Attorneys and mediators are negotiating, and judges are approving, separation agreements and divorce settlements that may be unfair and inequitable. At first look these agreements appear to be very fair and equitable. It is taken for granted that in a marital break-up, with respect to finances, three basic things need to be considered: child support, alimony and the division of assets. For long-term marriages with children, a stay-at-home spouse and sufficient assets, a settlement may include child support, generous alimony and the marital home. The purpose of this article is to show that what appears fair and equitable at the time of divorce may actually be unfair and inequitable.
Divorce is a very difficult and emotional time for both the husband and the wife. Aside from custody issues, the most important issues in divorce are the financial decisions to be made. Attorneys for both the husband and the wife try to obtain the best results for their clients. Judges want to see agreements they find to be fair and equitable. To do this, lawyers and judges focus on the settlement at the time of divorce. I believe it is important to see how we look at the financial issues of a marital separation in an entirely different way - that is to consider the concept of value and wealth building.
The Merriam-Webster Dictionary defines wealth as "all property that has a money value or an exchangeable value b: all material objects that have economic utility; especially: the stock of useful goods having economic value in existence at any one time." In other words, the value of assets is the future income they may generate.
For example, I give one of my sons a Nintendo GameCube™ video game that cost $200 and I give my other son $200 in cash. I may have spent the same amount on each son, but I have not given them something of equal value. The Nintendo GameCube™ can be played and enjoyed; however, it depreciates over time. The cash, on the other hand, can be invested and grow in value: the cash has greater value than the Nintendo GameCube™. We use this concept in a divorce setting when we value a business or profit-sharing plan. The value determined is based on the future expected income, all valuations being a forecast of future income. This is why the stock markets fluctuate and individual securities or funds gain and lose value when income expectations change.
As we have all learned from the stock markets, value can be very different, depending on the date of valuation and the time frame we look at. In 1998, the total return for large company stocks was in excess of 28 percent. For 2001, the total return was minus 12 percent.1 Assets also vary in their income-earning capacity. Since 1926, the stock market has averaged an annual return of 13 percent; long-term U.S. treasury bills have averaged an annual return of 5.75 percent. The concepts of annual rates of return, the associated risks and the time frame considered are important factors in understanding how to build wealth. Assets also have different liquidity. Publicly traded stocks are more liquid than a $1 million house. The factors should be taken into account when we develop separation plans. Actually in divorce engagements, we already use these same concepts when we determine the income-earning capacity of an individual. We consider the age (time frame) and health (risk) of the wage earner as well as her annual income. When it comes time to divide the assets and negotiate child support and alimony agreements, too often we fail to consider the value, liquidity and wealth-building potential of the settlement.
The keystone to understanding value is understanding the concept of present value. In non-mathematical terms, present value means that a dollar today is worth more than a dollar one year from today. This assumes that money earns interest over time or that you continue paying or incurring debt. Let's take the $200 cash I gave my son. If he invests the money at 10 percent per year and allows the earnings to accumulate, at the end of 10 years he will have more than $500; however if I do not give him the $200 until 10 years from now, he will only have $200. Present value also is the value of a future stream of earnings. For example, I have a winning Megabucks™ ticket for $2 million to be paid in 20 yearly payments of $100,000; what is the equivalent cash value today if I want to sell the ticket? Assuming I can invest the annual payments at 10 percent, the answer is $850,000.
The concept of present value has many applications in negotiating a financial settlement. Paying a total of $500,000 in alimony in decreasing installments generally has more value to the recipient than receiving the payments in increasing installments (tax traps aside). Cash received from selling the marital home may have more value today then receiving the cash 5 years from now. On the other hand, it may be better to divide the actual proceeds of an unexercised stock option when the option is exercised and the stock sold, if we believe the stock will appreciate greatly in value. What is best needs to be determined case by case.
Another way to look at present value is future value. Future value is the inverse of present value - that is, if I receive an asset or earnings stream today, what will it be worth in the future? For example, if I receive $50,000 in a retirement plan and the earnings continue to earn 10 percent per year, in 10 years the plan will be worth $130,000. If I receive an asset worth $50,000 that is increasing in value at a rate of 5 percent per year, in 10 years it will be worth $81,000. The assets start with the same amount, but they do not have the same value due to the different rates of return. To equate the two assets in terms of future value, I would have to receive an asset valued at $80,000 appreciating at 5 percent per year, to have an asset worth $130,000 in 10 years. Equating assets based upon their future value is a radical departure from the way we currently look at the division of assets.
