Does a 50/50 Split of Marital Assets make a Divorce Settlement agreement equitable?
By: Steven Bryant CDFA® and founder of Synergy Divorce Solutions
When entering into the divorce process, it is commonly believed that each spouse will receive half of the marital assets & liabilities, a 50/50 split and go their separate ways. Each spouse receiving an equal share of all marital property would make the divorce settlement agreement equitable, right? Actually, depending on what state the divorce takes place in, a 50/50 split of marital property is not always what makes a settlement agreement equitable.
Most states across the country have now become Equitable Distribution States, meaning that a 50/50 split of marital property does not always make a settlement agreement equitable! Sure, most of the time the division of property ends up along the lines of an equal split, but all financial factors must be considered before coming to an equitable agreement. This may include both spouse’s income, contributions to the marital property, each spouse’s budget, current debt, etc.
There are many different ways to make a divorce settlement agreement equitable rather than a 50/50 split of marital property. In order to come to an equitable agreement, both spouse’s budgets should be very highly considered seeing as the budget is what you have to financially plan for moving forward after the divorce. By knowing the spouse’s monthly income levels and budgets, you are able to show necessity for support and the ability to support in each case. There are obviously situations where the spouses make about the same income, so in that case it would be more about how the marital assets & liabilities are divided to make the agreement equitable. But in cases where one spouse makes significantly more than the other, knowing each spouse’s monthly budgets will be the key factor to coming to an equitable agreement.
For example, say it is a case where one spouse makes much more money than the other. In this case, the income earner will most likely have the ability to support, while the non-income earner will have necessity for support. How do we know how much support the non-income earner will need? This all revolves around income levels and budget. By taking the income earner’s monthly income and subtracting their budget as well as taxes, you will be able to show the ability to support (if financially feasible). Then by taking the non-income earner’s monthly income and subtracting their budget as well as taxes, you will be able to see the necessity for support.
Once both of these factors are known, it makes coming to an equitable settlement agreement much easier. The goal here is to make sure that moving forward each spouse can meet their monthly budget on an after-tax basis. This will allow the assets they receive to accrue and grow for their long term financial security.
So, in this case let’s say the non-income earner was in a cash flow negative monthly situation by about $2,000 per month. Let’s also say that the income earner was in a cash flow positive monthly situation by about $4,000 per month, but refused to pay any more support. In order to make this agreement equitable, the non-income earner is going to somehow need another $2,000 in income per month.
Depending on the assets involved, a solution to this could be to split the assets something along the lines of 60/40 in favor of the non-income earner. By doing this, the non-income earner could receive a larger share of the marital assets which could be invested to make up the $2,000 per month they would need to be cash flow positive. Also, because of the income earner’s significant income and cash flow positive monthly situation of $4,000, within a few years they would make up for the excess share of marital property given to the non-income earner.
In conclusion, this is just one example of how to make a divorce settlement agreement equitable without having a 50/50 split of marital assets. But in order to have the ability to negotiate and reason for the extra support or larger portion of assets, it really all starts around knowing the spouse’s monthly budgets, creating the ability to support and necessity for support.
At Synergy Divorce Solutions, with a Certified Divorce Financial Analyst® on staff, we are specialists in assisting our clients with negotiating settlement agreements as well as showing why the agreement is equitable from a financial perspective. This is why it is so important to have an experienced financial professional on your side when going through the divorce process!
To learn more about how we accomplish this, please visit our website at www.synergydivorcesolutions.com or call us at 410-202-8977.