Advice on Divorce Settlement Options

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BillyG
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Advice on Divorce Settlement Options

Post by BillyG » Fri Nov 30, 2018 7:39 pm

Hi there,

I'm a Bogleheads investor hit with a personal "Black Swan" of a surprise divorce after more than 20 years of marriage. I took advantage of many investing strategies to avoid or minimize surprises and plan for the future, such as a hopefully wise stock/bond allocation, domestic/international stock index allocations, bond index/TIPS allocations, funding 529 plans from the day my children were born, various types of insurance, HSA, allocation among pre-tax and after-tax funds etc. I never could get my wife interested in Bogleheads or any investment activities, and unfortunately she chose a high transaction fee approach to divorce, taking a back seat and letting her very expensive lawyers take the wheel and spend huge sums of money despite a straightforward situation of no minor children and no family businesses, and no affairs or abuse. We are W-2 employees so there is nothing to hide and no place to hide it.

Of course, divorce is so commonplace that it should not be viewed as a Black Swan. Yet I see very little investment advice related to investment decisions to help reduce the impact of the future possibility of a divorce, other than getting a prenup. At some time I may circle back with a thread to seed some ideas I've thought of -- a little too late. The first would be to never ever (ever) roll over or commingle a premarital 401(k) or IRA or any other premarital funds into marital funds. I've never seen this listed as a consideration in determining whether to roll over funds, and it should be near the top of the list for those rolling over premarital funds. It would be a good point to add to the Wiki on rollovers... particularly for someone like me who did not get married until I was 40 and had decent assets before marriage. The second piece of advice would be -- if you are the only or primary breadwinner in your family -- to put your investments and savings in your own name rather than in joint accounts. Although this money would be "marital" money if accrued during marriage, should something unexpected happen in the marriage the other person could not easily drain these accounts or lock you out of accessing them for things as varied as divorce legal expenses, paying property taxes, paying federal and state taxes, etc. You can create estate or trust documents that allow a spouse to access this money should you become disabled or die. This approach may sound harsh but if you are the primary breadwinner it would be shortsighted to not at least consider this option. You could have a joint checking account for monthly bills and fund this account from your solo accounts.

And it goes without saying that it is critical to focus on your important interpersonal relationships so you can avoid a divorce situation, but it takes two to tango and the focus of this thread is on the financial aspects, not the relationship aspects.

Here are my questions, below. Background - I am age 62 and my 2019 tax bracket will be about 42%. My spouse will be in the 30% tax bracket considering alimony payments, assuming the divorce is completed during 2018 before the alimony tax law changes - in a way that is adverse to me. The state is Maryland (unfortunately for me).

Question 1 -- IRA and ROTH IRA
There is a ROTH IRA in my name and a Traditional IRA in my wife's name. Let's say my ROTH is worth about $120K and my spouse's traditional IRA is worth about $90K. I funded both of them but that doesn't matter here. Much of the new traditional IRA investments were with after-tax money because we did not qualify for the deductible contributions. The standard approach is to divide each of these IRAs in half with a QDRO. The problem for me is that I would no longer be able to do a back-door ROTH every year because I would own pre-tax IRA funds from my half of my spouse's traditional IRA. One approach after dividing these IRAs would be for me to roll over the pretax portion of the traditional IRA into my 401(k), and then proceed with the back-door ROTH. Another approach would be for me to take the ROTH IRA and give her the Traditional IRA, and pay my wife some amount as a "buyout" to compensate for the difference. My question is what would be the appropriate dollar amount to pay her to compensate for the difference, and would this be worth it to keep a larger amount of money in my ROTH? Or is it better to split everything with a QDRO and go from there?

Question 2 -- Up-Front Lump Sum Payment; Use Pre-Tax or After-Tax Money?
One settlement possibility involves my payment of an up-front lump sum, with or without alimony. I would have the option of paying a higher amount with pre-tax money, such as from my 401(k), or a lower amount from after-tax money such as from a Vanguard investment account or proceeds from the sale of our house. The difference between the pre-tax and after tax amounts is based on my wife's 30% tax rate. Is one approach (using pre-tax money versus after-tax money) better for me than the other considering my tax rate and age?

Question 3 -- Lump Sum versus Alimony Based on a Presumed Discount Rate
The lump sum amounts are based on the present value of a string of alimony payments discounted at a rate of 4% for each of the first four years, 5% for the fifth year, 6% for the sixth year, 7% for the seventh year, and 8% for the eighth year. Do these seem like reasonable discount rates? My primary question is whether I would be better off not paying the lump sum and investing that money to pay off the alimony over eight years, or perhaps some shorter period of time? I understand no one can predict future returns but it seems that with this level of assumed discount rates, I might be better off investing the money and paying the alimony from a growing lump sum investment that hopefully leaves me with more money in the long term than paying a lump sum up front.

I really appreciate your thoughtful comments and advice.

Thanks,
Billy

J G Bankerton
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Re: Advice on Divorce Settlement Options

Post by J G Bankerton » Fri Nov 30, 2018 7:46 pm

Marriage is now optional, so don't do it. In NJ 1/2 of everything, even things not yet received, are gone. The only exception is if one is a 100% combat disabled veteran; then all pension payments and savings are untouchable

sassy_penguin
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Re: Advice on Divorce Settlement Options

Post by sassy_penguin » Fri Nov 30, 2018 9:44 pm

J G Bankerton wrote:
Fri Nov 30, 2018 7:46 pm
Marriage is now optional, so don't do it. In NJ 1/2 of everything, even things not yet received, are gone. The only exception is if one is a 100% combat disabled veteran; then all pension payments and savings are untouchable
Why do you say marriage is now optional? Or do you just mean it is more socially acceptable now to go through life unmarried?

SixAlpha
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Re: Advice on Divorce Settlement Options

Post by SixAlpha » Fri Nov 30, 2018 10:43 pm

Billy,

I've been in your shoes and I'm sorry to hear that you have to go through this. It sounds like you want to get through this ASAP, so I'm a fan of lump-sum options. Even though they may not be mathematically beneficial to you, there's something to be said for not dragging things out. Does your spouse have reasonable demands?

6Pack
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Re: Advice on Divorce Settlement Options

Post by 6Pack » Sat Dec 01, 2018 8:03 am

Well, here’s my opinion: the market is good/ok for right now. Pull out a lump sum and you are doing it in a somewhat up market. While I love this bull, the bear will come back soon (statistically), so we will have a bear market, it’s just a matter of when. If you pull funds out in a down market, which you likely will, it’ll bite even worse. Just my $0.02.

