Post-Divorce Investment Strategy

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 4:58 pm

Hello all. My divorce is final this month and I will end up with about 250,000 in capital gain from my primary residence sale, all mine. I will owe about 2000.00\month to the ex probably forever. Given all that, should I take the majority of the gain and buy another home, then pay her out of my earnings every month OR invest the capital gain in index funds and pay her from the interest earned on that investment, then rent a modest home\townhome\condo?

The way I see it, buying a home is the loser here are I would have a monthly bill of 2000 + my mortgage payment (1100-1500\month), versus a 1700.00\month rental payment.

What say you guys?

ResearchMed
Posts: 6043
Joined: Fri Dec 26, 2008 11:25 pm

Re: Post-Divorce Investment Strategy

Post by ResearchMed » Mon Apr 16, 2018 5:21 pm

superfoneguy wrote:
Mon Apr 16, 2018 4:58 pm
Hello all. My divorce is final this month and I will end up with about 250,000 in capital gain from my primary residence sale, all mine. I will owe about 2000.00\month to the ex probably forever. Given all that, should I take the majority of the gain and buy another home, then pay her out of my earnings every month OR invest the capital gain in index funds and pay her from the interest earned on that investment, then rent a modest home\townhome\condo?

The way I see it, buying a home is the loser here are I would have a monthly bill of 2000 + my mortgage payment (1100-1500\month), versus a 1700.00\month rental payment.

What say you guys?
You might want to rent for a year, and take some time to decompress from the divorce.
These have no doubt been some very stressful times, and you might want to wait a while to make any longer-term/relatively permanent plans, such as buying a home (especially as "part of a post-divorce strategy").

Depending upon where you are or end up, you might also benefit from feeling things out wherever you rent, in terms of either longer term renting *or* buying another home.

Good luck!

RM
This signature is a placebo. You are in the control group.

THY4373
Posts: 645
Joined: Thu Mar 22, 2012 3:17 pm

Re: Post-Divorce Investment Strategy

Post by THY4373 » Mon Apr 16, 2018 5:33 pm

I am two years being separated and nine months being divorced and I am loving it. Life is awesome and I am pursuing my dream to see the world. I only say this to say there is life after divorce.

My advice to you is to rent for a while until things become clearer. I rent a modest house and I am loving the extra time and money I have compared to the marital house which was large with a large yard. I would focus on moving forward with you life. Figure out what your plan is now, work through your emotions, and focus on improving yourself before you make any big decisions. The rest will fall into place overtime. I will likely rent until my son graduates high school in four years after that I am free to move wherever.

User avatar
whodidntante
Posts: 3133
Joined: Thu Jan 21, 2016 11:11 pm

Re: Post-Divorce Investment Strategy

Post by whodidntante » Mon Apr 16, 2018 5:39 pm

+1 rent for a while.

How to invest the money requires a decision that only you can make about your desired asset allocation. I would indeed invest it according my desired allocation which is stock heavy and therefore risky. I would also do it as tax efficiently as possible. How much could you lose and still be OK? 5%? 50%?

User avatar
midareff
Posts: 5425
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Post-Divorce Investment Strategy

Post by midareff » Mon Apr 16, 2018 5:45 pm

Rent for at least two years... I've been there and it takes time to lose the emotional involvement and get the head back on straight, Rent.... date, make new friends, see movies and go to concerts with them and get your life back with a clear head. Some of the best times of my life were those spent between wives. Rent something that isn't expensive... LOL, dating costs.

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 5:51 pm

Thanks all for the emotional support. We were separated in 2007 so the emotional stuff for me is old hat. On the surface it seems investing it is the way to go, I just don't want to miss anything obvious that would preclude me from using investment interest to pay the alimony.

User avatar
Pajamas
Posts: 4673
Joined: Sun Jun 03, 2012 6:32 pm

Re: Post-Divorce Investment Strategy

Post by Pajamas » Mon Apr 16, 2018 6:05 pm

superfoneguy wrote:
Mon Apr 16, 2018 4:58 pm

The way I see it, buying a home is the loser here are I would have a monthly bill of 2000 + my mortgage payment (1100-1500\month), versus a 1700.00\month rental payment.

