want. After all, legal fees are a huge factor in your case. Still, if you approach your divorce with an eye on getting to the bottom of the numbers first, then your legal fees will be well spent. Talk to your lawyer about what it will take to get the financial disclosure you need to make an educated decision. And, look at the calculator: your lawyer bills hourly. Figuring out the numbers and providing you with an unemotional view of the landscape will only help you make the tough decisions in the end.
Has a calculator helped you in your divorce? Any tips on resolving conflicts between emotions versus finances? Discuss in the comments.
This blog was originally published at The Divorce Artist.