Trapper
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Re: Advice on Divorce Settlement Options

Post by Trapper » Sat Dec 01, 2018 10:28 am

So sorry you are going through divorce.

Looks like you will be paying alimony. I think the deductibility from your income taxes for alimony paid sunsets soon (end of 2018?) for divorce agreements not finalized.

My other advice would not to lump sum pay alimony, but have a series of payments that you both find acceptable. Pencil in the agreement when alimony would cease, generally death or remarriage, or time certain (say 84 months).

It sounds like you have sufficient assets to be ok. Don’t let the tax tail wag the divorce dog.

BillyG
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Location: Maryland, USA

Re: Advice on Divorce Settlement Options

Post by BillyG » Sat Dec 01, 2018 1:52 pm

SixAlpha wrote:
Fri Nov 30, 2018 10:43 pm
Billy,

I've been in your shoes and I'm sorry to hear that you have to go through this. It sounds like you want to get through this ASAP, so I'm a fan of lump-sum options. Even though they may not be mathematically beneficial to you, there's something to be said for not dragging things out. Does your spouse have reasonable demands?
Hi SixAlpha,

You're correct it is no fun. My spouse has been unreasonable and she has dragged this out for 15 months. A little over a month ago was the first time she made an actual proposal. In October 2017 I offered to pay her and suggested we go to mediation and wrap it up by the end of the year and she responded my suing me and dragging it out. It appears she has a lot of anger and vindictiveness and lawyers who know how to milk that for their benefit, at $650/hour!! Ouch, talk about high transaction costs.

The good news is they are ready to settle. The bad news it is $$$. I guess that's how it goes.

Billy

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Sat Dec 01, 2018 1:54 pm

Trapper wrote:
Sat Dec 01, 2018 10:28 am
So sorry you are going through divorce.

Looks like you will be paying alimony. I think the deductibility from your income taxes for alimony paid sunsets soon (end of 2018?) for divorce agreements not finalized.

My other advice would not to lump sum pay alimony, but have a series of payments that you both find acceptable. Pencil in the agreement when alimony would cease, generally death or remarriage, or time certain (say 84 months).

It sounds like you have sufficient assets to be ok. Don’t let the tax tail wag the divorce dog.
Good advice, Trapper. They will accept pre-tax or after tax money -- one question is which approach is best for me?

Billy

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Sat Dec 01, 2018 3:16 pm

BillyG wrote:
Fri Nov 30, 2018 7:39 pm

Question 1 -- IRA and ROTH IRA
There is a ROTH IRA in my name and a Traditional IRA in my wife's name. Let's say my ROTH is worth about $120K and my spouse's traditional IRA is worth about $90K. I funded both of them but that doesn't matter here. Much of the new traditional IRA investments were with after-tax money because we did not qualify for the deductible contributions. The standard approach is to divide each of these IRAs in half with a QDRO. The problem for me is that I would no longer be able to do a back-door ROTH every year because I would own pre-tax IRA funds from my half of my spouse's traditional IRA. One approach after dividing these IRAs would be for me to roll over the pretax portion of the traditional IRA into my 401(k), and then proceed with the back-door ROTH. Another approach would be for me to take the ROTH IRA and give her the Traditional IRA, and pay my wife some amount as a "buyout" to compensate for the difference. My question is what would be the appropriate dollar amount to pay her to compensate for the difference, and would this be worth it to keep a larger amount of money in my ROTH? Or is it better to split everything with a QDRO and go from there?

Question 2 -- Up-Front Lump Sum Payment; Use Pre-Tax or After-Tax Money?
One settlement possibility involves my payment of an up-front lump sum, with or without alimony. I would have the option of paying a higher amount with pre-tax money, such as from my 401(k), or a lower amount from after-tax money such as from a Vanguard investment account or proceeds from the sale of our house. The difference between the pre-tax and after tax amounts is based on my wife's 30% tax rate. Is one approach (using pre-tax money versus after-tax money) better for me than the other considering my tax rate and age?

Question 3 -- Lump Sum versus Alimony Based on a Presumed Discount Rate
The lump sum amounts are based on the present value of a string of alimony payments discounted at a rate of 4% for each of the first four years, 5% for the fifth year, 6% for the sixth year, 7% for the seventh year, and 8% for the eighth year. Do these seem like reasonable discount rates? My primary question is whether I would be better off not paying the lump sum and investing that money to pay off the alimony over eight years, or perhaps some shorter period of time? I understand no one can predict future returns but it seems that with this level of assumed discount rates, I might be better off investing the money and paying the alimony from a growing lump sum investment that hopefully leaves me with more money in the long term than paying a lump sum up front.
Is there anyone who wants to comment on these specific questions?

I really appreciate your thoughtful comments and advice.

Thanks,
Billy

megabad
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Re: Advice on Divorce Settlement Options

Post by megabad » Sat Dec 01, 2018 3:53 pm

All of your questions appear to be questions that can only be answered by your legal teams and forensic accountants. What is the exact calculation the lawyers will agree to for giving "pre-tax" money vs "after-tax" money? How do you define "after-tax" money? Does the "after-tax" money value include LTCG/QDI taxes?

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mrspock
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Re: Advice on Divorce Settlement Options

Post by mrspock » Sat Dec 01, 2018 5:01 pm

SixAlpha wrote:
Fri Nov 30, 2018 10:43 pm
Billy,

I've been in your shoes and I'm sorry to hear that you have to go through this. It sounds like you want to get through this ASAP, so I'm a fan of lump-sum options. Even though they may not be mathematically beneficial to you, there's something to be said for not dragging things out. Does your spouse have reasonable demands?
I am guessing by society and more couples are willing to have long term relationships & cohabitation (even children) without the need for marriage.

It scares the hell out of me... I’d never do it at my stage of the game.

Trapper
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Re: Advice on Divorce Settlement Options

Post by Trapper » Sat Dec 01, 2018 5:33 pm

Assuming her tax rate is 30% may not be accurate.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Sun Dec 02, 2018 7:08 pm

Trapper wrote:
Sat Dec 01, 2018 5:33 pm
Assuming her tax rate is 30% may not be accurate.
It is very close to this, with alimony payments.

The significance for these questions is the differential between her tax rate and my tax rate.

Billy

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VictoriaF
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Re: Advice on Divorce Settlement Options

Post by VictoriaF » Sun Dec 02, 2018 7:16 pm

BillyG wrote:
Sat Dec 01, 2018 3:16 pm

Is there anyone who wants to comment on these specific questions?