What say you guys?
That calculation is oversimplified, partially because it assumes that a $250k investment will provide $24k a year indefinitely, which is not likely. It might help to look at rent vs. buy as a separate decision from how to pay the $24k a year.

The $24k in annual expense, the need for a place to live, and the $250k in available funds are three givens.

What kind of place do you need to live in, what would best suit you? One bedroom apartment, a house, a townhouse? What would be most cost effective, buying or renting?

What would be the best use of $250k? Invest for the long term, use as a down payment or purchase of a dwelling, use it for expenses, a combination?

jeroly
Posts: 27
Joined: Wed Jan 24, 2018 2:07 pm

Re: Post-Divorce Investment Strategy

Post by jeroly » Mon Apr 16, 2018 6:09 pm

A sale of primary residence is eligible for exclusion for up to $250,000 of capital gains under certain conditions... Make sure you really are liable for those taxes!

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 6:15 pm

Pajamas wrote:
Mon Apr 16, 2018 6:05 pm


That calculation is oversimplified, partially because it assumes that a $250k investment will provide $24k a year indefinitely, which is not likely. It might help to look at rent vs. buy as a separate decision from how to pay the $24k a year.

The $24k in annual expense, the need for a place to live, and the $250k in available funds are three givens.

What kind of place do you need to live in, what would best suit you? One bedroom apartment, a house, a townhouse? What would be most cost effective, buying or renting?

What would be the best use of $250k? Invest for the long term, use as a down payment or purchase of a dwelling, use it for expenses, a combination?
I need a three bedroom house\condo\townhome as I have 2 teenagers. The youngest will be 18 in under three years. I need to pay her a ton a month so the best use is to pay her what I owe her.

Long-term stock performance has averaged about 12 percent so in theory even with taxes I should be able to to pay her from mostly interest income.

User avatar
Pajamas
Posts: 4673
Joined: Sun Jun 03, 2012 6:32 pm

Re: Post-Divorce Investment Strategy

Post by Pajamas » Mon Apr 16, 2018 6:22 pm

Might be a good idea to rent if you won't need a three bedroom townhouse in just a few years. If money will be tight, it might be best to compare renting vs. buying and see which will be less expensive overall. There will be major changes in deductions for 2018 and I don't know of a rent vs. buy calculator that has been updated but I'm sure someone else can point one out.

You can't rely on withdrawing 10% a year from a $250k portfolio indefinitely even assuming the long-term returns on equities average 12% because returns fluctuate. (12% is not a realistic assumption, either, not sure where you are getting that.)
Last edited by Pajamas on Mon Apr 16, 2018 6:29 pm, edited 1 time in total.

Chris K Jones
Posts: 50
Joined: Sat Jan 20, 2018 6:54 pm

Re: Post-Divorce Investment Strategy

Post by Chris K Jones » Mon Apr 16, 2018 6:35 pm

Sorry to hear about he difficult times. Hope things will improve for you quickly. I would rent and invest the money in well diversified index funds.

I am nine years divorced and had most of my assets in large house which I kept too long. I sold it and now rent. In my area, houses do not deliver anything like stocks do over the long haul.

Enjoy your life. Best wishes.

delamer
Posts: 4173
Joined: Tue Feb 08, 2011 6:13 pm

Re: Post-Divorce Investment Strategy

Post by delamer » Mon Apr 16, 2018 6:37 pm

Long-term stock performance of 12% is high. But even if you made that, 2/3 would be price appreciation not dividends.

So you can’t withdraw $2000/month from a $250,000 nest egg and have it last forever.

Your dividends and interest only would probably be around $500/month, at a realistic payout of 2.5%.

User avatar
Sandtrap
Posts: 4278
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳

Re: Post-Divorce Investment Strategy

Post by Sandtrap » Mon Apr 16, 2018 6:47 pm

Even an SPIA will only pay about 1000/mo from $250,000 (for life).
So the $2000/mo is a bit bite out of monthly income/earnings.
Investing might earn an average of 4% or $ 833/mo.
3% CD's, even less.