To understand how this can impact the evaluation of a proposed settlement, I am going to show several different scenarios to illustrate the points discussed above. The numbers used are for illustration purposes and are not intended to reflect an actual settlement. I have also made certain assumptions to simplify the examples. First, the earnings on investments and retirement plans are assumed to be reinvested. Second, the husband will first invest his excess cash flow in a retirement plan (up to 15 percent of his salary) and then in marketable securities. Though I focus on the husband as the primary wage earner; this could be either the husband or the wife. I have also assumed that there are two young children in the marriage and that the non-primary wage earner will be the custodial parent.
Example: Wife keeps home
The first example (Table 1) is what looks to be a very fair agreement, with the wife (custodial parent) keeping the marital home. In this settlement, the wife receives the marital home with equity of $75,000 and the husband receives his investment and retirement accounts. The wife receives $17,000 in alimony and $15,600 in child support in addition to part-time employment income. From this she pays the mortgage and housekeeping expenses and other costs of living.
Chart 1 shows the differences in the increase in wealth over a 10-year period. As can be seen, at the end of 10 years the husband's accumulated wealth is almost $200,000 higher than the wife's. The differential is getting greater at a more rapid rate.
Table 2 shows the flow of income by year. The difference between the husband's growth in wealth and the wife's is that the marital home gains value more slowly than the husband's investments and retirement plan. From this table, we can see that the husband's wealth grows more quickly due to the costs of owning the home and because the investments and retirement plan have a greater annual return than does the marital home. Nationally, the value of a home for the period 1985-2001 has increased 4.5 percent per year and in New England at 5.3 percent per year.2 For the same period the stock market has increased 8 percent-10 percent. The growth in the value of the home shown above is a combination of increasing equity resulting from continuing mortgage payments and the increase in value at 4.5 percent per year. For the last four years, growth in the value of homes in New England has outpaced returns from the stock market; however, it would be wrong to look at the last four or five year New England growth rate in home values as this is too short a period to draw long-term conclusions from. We tend to take for granted that keeping the marital home is best; however doing so may leave the custodial parent and mother financially strapped and unable to provide for her retirement.
Example: Husband, wife split assets
The next example assumes the same facts as above, but in this case the marital home is sold at the time of divorce with the proceeds from the sale, the husband's investments, and the husband's retirement plan being divided equally (Table 3).
As Chart 2 shows, the increase in wealth is now much more equitable. Those comfortable reading charts will notice that the total wealth of the husband and wife is less than in the first scenario. In this scenario, there are children who will be attending college in 10 or so years. It is better for the wife to keep the marital home and have the husband pay most of the college expenses.
Example: House has higher value
Now let us look at a case where the marital home is substantially higher in value and the husband earns more money. The home has a higher value of $500,000 with equity of $75,000 and accordingly a higher mortgage payment (Table 5). The husband's income is also much higher, as is alimony. Chart 3 shows the differential is now more than 2 1/4 times greater for the husband than the wife. This time, a substantial part of the discrepancy is the husband's cash flow available for investing.
Example: Wife keeps home, receives assets
For the last scenario, instead of selling the house, the wife will keep the marital home and receive additional assets from the husband. In addition to keeping the marital home, she will receive 50 percent of the investments and 50 percent of the retirement plan (Table 7).
These assets accumulate value at a faster rate than the marital home increases in value; the wife's net worth in 10 years increases by more than 100 percent over the first scenario. Chart 4 shows this very dramatically. Table 8 shows how the growth in wealth flows.