I really appreciate your thoughtful comments and advice.

Thanks,
Billy
Billy,

Unfortunately, I can't help with your specific questions. I just wanted to say that I am sorry that this is happening to you. Best wishes for the least-stress divorce and a new life in the new year.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

GoldenFinch
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Re: Advice on Divorce Settlement Options

Post by GoldenFinch » Sun Dec 02, 2018 7:28 pm

I’m sorry this happened to you and wish you well in the future.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Sun Dec 02, 2018 7:37 pm

VictoriaF wrote:
Sun Dec 02, 2018 7:16 pm
BillyG wrote:
Sat Dec 01, 2018 3:16 pm

Is there anyone who wants to comment on these specific questions?

I really appreciate your thoughtful comments and advice.

Thanks,
Billy
Billy,

Unfortunately, I can't help with your specific questions. I just wanted to say that I am sorry that this is happening to you. Best wishes for the least-stress divorce and a new life in the new year.

Victoria
Hi Victoria,

Thanks so much - I appreciate it! I look forward to getting to the point where I can end this and begin to rebuild financially. It is tragic to see hard earned money being wasted on unnecessary transaction costs. Emotionally and personally I am better off.

I've considered reaching out to Bobcat but I hate to bother him with this. I think I can figure out the options.

Cheers,
Billy

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Mon Dec 03, 2018 4:33 pm

In addition to the three questions above, I have a fourth question:

Question 4:
What are the issues and tradeoffs to consider in paying a lump sum settlement using a QDRO from an after-tax Vanguard account versus paying the lump sum from a portion of the proceeds from the sale of a home? Assume that paying from the Vanguard account uses money subject to capital gains. Paying from a portion of the proceeds from a house sales means I would lose some money that could be used to reinvest in a primary residence without having to pay gains on the sale of a residence. It seems I would be better off paying the lump sum from Vanguard funds than from the proceeds of a home sale, correct, or am I missing something?

Thanks,
Billy

deikel
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Re: Advice on Divorce Settlement Options

Post by deikel » Mon Dec 03, 2018 5:04 pm

Q1: I would not bring this into the divorce discussion with a lawyer simply because it gives an opening for the opposing party to 'get something' - split it in the middle and deal with the consequences later or use both halfs to pay off the lump sum (see below)

Q2: I would try the buy out with after tax money. The pre tax money is retirement money, in retirement you would pay only, what, 15 % of it to access during retirement (if true), to you right now its only worth 0.7 * - so using it to pay off the divorce is an extra penalty - I think.

q3: more psychology than math, you might be able to negotiate a better lump sum deal since your opposing party might be blinded by the total amount vs the yearly payouts (similar to a lottery winner, but in your favor). Also, it might be beneficial for your mental health to be done with it once and for all - no renegotiation whatever happens in the near future (unexpected windfalls).

for what its worth
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

WhyNotUs
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Re: Advice on Divorce Settlement Options

Post by WhyNotUs » Mon Dec 03, 2018 5:13 pm

Not saying what I did was the best financially but it worked out well for my ex and I.
BillyG wrote:
Fri Nov 30, 2018 7:39 pm
Hi there,

Question 1 -- IRA and ROTH IRA
There is a ROTH IRA in my name and a Traditional IRA in my wife's name. Let's say my ROTH is worth about $120K and my spouse's traditional IRA is worth about $90K. I funded both of them but that doesn't matter here. Much of the new traditional IRA investments were with after-tax money because we did not qualify for the deductible contributions. The standard approach is to divide each of these IRAs in half with a QDRO. The problem for me is that I would no longer be able to do a back-door ROTH every year because I would own pre-tax IRA funds from my half of my spouse's traditional IRA. One approach after dividing these IRAs would be for me to roll over the pretax portion of the traditional IRA into my 401(k), and then proceed with the back-door ROTH. Another approach would be for me to take the ROTH IRA and give her the Traditional IRA, and pay my wife some amount as a "buyout" to compensate for the difference. My question is what would be the appropriate dollar amount to pay her to compensate for the difference, and would this be worth it to keep a larger amount of money in my ROTH? Or is it better to split everything with a QDRO and go from there?

Our retirement accounts were unequal and I adjust the difference with other assets as part of a total settlement. In your case that would mean adding $30k to her side of the ledger to make them equal.

Question 2 -- Up-Front Lump Sum Payment; Use Pre-Tax or After-Tax Money?
One settlement possibility involves my payment of an up-front lump sum, with or without alimony. I would have the option of paying a higher amount with pre-tax money, such as from my 401(k), or a lower amount from after-tax money such as from a Vanguard investment account or proceeds from the sale of our house. The difference between the pre-tax and after tax amounts is based on my wife's 30% tax rate. Is one approach (using pre-tax money versus after-tax money) better for me than the other considering my tax rate and age?

I knew several people who paid alimony and sent resent-filled checks each month. Since that was not my choice for the future, I paid a lump sum, once again as part of an overall settlement with after-tax $$. In your case home sales funds might make more sense, since capital gains are likely untaxed. I did not have that option as I was keeping the house and kids.

Question 3 -- Lump Sum versus Alimony Based on a Presumed Discount Rate

The lump sum amounts are based on the present value of a string of alimony payments discounted at a rate of 4% for each of the first four years, 5% for the fifth year, 6% for the sixth year, 7% for the seventh year, and 8% for the eighth year. Do these seem like reasonable discount rates? My primary question is whether I would be better off not paying the lump sum and investing that money to pay off the alimony over eight years, or perhaps some shorter period of time? I understand no one can predict future returns but it seems that with this level of assumed discount rates, I might be better off investing the money and paying the alimony from a growing lump sum investment that hopefully leaves me with more money in the long term than paying a lump sum up front.

Only you can know yourself, but for me I chose to lump and move on.
Best wishes!


Thanks,
Billy
I own the next hot stock- VTSAX

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Mon Dec 03, 2018 6:20 pm

deikel wrote:
Mon Dec 03, 2018 5:04 pm
Q1: I would not bring this into the divorce discussion with a lawyer simply because it gives an opening for the opposing party to 'get something' - split it in the middle and deal with the consequences later or use both halfs to pay off the lump sum (see below)

Q2: I would try the buy out with after tax money. The pre tax money is retirement money, in retirement you would pay only, what, 15 % of it to access during retirement (if true), to you right now its only worth 0.7 * - so using it to pay off the divorce is an extra penalty - I think.

q3: more psychology than math, you might be able to negotiate a better lump sum deal since your opposing party might be blinded by the total amount vs the yearly payouts (similar to a lottery winner, but in your favor). Also, it might be beneficial for your mental health to be done with it once and for all - no renegotiation whatever happens in the near future (unexpected windfalls).

for what its worth
deikel,

Thanks - I appreciate your thoughtful comments!

