JOHN AND JANE MAKE A PLAN TO SEPARATE 50/50 TO BE FAIR
John and Jane own a home worth $265,000 with a net equity of $77,500. Their retirement savings total $165,500. John earns $90,000 a year and has a take-home pay of $68,760 a year. Jane, a homemaker, hopes to get a part-time job paying $12,000 a year. After the divorce, Jane and the children will live in the matrimonial home. She will also receive $44,000 of the retirement savings while John will receive the remaining $121,500, thus dividing the assets equally. John will pay Jane spousal support of $600 per month for five years and child support of $225 per month per child. He will also pay the children’s college costs, starting in four years. John’s expenses include living expenses, child support, spousal support and education costs. Jane's expenses include support of the children and are reduced when each child leaves home. Seems reasonable, and equal right? However, a detailed analysis creates the financial future illustrated below.
JOHN IN RED JANE IN BLUE
On the right we have the amount of money on hand, in the bank or in investments readily available.
NET WORTH: On the left we have the value of all assets including property, investments and cash savings. At age 51 Jane can not sustain herself (blue line in right graph drops below the ZERO line). This would also negate her net worth not shown on the left which would have plummeted at age 51 if she had to sell everything to manage.
SO WHAT DID JOHN AND JANE ACHIEVE BY HIRING US?
An alternative settlement could provide her with increased spousal support of $1,300 per month for 10 years –which would actually cost John $975 per month in after-tax dollars. Child Support Guidelines for two children is $1,345 per month for a payor with John’s income. Jane could also be provided an additional $24,300 from retirement savings. These changes in the original settlement would produce the results illustrated below.
will still have a surplus,
which he can add to his investments. If John stays on budget and
invests extra income, investments will grow to $1,350,000 and his
net worth will reach $1,608,000 by age 65 (total of almost 3 million).
The CDFA using proprietary software helped them find the best
combination to achieve their goals.
(for a video demo of this process see button below this text).
* Note this is a simple example, most portfolios contain more complicated considerations: impact of deductions on income, capital gains, pension evaluations, CPP splitting, separate vs marital property...
HERE ARE THE GRAPHIC RESULTS OF PLAN TWO