The best bet might be:
1 Minimize all expenses.
2 Maximize income.
3 Rent
4 Move from HCOL to LCOL

Is there a way to negotiate a definite end date to the $2000/mo?
Or, perhaps, pay a substantial lump sum up to end it? (even $240,000 is 10 years of payments but you'd be free of it forever)

aloha
j

Dottie57
Posts: 3155
Joined: Thu May 19, 2016 5:43 pm

Re: Post-Divorce Investment Strategy

Post by Dottie57 » Mon Apr 16, 2018 6:55 pm

I think the 12% returns came from 1970's. I think I read it from my dad's library n th early 80's. Unfortunately 12% is not likely now.

delamer
Posts: 4173
Joined: Tue Feb 08, 2011 6:13 pm

Re: Post-Divorce Investment Strategy

Post by delamer » Mon Apr 16, 2018 6:57 pm

Dottie57 wrote:
Mon Apr 16, 2018 6:55 pm
I think the 12% returns came from 1970's. I think I read it from my dad's library n th early 80's. Unfortunately 12% is not likely now.
Even when it was true, it was total return not dividends.

chevca
Posts: 1336
Joined: Wed Jul 26, 2017 11:22 am

Re: Post-Divorce Investment Strategy

Post by chevca » Mon Apr 16, 2018 6:59 pm

superfoneguy wrote:
Mon Apr 16, 2018 6:15 pm
Pajamas wrote:
Mon Apr 16, 2018 6:05 pm


That calculation is oversimplified, partially because it assumes that a $250k investment will provide $24k a year indefinitely, which is not likely. It might help to look at rent vs. buy as a separate decision from how to pay the $24k a year.

The $24k in annual expense, the need for a place to live, and the $250k in available funds are three givens.

What kind of place do you need to live in, what would best suit you? One bedroom apartment, a house, a townhouse? What would be most cost effective, buying or renting?

What would be the best use of $250k? Invest for the long term, use as a down payment or purchase of a dwelling, use it for expenses, a combination?
I need a three bedroom house\condo\townhome as I have 2 teenagers. The youngest will be 18 in under three years. I need to pay her a ton a month so the best use is to pay her what I owe her.

Long-term stock performance has averaged about 12 percent so in theory even with taxes I should be able to to pay her from mostly interest income.
It seems we have a Dave Ramsey fan here? :happy

I wouldn't count on that average. Especially is you have any of your index investments in bonds. Another thing to consider is, you're looking at short term gains tax rates compared to long term gains rates if you're just going to use the earnings and interest monthly. Also, the stock market doesn't always go up... and sometimes goes down quite a bit. Where's the payment going to come from during those times?

Do you owe the ex $2000 a month for alimony only, or is that alimony and child support? If child support is included in that, child support will go away someday... soon from the sounds of it. Not that you will stop giving the kids money then, but at least it's yours to control and give them when they're older.

Your alimony and child support were based off your income, right? Best to pay those out of your income, IMO. Keep buy a house with the $250k or rent and invest it separate. Don't go trying to create some system to pay your child support and alimony. I can only see that burning you at some point. I'd rent for a year as recommended. Even having been separated a long time, your thoughts and feeling are likely to change some now that the divorce is actually final. Stay mobile for a little bit while figuring out what you want.

User avatar
Pajamas
Posts: 4673
Joined: Sun Jun 03, 2012 6:32 pm

Re: Post-Divorce Investment Strategy

Post by Pajamas » Mon Apr 16, 2018 7:00 pm

Dottie57 wrote:
Mon Apr 16, 2018 6:55 pm
I think the 12% returns came from 1970's. I think I read it from my dad's library n th early 80's. Unfortunately 12% is not likely now.
That would make sense because of the high inflation rate in the 1970s.

chevca
Posts: 1336
Joined: Wed Jul 26, 2017 11:22 am

Re: Post-Divorce Investment Strategy

Post by chevca » Mon Apr 16, 2018 7:03 pm

Y'all, Dave Ramsey says investing in stocks/index funds will get one 12% average over the long term. That's my bet where OP got that from.