Q1: I think you are correct on this. I won't bring this up; after divorce I can always roll over the pre-tax and earnings portion of her traditional IRA into my 401(k) plan and convert the after-tax portion to a Roth, thereby letting me continue to do my annual back door Roth contributions/conversions.

Q2: The pre-tax money is retirement money, but the Vanguard after-tax money also is retirement savings/money. You are correct the pre-tax money is only worth 0.7 * as a lump sum at her tax rate. For me in retirement it may be taxed at 22-24% plus applicable state taxes. Probably 50% of the Vanguard money is subject to capital gains at 15% to 20%. I need to give this some more thought...

Q3: It definitely would be good to complete this, but if I agree to treating some payments as alimony in the future we will make it unmodifiable so in that sense it will be done. Opposing counsel is a tax lawyer so he won't be blinded by the lump sum versus stream of payments comparison. He has software that models these scenarios.

Thanks,
Billy

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Mon Dec 03, 2018 6:28 pm

Hi WhyNotUs. Thanks for your comments -- see my responses it italics after yours below. I appreciate you sharing your thoughts and experience.
Thanks,
Billy
WhyNotUs wrote:
Mon Dec 03, 2018 5:13 pm
Not saying what I did was the best financially but it worked out well for my ex and I.
BillyG wrote:
Fri Nov 30, 2018 7:39 pm
Hi there,

Question 1 -- IRA and ROTH IRA
There is a ROTH IRA in my name and a Traditional IRA in my wife's name. Let's say my ROTH is worth about $120K and my spouse's traditional IRA is worth about $90K. I funded both of them but that doesn't matter here. Much of the new traditional IRA investments were with after-tax money because we did not qualify for the deductible contributions. The standard approach is to divide each of these IRAs in half with a QDRO. The problem for me is that I would no longer be able to do a back-door ROTH every year because I would own pre-tax IRA funds from my half of my spouse's traditional IRA. One approach after dividing these IRAs would be for me to roll over the pretax portion of the traditional IRA into my 401(k), and then proceed with the back-door ROTH. Another approach would be for me to take the ROTH IRA and give her the Traditional IRA, and pay my wife some amount as a "buyout" to compensate for the difference. My question is what would be the appropriate dollar amount to pay her to compensate for the difference, and would this be worth it to keep a larger amount of money in my ROTH? Or is it better to split everything with a QDRO and go from there?

Our retirement accounts were unequal and I adjust the difference with other assets as part of a total settlement. In your case that would mean adding $30k to her side of the ledger to make them equal.

I would have to do something additional to "true-up" the balances in a Roth versus a Traditional IRA.

Question 2 -- Up-Front Lump Sum Payment; Use Pre-Tax or After-Tax Money?
One settlement possibility involves my payment of an up-front lump sum, with or without alimony. I would have the option of paying a higher amount with pre-tax money, such as from my 401(k), or a lower amount from after-tax money such as from a Vanguard investment account or proceeds from the sale of our house. The difference between the pre-tax and after tax amounts is based on my wife's 30% tax rate. Is one approach (using pre-tax money versus after-tax money) better for me than the other considering my tax rate and age?

I knew several people who paid alimony and sent resent-filled checks each month. Since that was not my choice for the future, I paid a lump sum, once again as part of an overall settlement with after-tax $$. In your case home sales funds might make more sense, since capital gains are likely untaxed. I did not have that option as I was keeping the house and kids.

I'll did into this option more deeply. Thanks! And yes, it would be great to be done with this...

Question 3 -- Lump Sum versus Alimony Based on a Presumed Discount Rate

The lump sum amounts are based on the present value of a string of alimony payments discounted at a rate of 4% for each of the first four years, 5% for the fifth year, 6% for the sixth year, 7% for the seventh year, and 8% for the eighth year. Do these seem like reasonable discount rates? My primary question is whether I would be better off not paying the lump sum and investing that money to pay off the alimony over eight years, or perhaps some shorter period of time? I understand no one can predict future returns but it seems that with this level of assumed discount rates, I might be better off investing the money and paying the alimony from a growing lump sum investment that hopefully leaves me with more money in the long term than paying a lump sum up front.

Only you can know yourself, but for me I chose to lump and move on.
Best wishes!


I hear you!! Moving on is key.

Thanks,
Billy

J G Bankerton
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Re: Advice on Divorce Settlement Options

Post by J G Bankerton » Tue Dec 04, 2018 11:36 am

OP cut your losses and don't let the lawyers drag it out and get her married. The "donation" stops the day she remarries. Kept women law or something.

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Tue Dec 04, 2018 11:47 am

J G Bankerton wrote:
Tue Dec 04, 2018 11:36 am
OP cut your losses and don't let the lawyers drag it out and get her married. The "donation" stops the day she remarries. Kept women law or something.
Simple but correct. We all have stories... The bottom line is that in the end, marriage is a contract and there are laws to deal with it. Is it fair? Somebody always thinks they got cheated.

My advice to BillyG. Your goal is to get the ex to sign on the dotted line.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 12:38 pm

moehoward wrote:
Tue Dec 04, 2018 11:47 am
J G Bankerton wrote:
Tue Dec 04, 2018 11:36 am
OP cut your losses and don't let the lawyers drag it out and get her married. The "donation" stops the day she remarries. Kept women law or something.
Simple but correct. We all have stories... The bottom line is that in the end, marriage is a contract and there are laws to deal with it. Is it fair? Somebody always thinks they got cheated.

My advice to BillyG. Your goal is to get the ex to sign on the dotted line.
You're absolutely correct and it has been my goal from the day after she moved out. But she is the plaintiff and the plaintiff controls all of this and can drag it out through trial as long as they wish. It took more than a year of legal wrangling for me to receive my first settlement proposal from her. She is not a Boglehead but an extremely high transaction cost person.

The reason I am asking these questions is - obviously - because I am trying to settle it.