End notes
1. Stocks, Bonds, Bills, & Inflation, Valuation Edition, 2002 Yearbook, Ibbotson Associates, for this an the following facts stated in this paragraph.[back]
2. Office of Federal Housing Enterprise Oversight, OFHEO indexes: 2001 Q4, U.S. Combined and Census Division Indexes - (1980 Q1=100). Downloaded from http://www.ofheo.gov/house/hpi_frame.html, 5/10/2002.[back]
| Table 1 [Back] |
| Status before and after divorce |
| Wife keeps home |
| |
|
before divorce |
wife |
husband |
| Marital estate |
| |
marital home |
250,000 |
250,000 |
|
| |
mortgage |
-175,000 |
-175,000 |
|
| |
investments |
50,000 |
|
50,000 |
| |
retirement plan |
25,000 |
|
25,000 |
| |
Total at settlement |
150,000 |
75,000 |
75,000 |
| Income |
| |
wages |
|
15000 |
81500 |
| |
alimony ($298/week) |
15500 |
-15500 |
| |
child support |
|
15600 |
|
| |
Total income |
|
46100 |
66000 |
| Expenses |
| |
income taxes |
|
-2,400 |
-13,100 |
| |
child support |
|
-15,600 |
|
| |
mortgage |
|
-13,800 |
|
| |
home expenses |
-11,100 |
|
| |
rent |
|
-24,000 |
|
| |
living exenses |
-18,200 |
-12,000 |
| |
Total expenses |
-45,500 |
-64,700 |
| |
Available for savings |
600 |
1,300 |
| Table 2 [Back] |
| Growth in wealth • Wife keeps house |
| Assumptions: after-tax appreciation on investments: 7% pretax appreciation on investments: 10% |
| Husband's net worth |
|
year |
take home (3.5% inc) |
child support |
rent (2.5% inc) |
living expenses (2.5% inc) |
net overag'e |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net worth |
|
|
| |
0 |
52,900 |
|
-15,000 |
-12,000 |
25,000 |
50,000 |
25,000 |
50,000 |
0 |
75,000 |
|
|
| |
1 |
54,800 |
-15,600 |
-15,400 |
-12,300 |
11,500 |
8,200 |
3,300 |
36,100 |
58,500 |
94,600 |
|
|
| |
2 |
56,700 |
-15,600 |
-15,800 |
-12,600 |
12,700 |
8,500 |
4,200 |
48,600 |
68,800 |
117,400 |
|
|
| |
3 |
58,700 |
-15,600 |
-16,200 |
-12,900 |
14,000 |
8,800 |
5,200 |
62,700 |
81,100 |
143,800 |
|
|
| |
4 |
60,800 |
-15,600 |
-16,600 |
-13,200 |
15,400 |
9,100 |
6,300 |
78,500 |
95,800 |
174,300 |
|
|
| |
5 |
62,900 |
-15,600 |
-17,000 |
-13,500 |
16,800 |
9,400 |
7,400 |
96,200 |
113,200 |
209,400 |
|
|
| |
6 |
65,100 |
-15,600 |
-17,400 |
-13,800 |
18,300 |
9,800 |
8,500 |
116,100 |
133,400 |
249,500 |
|
|
| |
7 |
67,400 |
-15,600 |
-17,800 |
-14,100 |
19,900 |
10,100 |
9,800 |
138,300 |
157,000 |
295,300 |
|
|
| |
8 |
69,800 |
-15,600 |
-18,200 |
-14,500 |
21,500 |
10,500 |
11,000 |
163,200 |
184,300 |
347,500 |
|
|
| |
9 |
72,200 |
-15,600 |
-18,700 |
-14,900 |
23,000 |
10,800 |
12,200 |
190,900 |
215,500 |
406,400 |
|
|
| |
10 |
74,700 |
-15,600 |
-19,200 |
-15,300 |
24,600 |
11,200 |
13,400 |
221,800 |
251,100 |
472,900 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wife's net worth |
|
Year |
take home (3.5% inc) |
child support |
mortgage |
home expenses (4.5% inc) |
living expenses (2.5% inc) |
net overage (underage) |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net home |
worth |
| |
0 |
28,100 |
|
-175,000 |
|
|
|
|
|
- |
