IAFP 2003 Considerations in Divorce

1. IAFP 2003Considerations in Divorce Akeela Davis, CFP, RFP, FDS, EPC

2. Questions about Divorce • Can I manage by myself? • How much will I pay in Child Support? • Will I be a bag lady? • Will it scar my kids?

3. Know Your Boundaries • Let the client know your boundaries!

4. What can an advisor do? • Be an information source • Have a list of books you can recommend • Have a list of referable counselors • Have a list of referable lawyers • Have a list of referable mediators

5. A Financial Divorce Specialist • Raise questions, give information • Emergency funds • Insurance • Tax consequences

6. A Financial Divorce Specialist • Raise questions, give information • Revoking existing POA • Preparing for separation • Credit rating

7. A Financial Divorce Specialist • Raise questions, give information • Financial statements • Demystify pensions • Establish tax discounting rates

8. Modeling • Abstract information • Visual model

9. The Family • Michelle Brady – 46 years • Frank Brady – 47 years • Married 20 years • Four children ages 14, 10, 5 and 4

10. Family Finances (Income) • Frank – Salary $67,000/yr • Frank – Dividends IRS $30,000/yr • Michelle – Salary $170,000/yr • Michelle – Dividends IRS $30,000/yr • Michelle – Dividends ABC $70,000/yr • Total Family Income $367,000/yr

11. Family Finances (Expenses) • Estimated Income Tax $114,000 • Michelle’s RRSP $14,500 • Accelerated Mortgage $74,500 • RESP $8,000 • General Living Expenses $146,500 • Total Family Expenses $357,000/yr

12. Family Assets (Joint) Value Liability Net Asset • Residence $650,000 $300,000 $350,000 • MM Fund $52,000 $0 $52,000 • IRS* $525,000$121,900$403,100 $805,100

13. Family Assets (Frank) Value Liability Net Asset • RRSP $63,000 $0 $63,000 • Pension $141,000 $0 $141,000 • Vehicle $15,000 $0 $15,000 • Boat $25,000$0 $25,000 $244,000

14. Family Assets (Michelle) Value Liability Net Asset • RRSP $181,000 $0 $181,000 • MM Fund $21,000 $0 $21,000 • IRS* $20,000$0 $20,000 $222,000

15. Exempt Assets? (Michelle) Value Liability Net Asset • Mutual Fund $175,000 $0 $175,000 • ABC* $1,600,000$127,700$1,600,000 $1,775,000

16. Proposition #1 • Frank • Shares in ABC growth since marriage • Gets cash buyout from both businesses • Keeps 100% pension • Gets open mutual funds for home equity • Child support payments = income only • Frank gets some of Michelle’s RRSP • MM split 50/50

17. Proposition #1 – Summary • Frank • Gets $939,847 in cash and RRSP • No debts • 100% of his pensions • Pays $16,776 tapering to $6,636 in child support • Lifestyle expenses = $62,000/year • Gross income = $67,000

18. Proposition #1 • Michelle • Keeps the children • Gets ABC ½ ABC growth since marriage • Keeps IRS • Takes out loans to buyout Frank ABC/IRS • Keeps home with mortgage • Gets child support payments • Keeps most of her RRSP • MM split 50/50

19. Proposition #1 – Summary • Michelle • $214,000 in cash and RRSP • Assets $2,775,000 - $941,000 debts, plus tax liability on businesses • Receives child support $16,776 - $6,636 • Debt repayments $104,868 annually • Lifestyle expenditures = $98,200 • Gross income +$300,000

20. Client Concerns and Fears

21. Client Concerns and Fears

22. Underlying Numbers

23. Underlying Information • Assumptions about • Interest rates • Tax rates • Inflation rates

24. Another Scenario

25. Another Scenario

26. Summary – Michelle’s Concerns • Impact on children?

27. Summary – Michelle’s Concerns • Can she make it on her own? • What would her retirement look like?