Billy

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Tue Dec 04, 2018 12:46 pm

BillyG wrote:
Tue Dec 04, 2018 12:38 pm
moehoward wrote:
Tue Dec 04, 2018 11:47 am
J G Bankerton wrote:
Tue Dec 04, 2018 11:36 am
OP cut your losses and don't let the lawyers drag it out and get her married. The "donation" stops the day she remarries. Kept women law or something.
Simple but correct. We all have stories... The bottom line is that in the end, marriage is a contract and there are laws to deal with it. Is it fair? Somebody always thinks they got cheated.

My advice to BillyG. Your goal is to get the ex to sign on the dotted line.
You're absolutely correct and it has been my goal from the day after she moved out. But she is the plaintiff and the plaintiff controls all of this and can drag it out through trial as long as they wish. It took more than a year of legal wrangling for me to receive my first settlement proposal from her. She is not a Boglehead but an extremely high transaction cost person.

The reason I am asking these questions is - obviously - because I am trying to settle it.

Billy
Then you are on the right track, couldn't tell from the posts. I tell friends in your situation, if it comes down to you losing 10K or less (fill in your own number), write the check and move on.
Remember the line from "War of Roses", There is no winning, just degrees of losing.

Bronko
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Re: Advice on Divorce Settlement Options

Post by Bronko » Tue Dec 04, 2018 1:04 pm

+1 on the point of getting numbers in front of her. The lump sum may blind her to the payout benefits over time. Having been there, it's better to not have the monthly reminder of seeing cash go out to the person who left you.

This is one of the hardest things in life to deal with. Upside is time will pass and it will get better.

Drive on Billy!

Bronko

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 1:43 pm

Bronko wrote:
Tue Dec 04, 2018 1:04 pm
+1 on the point of getting numbers in front of her. The lump sum may blind her to the payout benefits over time. Having been there, it's better to not have the monthly reminder of seeing cash go out to the person who left you.

This is one of the hardest things in life to deal with. Upside is time will pass and it will get better.

Drive on Billy!

Bronko
Her divorce lawyer also happens to be a tax lawyer. I can go head to head with him but he won't be blinded at all by the differences in lump sums and payments over time. He deals with it every day and has software than runs the numbers assuming tax rates, discount rates, etc.
Billy

money_bunny
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Re: Advice on Divorce Settlement Options

Post by money_bunny » Tue Dec 04, 2018 1:49 pm

Bronko wrote:
Tue Dec 04, 2018 1:04 pm
+1 on the point of getting numbers in front of her. The lump sum may blind her to the payout benefits over time. Having been there, it's better to not have the monthly reminder of seeing cash go out to the person who left you.

Bronko
To the OP: I am sorry you are going through this.

Bronko: That is why I would do it also. Get it done and move on. I'd have to work really hard and probably need therapy to not be "That angry divorced guy." My issues with money would make that monthly check rage inducing.

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Tue Dec 04, 2018 1:50 pm

BillyG wrote:
Tue Dec 04, 2018 1:43 pm
Bronko wrote:
Tue Dec 04, 2018 1:04 pm
+1 on the point of getting numbers in front of her. The lump sum may blind her to the payout benefits over time. Having been there, it's better to not have the monthly reminder of seeing cash go out to the person who left you.

This is one of the hardest things in life to deal with. Upside is time will pass and it will get better.

Drive on Billy!

Bronko
Her divorce lawyer also happens to be a tax lawyer. I can go head to head with him but he won't be blinded at all by the differences in lump sums and payments over time. He deals with it every day and has software than runs the numbers assuming tax rates, discount rates, etc.
Billy
One more question: Do you have an Attorney? It doesn't matter what her attorney knows or doesn't know.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 2:47 pm

money_bunny wrote:
Tue Dec 04, 2018 1:49 pm
Bronko wrote:
Tue Dec 04, 2018 1:04 pm
+1 on the point of getting numbers in front of her. The lump sum may blind her to the payout benefits over time. Having been there, it's better to not have the monthly reminder of seeing cash go out to the person who left you.

Bronko
To the OP: I am sorry you are going through this.

Bronko: That is why I would do it also. Get it done and move on. I'd have to work really hard and probably need therapy to not be "That angry divorced guy." My issues with money would make that monthly check rage inducing.
Funny, her therapy is paying her expensive divorce lawyer with my money!

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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 2:53 pm

[/quote]
One more question: Do you have an Attorney? It doesn't matter what her attorney knows or doesn't know.
[/quote]

Yes, I have an attorney. And I am attorney myself (and MBA and engineer). I am not seeking legal advice... I am asking finance questions about alternative funding sources. Being Bogleheads we already understand a lot more about the pre-tax, after-tax, etc. issues in my different accounts than my divorce lawyer who has been practicing over 40 years.

I don't understand why you say it doesn't matter what her attorney does and does not know. Can you explain?

Thanks,
Billy

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Tue Dec 04, 2018 3:04 pm

BillyG wrote:
Tue Dec 04, 2018 2:53 pm
One more question: Do you have an Attorney? It doesn't matter what her attorney knows or doesn't know.
[/quote]

Yes, I have an attorney. And I am attorney myself (and MBA and engineer). I am not seeking legal advice... I am asking finance questions about alternative funding sources. Being Bogleheads we already understand a lot more about the pre-tax, after-tax, etc. issues in my different accounts than my divorce lawyer who has been practicing over 40 years.

I don't understand why you say it doesn't matter what her attorney does and does not know. Can you explain?

Thanks,
Billy
[/quote]

It will all end of the same. Numbers get put into a computer, turn the crank and out comes the settlement. The only problem is that your ex thinks she deserves more (for whatever reason). Since you are an attorney , you know all of this. My ex-wife was a paralegal and hired some pretty good people. As it turns out, I could hire good people also. Believe me, the process scared the crap out of me. In the end she got less than I originally offered her. So my point is, forget about all the financial questions, everybody knows what's going on. Find out what it will take the end the ordeal and just pay the money. You have good credentials so you will have no problem getting back on your feet.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 3:14 pm

moehoward wrote:
Tue Dec 04, 2018 3:04 pm
BillyG wrote:
Tue Dec 04, 2018 2:53 pm
One more question: Do you have an Attorney? It doesn't matter what her attorney knows or doesn't know.
Yes, I have an attorney. And I am attorney myself (and MBA and engineer). I am not seeking legal advice... I am asking finance questions about alternative funding sources. Being Bogleheads we already understand a lot more about the pre-tax, after-tax, etc. issues in my different accounts than my divorce lawyer who has been practicing over 40 years.

I don't understand why you say it doesn't matter what her attorney does and does not know. Can you explain?