- |
75,000 |
75,000 |
| |
1 |
29,100 |
15,600 |
-13,800 |
-11,600 |
-18,700 |
600 |
|
600 |
- |
600 |
90,400 |
91,000 |
| |
2 |
30,100 |
15,600 |
-13,800 |
-12,100 |
-19,200 |
600 |
|
600 |
- |
1,300 |
106,600 |
107,900 |
| |
3 |
31,200 |
15,600 |
-13,800 |
-12,600 |
-19,700 |
700 |
|
700 |
- |
2,200 |
123,600 |
125,800 |
| |
4 |
32,300 |
15,600 |
-13,800 |
-13,200 |
-20,200 |
700 |
|
700 |
- |
3,200 |
141,500 |
144,700 |
| |
5 |
33,400 |
15,600 |
-13,800 |
-13,800 |
-20,700 |
700 |
|
700 |
- |
4,300 |
160,400 |
164,700 |
| |
6 |
34,600 |
15,600 |
-13,800 |
-14,400 |
-21,200 |
800 |
|
800 |
- |
5,600 |
180,500 |
186,100 |
| |
7 |
35,800 |
15,600 |
-13,800 |
-15,000 |
-21,700 |
900 |
|
900 |
- |
7,100 |
201,600 |
208,700 |
| |
8 |
37,100 |
15,600 |
-13,800 |
-15,700 |
-22,200 |
1,000 |
|
1,000 |
- |
8,900 |
223,900 |
232,800 |
| |
9 |
38,400 |
15,600 |
-13,800 |
-16,400 |
-22,800 |
1,000 |
|
1,000 |
- |
10,800 |
247,500 |
258,300 |
| |
10 |
39,700 |
15,600 |
-13,800 |
-17,100 |
-23,400 |
1,000 |
|
1,000 |
- |
12,900 |
272,400 |
285,300 |
| Table 3 [Back] |
| Status before and after divorce |
| Home is sold |
| |
|
before divorce |
wife |
husband |
| Marital estate |
|
250,000 |
|
|
| |
marital home |
-175,000 |
37,500 |
37,500 |
| |
mortgage |
|
|
|
| |
investments |
50,000 |
25,000 |
25,000 |
| |
retirement plan |
25,000 |
12,500 |
12,500 |
| |
Total at settlement |
150,000 |
75,000 |
75,000 |
| |
| Income |
| |
wages |
|
15,000 |
81,500 |
| |
alimony ($298 per week) |
15,500 |
-15,500 |
| |
child support |
|
15,600 |
|
| |
Total income |
|
46,100 |
66,000 |
| |
| Expenses |
| |
income taxes |
|
-3,500 |
-13,100 |
| |
child support |
|
|
-15,600 |
| |
mortgage |
|
|
|
| |
home expenses |
|
|
| |
rent |
|
-24,000 |
-24,000 |
| |
living exenses |
-18,200 |
-12,000 |
| |
Total expenses |
-45,700 |
-64,700 |
| |
Available for savings |
400 |
1,300 |
| Table 4 [Back] |
| Growth in wealth • Wife keeps house |
| Assumptions: after-tax appreciation on investments: 7% pretax appreciation on investments:10% |
|
| Husband's net worth |
| |
year |
take home (3.5% inc) |
child support |
rent (2.5% inc) |
living expenses (2.5% inc) |
net overage |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net worth |
| |
0 |
52,900 |
|
-24,000 |
-12,000 |
|
12,500 |
62,500 |
12,500 |
62,500 |
75,000 |
| |
1 |
54,800 |
-15,600 |
-24,600 |
-12,300 |
2,300 |
2,300 |
- |
16,200 |
68,800 |
85,000 |
| |
2 |
56,700 |
-15,600 |
-25,200 |
-12,600 |
3,300 |
3,300 |
- |
21,300 |
75,700 |
97,000 |
| |
3 |
58,700 |
-15,600 |
-25,800 |
-12,900 |
4,400 |
4,400 |
- |
28,100 |
83,300 |
111,400 |
| |
4 |
60,800 |
-15,600 |
-26,400 |
-13,200 |
5,600 |
5,600 |
- |
36,800 |
91,600 |
128,400 |
| |
5 |
62,900 |
-15,600 |
-27,100 |
-13,500 |
6,700 |
6,700 |
- |
47,500 |
100,800 |
148,300 |
| |
6 |
65,100 |
-15,600 |
-27,800 |
-13,800 |
7,900 |
7,900 |
- |
60,500 |
110,900 |
171,400 |
| |
7 |
67,400 |
-15,600 |
-28,500 |
-14,100 |
9,200 |
9,200 |
- |
76,200 |
122,000 |
198,200 |
| |
8 |
69,800 |