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 7:04 pm

OK, so I obviously don't understand index funds. I'm seeing my IRA increase by 1500.00+ just today so I though I'd be able to pay the majority of my obligation via the interest accruing from investing my capital gain.

chevca
Posts: 1336
Joined: Wed Jul 26, 2017 11:22 am

Re: Post-Divorce Investment Strategy

Post by chevca » Mon Apr 16, 2018 7:09 pm

It's okay. There is lots to learn and know about investing and taxes.

First thing first... you keep saying capital gain from the house sale. Do you have a $250k capital gain you owe taxes on, or were the home sale proceeds/gains within the capital gains tax exclusions?

Then, is the $2000/month for alimony only, or is that alimony and child support?

Where are you living now... are you happy there.... could you stay put for a year while figuring this all out?

Let's get some basics going first before automatically going to the end goal. :happy

chevca
Posts: 1336
Joined: Wed Jul 26, 2017 11:22 am

Re: Post-Divorce Investment Strategy

Post by chevca » Mon Apr 16, 2018 7:12 pm

And, one day's IRA movements is hardly a safe bet to think you can make monthly payments from investments. How did your IRA move each day for the past month or so? I bet it wasn't only up.... or, if it was, we should be asking you for advice. :happy

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 7:15 pm

chevca wrote:
Mon Apr 16, 2018 7:09 pm
It's okay. There is lots to learn and know about investing and taxes.

First thing first... you keep saying capital gain from the house sale. Do you have a $250k capital gain you owe taxes on, or were the home sale proceeds/gains within the capital gains tax exclusions?

Then, is the $2000/month for alimony only, or is that alimony and child support?

Where are you living now... are you happy there.... could you stay put for a year while figuring this all out?

Let's get some basics going first before automatically going to the end goal. :happy
Thanks. The 250 is excluded because it is my primary residence.

The 2000 is 1900 alimony/100 child support. We have 50/50 custody.

The sale of the home is part of the divorce deal and I'm fine with it.

rgs92
Posts: 1771
Joined: Mon Mar 02, 2009 8:00 pm

Re: Post-Divorce Investment Strategy

Post by rgs92 » Mon Apr 16, 2018 7:16 pm

When I do Firecalc I use 5% as an assumed nominal return on a 60/40 stock/bond portfolio (and I even think that's too optimistic).
I definitely would not use more than 5.5%. That would be dangerous if you are really depending on the proceeds for income.

chevca
Posts: 1336
Joined: Wed Jul 26, 2017 11:22 am

Re: Post-Divorce Investment Strategy

Post by chevca » Mon Apr 16, 2018 7:22 pm

superfoneguy wrote:
Mon Apr 16, 2018 7:15 pm
chevca wrote:
Mon Apr 16, 2018 7:09 pm
It's okay. There is lots to learn and know about investing and taxes.

First thing first... you keep saying capital gain from the house sale. Do you have a $250k capital gain you owe taxes on, or were the home sale proceeds/gains within the capital gains tax exclusions?

Then, is the $2000/month for alimony only, or is that alimony and child support?

Where are you living now... are you happy there.... could you stay put for a year while figuring this all out?

Let's get some basics going first before automatically going to the end goal. :happy
Thanks. The 250 is excluded because it is my primary residence.

The 2000 is 1900 alimony/100 child support. We have 50/50 custody.

The sale of the home is part of the divorce deal and I'm fine with it.
Okay, let's just call it $250k after sale of the house then. The capital gain part, while maybe true, is throwing a lot of us not knowing if it's within the exclusion or not.

Yes, I can see why you just say $2000/month then. That's not going to change much once child support is gone. I still say pay that out of your income. It's likely to bite you if you try some other way to do that, IMO.

Dottie57
Posts: 3155
Joined: Thu May 19, 2016 5:43 pm

Re: Post-Divorce Investment Strategy

Post by Dottie57 » Mon Apr 16, 2018 8:12 pm

superfoneguy wrote:
Mon Apr 16, 2018 7:04 pm
OK, so I obviously don't understand index funds. I'm seeing my IRA increase by 1500.00+ just today so I though I'd be able to pay the majority of my obligation via the interest accruing from investing my capital gain.