Thanks,
Billy
[/quote]

It will all end of the same. Numbers get put into a computer, turn the crank and out comes the settlement. The only problem is that your ex thinks she deserves more (for whatever reason). Since you are an attorney , you know all of this. My ex-wife was a paralegal and hired some pretty good people. As it turns out, I could hire good people also. Believe me, the process scared the crap out of me. In the end she got less than I originally offered her. So my point is, forget about all the financial questions, everybody knows what's going on. Find out what it will take the end the ordeal and just pay the money. You have good credentials so you will have no problem getting back on your feet.
[/quote]

I hear you - finishing is the goal. Splitting assets is one thing. Large monthly alimony payments that are permanent, or even through age 70, is the big problem. Maryland has "indefinite" alimony which basically is permanent alimony unless you can get the court to cancel it. There is no formula. It is all negotiated or decided by a judge with an outcome similar to Vegas.

Billy

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Tue Dec 04, 2018 3:46 pm

BillyG wrote:
Tue Dec 04, 2018 3:14 pm
moehoward wrote:
Tue Dec 04, 2018 3:04 pm
BillyG wrote:
Tue Dec 04, 2018 2:53 pm
One more question: Do you have an Attorney? It doesn't matter what her attorney knows or doesn't know.
Yes, I have an attorney. And I am attorney myself (and MBA and engineer). I am not seeking legal advice... I am asking finance questions about alternative funding sources. Being Bogleheads we already understand a lot more about the pre-tax, after-tax, etc. issues in my different accounts than my divorce lawyer who has been practicing over 40 years.

I don't understand why you say it doesn't matter what her attorney does and does not know. Can you explain?

Thanks,
Billy
It will all end of the same. Numbers get put into a computer, turn the crank and out comes the settlement. The only problem is that your ex thinks she deserves more (for whatever reason). Since you are an attorney , you know all of this. My ex-wife was a paralegal and hired some pretty good people. As it turns out, I could hire good people also. Believe me, the process scared the crap out of me. In the end she got less than I originally offered her. So my point is, forget about all the financial questions, everybody knows what's going on. Find out what it will take the end the ordeal and just pay the money. You have good credentials so you will have no problem getting back on your feet.
[/quote]

I hear you - finishing is the goal. Splitting assets is one thing. Large monthly alimony payments that are permanent, or even through age 70, is the big problem. Maryland has "indefinite" alimony which basically is permanent alimony unless you can get the court to cancel it. There is no formula. It is all negotiated or decided by a judge with an outcome similar to Vegas.

Billy
[/quote]

Ouch, I got divorced in CA which alimony after 10 years is for life. Life! CA has lightened up on this rule a bit but its still there. In the end, it became a non issue when she remarried. (4th husband on last count). Alimony in your case? That's rough and I have no advice or comment.

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Re: Advice on Divorce Settlement Options

Post by Bronko » Tue Dec 04, 2018 4:18 pm

Billy,

You're obviously intelligent and know what you have in store. I would recommend "The 10 stupidest mistakes men make when facing divorce" Joseph Cordell. Quick read and lays out solid tactics on the business transaction of divorce. The other part is that while she has a high dollar attorney and he has slick software to crunch numbers there is no getting around greed in people. If you can put a number in front of her that she settles for and add in the amount that will be wasted going to an attorney rather than her it may be worth it.

The old "you can get the money or you're attorney can get the money. But not both of you. Choose."



Bronko

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Re: Advice on Divorce Settlement Options

Post by BillyG » Tue Dec 04, 2018 5:30 pm

Bronko wrote:
Tue Dec 04, 2018 4:18 pm
Billy,

You're obviously intelligent and know what you have in store. I would recommend "The 10 stupidest mistakes men make when facing divorce" Joseph Cordell. Quick read and lays out solid tactics on the business transaction of divorce. The other part is that while she has a high dollar attorney and he has slick software to crunch numbers there is no getting around greed in people. If you can put a number in front of her that she settles for and add in the amount that will be wasted going to an attorney rather than her it may be worth it.

The old "you can get the money or you're attorney can get the money. But not both of you. Choose."



Bronko
Bronko,
You are exactly right. She really is too... shall I say "uninformed"... to figure that out. Here's the timeline:

September 2017 She moves out, after secretly raiding a Vanguard account and charging her legal fees to our joint Amex.
October 2017 I say "I will pay you "X" dollars through December contingent on agreeing to mediation and we can get this wrapped up before 2018.
October 31, 2017 She sues me
During the ensuing year, legal hearings, depositions, first mediation (finally!! after they cancelled multiple opportunities) on October 24, 2018.
So it goes, more than half-million dollars later... it's a very simple divorce, no minor children, W2 employees, no family businesses.

The backdrop is the huge change in alimony tax law for divorces after December 2018. This allows them to be very greedy and uncompromising with me...

On the good side I met a fantastic woman. Her divorce after 17 years of marriage took 6 weeks. her husband was a lawyer and he understood your formula above. Why in the world would anyone give their hard-earned money to lawyers if they can work it out themselves?

Anyway, I want to focus on the financial aspects, not the details of how these things go down.

Billy

SQRT
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Re: Advice on Divorce Settlement Options

Post by SQRT » Wed Dec 05, 2018 5:20 am

Billy, sorry I can’t help on some of your financial questions. These are jurisdiction specific and since I live in Canada I am not qualified to opine. I went through a terrible divorce that took 15 years to finalize. Complicating factor in my case was a young child.

All you can do is work your way through it. Be honest, and reasonable regardless of her behaviour. Remember, you have to look at yourself in the mirror every morning. Console yourself with knowing it will be over,eventually. You will rebuild your life. Sounds like you are doing your best. Good luck.

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VictoriaF
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Re: Advice on Divorce Settlement Options

Post by VictoriaF » Wed Dec 05, 2018 10:58 am

Billy,

I have thought of a couple strategic considerations that may or may not be useful:

1. You wrote that "opposing counsel is a tax lawyer." You may be able to use this to your advantage if your lawyer is a divorce lawyer. If your wife's lawyer is satisfied with the numbers, you may be able to get some intangibles.

2. There are findings in psychology that people feel better when they receive good things in installments than if they get a greater amount at once. And people feel worse when they have many small losses than when they experience one large loss, even if the large loss is greater than the sum of small ones. In other words, people are more sensitive to the quantity of instances than to the amounts. If you pay a large lump sum to your wife to be over with the divorce, you will feel better even if that results in, say, 10% loss. On the other hand, your wife will feel better receiving installments, even if the total sum will be less than the lump sum.