-15,600 |
-29,200 |
-14,500 |
10,500 |
10,500 |
- |
94,800 |
134,200 |
229,000 |
| |
9 |
72,200 |
-15,600 |
-29,900 |
-14,900 |
11,800 |
10,800 |
1,000 |
115,600 |
148,700 |
264,300 |
| |
10 |
74,700 |
-15,600 |
-30,600 |
-15,300 |
13,200 |
11,200 |
2,000 |
138,900 |
165,700 |
304,600 |
| |
| Wife's net worth |
| |
year |
take home (3.5% inc) |
child support |
rent (2.5% inc) |
living expenses (2.5% inc) |
net overage |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net worth |
| |
0 |
27,000 |
|
|
|
|
12,500 |
62,500 |
12,500 |
62,500 |
75,000 |
| |
1 |
27,900 |
15,600 |
-20,000 |
-18,700 |
|
- |
- |
13,800 |
68,800 |
82,600 |
| |
2 |
28,900 |
15,600 |
-20,500 |
-19,200 |
4,800 |
|
4,800 |
15,200 |
80,700 |
95,900 |
| |
3 |
29,900 |
15,600 |
-21,000 |
-19,700 |
4,800 |
|
4,800 |
16,700 |
93,800 |
110,500 |
| |
4 |
30,900 |
15,600 |
-21,500 |
-20,200 |
4,800 |
|
4,800 |
18,400 |
108,200 |
126,600 |
| |
5 |
32,000 |
15,600 |
-22,000 |
-20,700 |
4,900 |
|
4,900 |
20,200 |
124,200 |
144,400 |
| |
6 |
33,100 |
15,600 |
-22,600 |
-21,200 |
4,900 |
|
4,900 |
22,200 |
141,800 |
164,000 |
| |
7 |
34,300 |
15,600 |
-23,200 |
-21,700 |
5,000 |
|
5,000 |
24,400 |
161,200 |
185,600 |
| |
8 |
35,500 |
15,600 |
-23,800 |
-22,200 |
5,100 |
|
5,100 |
26,800 |
182,700 |
209,500 |
| |
9 |
36,700 |
15,600 |
-24,400 |
-22,800 |
5,100 |
|
5,100 |
29,500 |
206,300 |
235,800 |
| |
10 |
38,000 |
15,600 |
-25,000 |
-23,400 |
5,200 |
|
5,200 |
32,500 |
232,400 |
264,900 |
| Table 5 [Back] |
| Status before and after divorce |
| Wife keeps home |
| |
|
before divorce |
wife |
husband |
| Marital estate |
| |
marital home |
500,000 |
500,000 |
|
| |
mortgage |
-425,000 |
-425,000 |
|
| |
investments |
100,000 |
42,000 |
58,000 |
| |
retirement plan |
59,000 |
|
59,000 |
| |
Total at settlement |
234,000 |
117,000 |
117,000 |
| Income |
| |
wages |
|
23,800 |
150,000 |
| |
alimony ($700 per week) |
36,400 |
-36,400 |
| |
child support |
|
15,600 |
|
| |
Total income |
|
75,800 |
113,600 |
| Expenses |
| |
income taxes |
|
-5,300 |
-28,300 |
| |
child support |
|
-15,600 |
|
| |
mortgage |
|
-35,000 |
|
| |
home expenses |
-11,100 |
|
| |
rent |
|
-30,000 |
|
| |
living exenses |
-24,000 |
-12,000 |
| |
Total expenses |
-75,400 |
-85,900 |
| |
Available for savings |
400 |
27,700 |
| Table 6 [Back] |
| Growth in wealth • Wife keeps house |
| assumptions: after-tax appreciation on investments: 7% pretax appreciation on investments: 10% |
| Husband's net worth |
| |
year |
take home (3.5% inc) |
child support |
rent (2.5% inc) |
living expenses (2.5% inc) |
net overage |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net worth |
|
| |
0 |
85,300 |
|
-30,000 |
-12,000 |
|
59,000 |
58,000 |
59,000 |
58,000 |
117,000 |
|
| |
1 |
88,300 |
-15,600 |
-30,800 |
-12,300 |
29,600 |
13,200 |
16,400 |
78,800 |
81,000 |
159,800 |
|
| |
2 |
91,400 |
-15,600 |
-31,600 |
-12,600 |
31,600 |
13,700 |
17,900 |
101,100 |
107,900 |
209,000 |
|
| |
3 |
94,600 |
-15,600 |
-32,400 |
-12,900 |
33,700 |
