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

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?

Know Your Boundaries Let the client know your boundaries!

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

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

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

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

Modeling Abstract information Visual model

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

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

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

Family Assets (Joint) ValueLiabilityNet Asset Residence $650,000$300,000$350,000 MM Fund $52,000 $0 $52,000 IRS* $525,000$121,900$403,100 $805,100

Family Assets (Frank) ValueLiabilityNet 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

Family Assets (Michelle) ValueLiabilityNet Asset RRSP $181,000$0$181,000 MM Fund $21,000$0 $21,000 IRS* $20,000$0 $20,000 $222,000

Exempt Assets? (Michelle) ValueLiabilityNet Asset Mutual Fund $175,000 $0$175,000 ABC* $1,600,000$127,700 $1,600,000 $1,775,000

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

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

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

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

Client Concerns and Fears

Underlying Numbers

Underlying Information Assumptions about Interest rates Tax rates Inflation rates

Another Scenario

Summary – Michelle’s Concerns Impact on children?

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