You can use these concepts in two ways:
a) decide whether you want to optimize your own money or satisfaction
b) pay attention to the final agreement to ensure that your wife does not try to change the terms if later she feels dissatisfied.

Good luck,
Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

SQRT
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Re: Advice on Divorce Settlement Options

Post by SQRT » Wed Dec 05, 2018 12:13 pm

VictoriaF wrote:
Wed Dec 05, 2018 10:58 am
Billy,
pay attention to the final agreement to ensure that your wife does not try to change the terms if later she feels dissatisfied.
This was the key issue when I finally finalized my divorce agreement. In Ontario (Canada) divorce agreements can be easily reopened if there is a “material change of circumstances” to either of the parties. For this reason my X reopened our agreement several times during the period 1992-2007 because my career advanced considerably and my compensation increased dramatically. Also, (because of my case) the courts held that there was a “continuous duty to disclose” personal income data unless both parties agree not to. Each time she wanted “a piece” of my comp increase and the courts obliged her.

In order to finalize our agreement I had to get around this. Accordingly the wording of our agreement contains words like “final, no further disclosure, no circumstances such as financial hardship, or health issues, would cause it to be reopened, etc”. So far so good.

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Re: Advice on Divorce Settlement Options

Post by BillyG » Wed Dec 05, 2018 2:02 pm

VictoriaF wrote:
Wed Dec 05, 2018 10:58 am
Billy,

I have thought of a couple strategic considerations that may or may not be useful:

1. You wrote that "opposing counsel is a tax lawyer." You may be able to use this to your advantage if your lawyer is a divorce lawyer. If your wife's lawyer is satisfied with the numbers, you may be able to get some intangibles.

2. There are findings in psychology that people feel better when they receive good things in installments than if they get a greater amount at once. And people feel worse when they have many small losses than when they experience one large loss, even if the large loss is greater than the sum of small ones. In other words, people are more sensitive to the quantity of instances than to the amounts. If you pay a large lump sum to your wife to be over with the divorce, you will feel better even if that results in, say, 10% loss. On the other hand, your wife will feel better receiving installments, even if the total sum will be less than the lump sum.

You can use these concepts in two ways:
a) decide whether you want to optimize your own money or satisfaction
b) pay attention to the final agreement to ensure that your wife does not try to change the terms if later she feels dissatisfied.

Good luck,
Victoria
Victoria,

Thank you for these very thoughtful and timely comments. I've read about the psychological findings you discuss and it is very helpful to think about them now, in this context. The possible tension with a Bogleheads approach is interesting; psychologically a lump sum is good, but from a Bogleheads perspective a series of payments allows me to control the money now and perhaps have investment earnings that help with the payments. In addition, the payments could go away if she becomes remarried or dies, and this is not the case with a lump sum. Of course this is precisely why you said I need to decide whether to optimize my own money or satisfaction.

The modifiability is tricky. On one hand it would be nice to modify the payments lower if I become disabled or lose my job. On the other hand, I don't want them to modified higher for any reason. Maybe it's better to have everything airtight and final.

I tried for years to get her to attend a Bogleheads event. How nice it would be if she understood low transaction costs and preserving capital -- perhaps we could have done an index finger handshake and worked it out quickly!

Thanks,
Billy

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Re: Advice on Divorce Settlement Options

Post by VictoriaF » Wed Dec 05, 2018 2:11 pm

BillyG wrote:
Wed Dec 05, 2018 2:02 pm

I tried for years to get her to attend a Bogleheads event. How nice it would be if she understood low transaction costs and preserving capital -- perhaps we could have done an index finger handshake and worked it out quickly!
Billy,

At this time, it's probably better that your wife is unfamiliar with the Bogleheads principles. If she were, she would have more ways to hurt you. When people are angry, they sometimes hurt others even if it hurts them too. (In Behavioral Economics, there is the Ultimatum game, which has a different premise from a divorce but a similar dynamic: desire to punish the other even if it hurts you.)

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Advice on Divorce Settlement Options

Post by BillyG » Wed Dec 05, 2018 3:34 pm

VictoriaF wrote:
Wed Dec 05, 2018 2:11 pm
BillyG wrote:
Wed Dec 05, 2018 2:02 pm

I tried for years to get her to attend a Bogleheads event. How nice it would be if she understood low transaction costs and preserving capital -- perhaps we could have done an index finger handshake and worked it out quickly!
Billy,

At this time, it's probably better that your wife is unfamiliar with the Bogleheads principles. If she were, she would have more ways to hurt you. When people are angry, they sometimes hurt others even if it hurts them too. (In Behavioral Economics, there is the Ultimatum game, which has a different premise from a divorce but a similar dynamic: desire to punish the other even if it hurts you.)

Victoria
You've summed it up pretty well. These things that don't make sense to me are the result of anger.

Billy

J G Bankerton
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Re: Advice on Divorce Settlement Options

Post by J G Bankerton » Wed Dec 05, 2018 4:43 pm

"Heav'n has no rage like love to hatred turn'd / Nor Hell a fury, like a woman scorn'd."

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Wed Dec 05, 2018 4:48 pm

J G Bankerton wrote:
Wed Dec 05, 2018 4:43 pm
"Heav'n has no rage like love to hatred turn'd / Nor Hell a fury, like a woman scorn'd."
Even a woman self-scorn'd - it was her decision to move out and do this...

You are correct, of course, at least in my case.

Billy

J G Bankerton
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Re: Advice on Divorce Settlement Options

Post by J G Bankerton » Wed Dec 05, 2018 4:54 pm

BillyG wrote:
Wed Dec 05, 2018 4:48 pm
J G Bankerton wrote:
Wed Dec 05, 2018 4:43 pm
"Heav'n has no rage like love to hatred turn'd / Nor Hell a fury, like a woman scorn'd."
Even a woman self-scorn'd - it was her decision to move out and do this...

You are correct, of course, at least in my case.

Billy
Been there done that. Gird your loins.

BillyG
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Re: Advice on Divorce Settlement Options

Post by BillyG » Wed Dec 05, 2018 5:29 pm

VictoriaF wrote:
Wed Dec 05, 2018 2:11 pm
BillyG wrote:
Wed Dec 05, 2018 2:02 pm

I tried for years to get her to attend a Bogleheads event. How nice it would be if she understood low transaction costs and preserving capital -- perhaps we could have done an index finger handshake and worked it out quickly!
Billy,

At this time, it's probably better that your wife is unfamiliar with the Bogleheads principles. If she were, she would have more ways to hurt you. When people are angry, they sometimes hurt others even if it hurts them too. (In Behavioral Economics, there is the Ultimatum game, which has a different premise from a divorce but a similar dynamic: desire to punish the other even if it hurts you.)