14,200 |
19,500 |
126,100 |
139,200 |
265,300 |
|
| |
4 |
97,900 |
-15,600 |
-33,200 |
-13,200 |
35,900 |
14,700 |
21,200 |
154,100 |
175,400 |
329,500 |
|
| |
5 |
101,300 |
-15,600 |
-34,000 |
-13,500 |
38,200 |
15,200 |
23,000 |
185,500 |
217,100 |
402,600 |
|
| |
6 |
104,800 |
-15,600 |
-34,900 |
-13,800 |
40,500 |
15,700 |
24,800 |
220,500 |
264,900 |
485,400 |
|
| |
7 |
108,500 |
-15,600 |
-35,800 |
-14,100 |
43,000 |
16,300 |
26,700 |
259,700 |
319,400 |
579,100 |
|
| |
8 |
112,300 |
-15,600 |
-36,700 |
-14,500 |
45,500 |
16,800 |
28,700 |
303,300 |
381,500 |
684,800 |
|
| |
9 |
116,200 |
-15,600 |
-37,600 |
-14,900 |
48,100 |
17,400 |
30,700 |
351,900 |
451,900 |
803,800 |
|
| |
10 |
120,300 |
-15,600 |
-38,500 |
-15,300 |
50,900 |
18,000 |
32,900 |
406,000 |
531,600 |
937,600 |
|
| Wife's net worth |
| Year |
take home (3.5% inc) |
child support |
mortgage |
home expenses (4.5% inc) |
living expenses (2.5% inc) |
net overage (underage) |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
home |
net worth |
| 0 |
28,100 |
|
-425,000 |
|
|
|
|
42,000 |
|
42,000 |
75,000 |
117,000 |
| 1 |
29,100 |
15,600 |
-35,000 |
-11,600 |
-24,600 |
-26,500 |
|
|
|
46,200 |
90,400 |
136,600 |
| 2 |
30,100 |
15,600 |
-35,000 |
-12,100 |
-25,200 |
-26,600 |
|
|
|
50,800 |
106,600 |
157,400 |
| 3 |
31,200 |
15,600 |
-35,000 |
-12,600 |
-25,800 |
-26,600 |
|
|
|
55,900 |
123,600 |
179,500 |
| 4 |
32,300 |
15,600 |
-35,000 |
-13,200 |
-26,400 |
-26,700 |
|
|
|
61,500 |
141,500 |
203,000 |
| 5 |
33,400 |
15,600 |
-35,000 |
-13,800 |
-27,100 |
-26,900 |
|
|
|
67,700 |
160,400 |
228,100 |
| 6 |
34,600 |
15,600 |
-35,000 |
-14,400 |
-27,800 |
-27,000 |
|
|
|
74,500 |
180,500 |
255,000 |
| 7 |
35,800 |
15,600 |
-35,000 |
-15,000 |
-28,500 |
-27,100 |
|
|
|
82,000 |
201,600 |
283,600 |
| 8 |
37,100 |
15,600 |
-35,000 |
-15,700 |
-29,200 |
-27,200 |
|
|
|
90,200 |
223,900 |
314,100 |
| 9 |
38,400 |
15,600 |
-35,000 |
-16,400 |
-29,900 |
-27,300 |
|
|
|
99,200 |
247,500 |
346,700 |
| 10 |
39,700 |
15,600 |
-35,000 |
-17,100 |
-30,600 |
-27,400 |
|
|
|
109,100 |
272,400 |
381,500 |
| Table 7 [Back] |
| Status before and after divorce |
| Wife sells home & uneven division of assets |
| |
|
before divorce |
wife |
husband |
| Marital estate |
| |
marital home |
500,000 |
500,000 |
|
| |
mortgage |
-425,000 |
-425,000 |
|
| |
investments |
100,000 |
50,000 |
50,000 |
| |
retirement plan |
59,000 |
29,500 |
29,500 |
| |
Total at settlement |
234,000 |
154,500 |
79,500 |
| Income |
| |
wages |
|
23,800 |
150,000 |
| |
alimony ($700 per week) |
36,400 |
-36,400 |
| |
child support |
|
15,600 |
|
| |
Total income |
|
75,800 |
113,600 |
| Expenses |
| |
income taxes |
|
-5,300 |
-28,300 |
| |
child support |
|
|
-15,600 |
| |
mortgage |
|
-35,000 |
|
| |
home expenses |
-11,100 |
|
| |
rent |
|
|
-30,000 |
| |
living exenses |
-24,000 |
-12,000 |
| |
Total expenses |
-75,400 |
-85,900 |
| |
Available for savings |
400 |
27,700 |
| Table 8 [Back] |
| Growth in wealth • Wife keeps house & receives additional assets |