Stock funds do not give off interest.

Stock funds do give dividends which a company will sometimes distribute from profit.

Stock funds will also have capital gains as stocks are bought and sold in the fund.

Bond funds do produce interest.

delamer
Posts: 4173
Joined: Tue Feb 08, 2011 6:13 pm

Re: Post-Divorce Investment Strategy

Post by delamer » Mon Apr 16, 2018 8:34 pm

superfoneguy wrote:
Mon Apr 16, 2018 7:04 pm
OK, so I obviously don't understand index funds. I'm seeing my IRA increase by 1500.00+ just today so I though I'd be able to pay the majority of my obligation via the interest accruing from investing my capital gain.
If you got $1500 per day in appreciation for every day the stock market was open, that would be about $375,000 per year.

On a $250,000 investment, that would be an increase of 150% in one year!

Realistically, the dividends on an all stock portfolio might actually be 2.5% to 3% per year — or $6,250 to $7,500.

You might get, on average, another 6% in appreciation — or $15,000.

Some years will better, and some will be worse. Plus you’ll be paying taxes on the dividends and any shares that you sell.

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 10:19 pm

Ha, yes obviously I wouldn't expect that kind of gain every day of the year. I used it as an example.

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Mon Apr 16, 2018 10:22 pm

So the consensus so far seems to be that that index funds will produce only marginally more than an Ally savings account? So investing this money with the purpose of paying some\all of the alimony isn't possible?

Chris K Jones
Posts: 50
Joined: Sat Jan 20, 2018 6:54 pm

Re: Post-Divorce Investment Strategy

Post by Chris K Jones » Mon Apr 16, 2018 10:43 pm

No. An ally savings account currently generates about 1.5% per year. It is completely safe and without risk. An index stock mutual fund, on average, will generate 8% in nominal returns, but there will be wild fluctuations. Some years it will go up 30% and other years it may go down 30%. A savings account is good for providing a safe reliable return. Index stock mutual funds are investments and should only be used formoney that you will not need for a longer period of time--usually said to be 10 years or more. Over long periods of time--10, 20 years or more, index funds will greatly outperform a savings account. It is reasonable to expect an index fund to double every ten years or so. So in 20 years, your 250 k might be 1 million. The savings account might grow to 300 or 350k

deltaneutral83
Posts: 658
Joined: Tue Mar 07, 2017 4:25 pm

Re: Post-Divorce Investment Strategy

Post by deltaneutral83 » Tue Apr 17, 2018 8:47 am

jeroly wrote:
Mon Apr 16, 2018 6:09 pm
A sale of primary residence is eligible for exclusion for up to $250,000 of capital gains under certain conditions... Make sure you really are liable for those taxes!
And keep records of any home improvements (Kitchen remo/HVAC etc) as that adds to the cost basis I believe.

superfoneguy
Posts: 8
Joined: Mon Apr 16, 2018 4:50 pm

Re: Post-Divorce Investment Strategy

Post by superfoneguy » Tue Apr 17, 2018 9:11 am

She claims she cannot work because of her mental health. It's a ploy to maximize support and I'm sure she will have some sort of job within several months. If she makes more than 'X' then I can renegotiate the support amount but that's not practical because if I do she'll just quit.

The divorce terms are what they are, her teams original demand was 90 percent of my net every month, this settlement represents about 42 percent of my net so looking at it from that point of view would seem like a win.

I'm not an accountant but am trying to be creative to make life a bit easier on me, that's really the only reason for posting.

Thanks all for your energy and ideas!

3funder
Posts: 457
Joined: Sun Oct 15, 2017 9:35 pm

Re: Post-Divorce Investment Strategy

Post by 3funder » Tue Apr 17, 2018 11:31 am

I wouldn't tie up in the money in a house.

User avatar
LadyGeek
Site Admin
Posts: 44472
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Post-Divorce Investment Strategy

Post by LadyGeek » Tue Apr 17, 2018 3:38 pm

I removed an off-topic post and several replies related to the terms of the divorce settlement.

Please stay focused on the investment aspects.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Post Reply