| assumptions: after-tax appreciation on investments: 7% pretax appreciation on investments: 10% |
| Husband's net worth |
| |
year |
take home (3.5% inc) |
child support |
rent (2.5% inc) |
living expenses (2.5% inc) |
net overage |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
net worth |
|
| |
0 |
85,300 |
|
-30,000 |
-12,000 |
|
59,000 |
58,000 |
59,000 |
58,000 |
117,000 |
|
| |
1 |
88,300 |
-15,600 |
-30,800 |
-12,300 |
29,600 |
13,200 |
16,400 |
78,800 |
81,000 |
159,800 |
|
| |
2 |
91,400 |
-15,600 |
-31,600 |
-12,600 |
31,600 |
13,700 |
17,900 |
101,100 |
107,900 |
209,000 |
|
| |
3 |
94,600 |
-15,600 |
-32,400 |
-12,900 |
33,700 |
14,200 |
19,500 |
126,100 |
139,200 |
265,300 |
|
| |
4 |
97,900 |
-15,600 |
-33,200 |
-13,200 |
35,900 |
14,700 |
21,200 |
154,100 |
175,400 |
329,500 |
|
| |
5 |
101,300 |
-15,600 |
-34,000 |
-13,500 |
38,200 |
15,200 |
23,000 |
185,500 |
217,100 |
402,600 |
|
| |
6 |
104,800 |
-15,600 |
-34,900 |
-13,800 |
40,500 |
15,700 |
24,800 |
220,500 |
264,900 |
485,400 |
|
| |
7 |
108,500 |
-15,600 |
-35,800 |
-14,100 |
43,000 |
16,300 |
26,700 |
259,700 |
319,400 |
579,100 |
|
| |
8 |
112,300 |
-15,600 |
-36,700 |
-14,500 |
45,500 |
16,800 |
28,700 |
303,300 |
381,500 |
684,800 |
|
| |
9 |
116,200 |
-15,600 |
-37,600 |
-14,900 |
48,100 |
17,400 |
30,700 |
351,900 |
451,900 |
803,800 |
|
| |
10 |
120,300 |
-15,600 |
-38,500 |
-15,300 |
50,900 |
18,000 |
32,900 |
406,000 |
531,600 |
937,600 |
|
| Wife's net worth |
| year |
take home (3.5% inc) |
child support |
mortgage |
home expenses (4.5% inc) |
living expenses (2.5% inc) |
net overage (underage) |
amount to retirement |
amount to savings |
cumulative retirement |
cumulative savings |
home |
net worth |
| 0 |
54,900 |
|
-425,000 |
|
|
|
50,000 |
29,500 |
50,000 |
29,500 |
75,000 |
154,500 |
| 1 |
56,800 |
15,600 |
-35,000 |
-11,600 |
-24,600 |
1,200 |
|
1,200 |
55,000 |
33,700 |
106,500 |
195,200 |
| 2 |
58,800 |
15,600 |
-35,000 |
-12,100 |
-25,200 |
2,100 |
|
2,100 |
60,500 |
39,300 |
139,700 |
239,500 |
| 3 |
60,900 |
15,600 |
-35,000 |
-12,600 |
-25,800 |
3,100 |
|
3,100 |
66,600 |
46,500 |
174,800 |
287,900 |
| 4 |
63,000 |
15,600 |
-35,000 |
-13,200 |
-26,400 |
4,000 |
|
4,000 |
73,300 |
55,400 |
212,000 |
340,700 |
| 5 |
65,200 |
15,600 |
-35,000 |
-13,800 |
-27,100 |
4,900 |
|
4,900 |
80,600 |
66,100 |
251,100 |
397,800 |
| 6 |
67,500 |
15,600 |
-35,000 |
-14,400 |
-27,800 |
5,900 |
|
5,900 |
88,700 |
78,900 |
292,400 |
460,000 |
| 7 |
69,900 |
15,600 |
-35,000 |
-15,000 |
-28,500 |
7,000 |
|
7,000 |
97,600 |
94,100 |
336,000 |
527,700 |
| 8 |
72,300 |
15,600 |
-35,000 |
-15,700 |
-29,200 |
8,000 |
|
8,000 |
107,400 |
111,900 |
382,100 |
601,400 |
| 9 |
74,800 |
15,600 |
-35,000 |
-16,400 |
-29,900 |
9,100 |
|
9,100 |
118,100 |
132,600 |
430,600 |
681,300 |
| 10 |
77,400 |
15,600 |
-35,000 |
-17,100 |
-30,600 |
10,300 |
|
10,300 |
129,900 |
156,700 |
482,000 |
768,600 |
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