Victoria
Here's an interesting question:

Part of divorce asset valuation involves apples and oranges -- savings accounts, homes, IRAs, ROTH IRA's, real estate etc with different basis calculations and different tax treatment. For assets that are divided in half, it doesn't matter because each party gets half-apples and half-oranges. In trying to convert all of these different asset types into after-tax assets (assets on which no taxes are due such as a regular savings account) that are "apples" for comparison, how would you convert a 401(k) into an after-tax "apple" for comparison to other assets?

For example, if I offer an extra $100K from a 401(k) as part of an up-front payment, my wife's lawyer would say it is worth only $70K after-tax, applying what he says is her 30% income tax rate. I might argue the 30% rate is incorrect because:

1. The calculation should not be done at her current marginal rate.
2. The calculation should reflect the rate that applies when the funds would be withdrawn, which is in retirement at a lower rate.
3. The calculation should not assume the $100K is withdrawn all at once. For example, she could withdraw $39K/year and pay a 12% marginal rate (assuming no other income).
4. We should use a blended rate rather than a marginal rate (assuming no other income, which may not be accurate).
5. This money has additional value in that earnings and growth can accumulate tax deferred. There is value to her of having more tax-deferred space for her retirement investments.

I am open to any comments or observations on this analysis. Does it hold water?

I am particularly interested in how to place a "value" on the tax-deferred earnings/growth aspect of this money in a 401(k). I doubt there is a way to apply a percentage, but it should be worth something. For example, it has value in tax efficient placement of funds that spin off dividends which can accumulate without having to pay annual taxes at a higher tax rate than in retirement.

See tax table below.

Billy

Table 1. Tax Brackets and Rates, 2019
Rate For Unmarried Individuals, Taxable Income Over

10% $0
12% $9,700
22% $39,475
24% $84,200
32% $160,725
35% $204,100
37% $510,300
Last edited by BillyG on Wed Dec 05, 2018 6:01 pm, edited 1 time in total.

moehoward
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Re: Advice on Divorce Settlement Options

Post by moehoward » Wed Dec 05, 2018 5:39 pm

BillyG wrote:
Wed Dec 05, 2018 4:48 pm
J G Bankerton wrote:
Wed Dec 05, 2018 4:43 pm
"Heav'n has no rage like love to hatred turn'd / Nor Hell a fury, like a woman scorn'd."
Even a woman self-scorn'd - it was her decision to move out and do this...

You are correct, of course, at least in my case.

Billy
On this same thread, I asked my wife during our divorce why she was being so mean? Her answer, "You exist". 25 years later I still tease her about the comment. She has mellowed out a bit.

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VictoriaF
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Re: Advice on Divorce Settlement Options

Post by VictoriaF » Thu Dec 06, 2018 8:02 am

BillyG wrote:
Wed Dec 05, 2018 5:29 pm
Here's an interesting question:

Part of divorce asset valuation involves apples and oranges -- savings accounts, homes, IRAs, ROTH IRA's, real estate etc with different basis calculations and different tax treatment. For assets that are divided in half, it doesn't matter because each party gets half-apples and half-oranges. In trying to convert all of these different asset types into after-tax assets (assets on which no taxes are due such as a regular savings account) that are "apples" for comparison, how would you convert a 401(k) into an after-tax "apple" for comparison to other assets?

For example, if I offer an extra $100K from a 401(k) as part of an up-front payment, my wife's lawyer would say it is worth only $70K after-tax, applying what he says is her 30% income tax rate. I might argue the 30% rate is incorrect because:

1. The calculation should not be done at her current marginal rate.
2. The calculation should reflect the rate that applies when the funds would be withdrawn, which is in retirement at a lower rate.
3. The calculation should not assume the $100K is withdrawn all at once. For example, she could withdraw $39K/year and pay a 12% marginal rate (assuming no other income).
4. We should use a blended rate rather than a marginal rate (assuming no other income, which may not be accurate).
5. This money has additional value in that earnings and growth can accumulate tax deferred. There is value to her of having more tax-deferred space for her retirement investments.

I am open to any comments or observations on this analysis. Does it hold water?

I am particularly interested in how to place a "value" on the tax-deferred earnings/growth aspect of this money in a 401(k). I doubt there is a way to apply a percentage, but it should be worth something. For example, it has value in tax efficient placement of funds that spin off dividends which can accumulate without having to pay annual taxes at a higher tax rate than in retirement.

See tax table below.

Billy

Table 1. Tax Brackets and Rates, 2019
Rate For Unmarried Individuals, Taxable Income Over

10% $0
12% $9,700
22% $39,475
24% $84,200
32% $160,725
35% $204,100
37% $510,300
Billy,

If your wife's lawyer is applying 30% discount to tax-deferred funds you would give to your wife, you can give your wife money from Roth and apply 40% discount to the tax-deferred funds you keep. The logic should work both ways.

While you treasure your Roth, you may end up with more assets using the strategies you have listed, i.e., not cashing it all at once, waiting for low-income years, etc.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Advice on Divorce Settlement Options

Post by SGM » Thu Dec 06, 2018 10:07 am

Billy, I am sorry for your breakup.

#cruncher helped Ed concerning the math associated with a reverse mortgage when he was in Manhattan. David Grabiner knows a lot about Maryland taxes.

How about giving your wife a life estate in your house or another house and putting the deed in your child's name. Give the wife a smaller lump sum and some alimony. Have your estate or a trust responsible for continuing the payments if you pre-decease her. Putting the deed in a child's name might help the both of you who might be interested in leaving a legacy.

As an aside with nothing to do with your relationship or you. My "brain trust" of old fogies at breakfast meetings always make me laugh or teach me something. A business consultant Brian says never give cut flowers after an argument. Flowers become associated with ill feeling. An obligation like holidays are only a little better. But giving cut flowers any other day start a long lived circular rhythm. The giver (usually a male) sees the appreciation and realization of love in the eyes of the receiver. The receiver sees the happiness in the eyes of the giver and the effect multiplies as they look at each other. I haven't read the study, but I think I will act on Brian's advice.


Best of luck Billy. I am sorry for you both.

BillyG
Posts: 419
Joined: Sat Nov 17, 2012 9:02 pm
Location: Maryland, USA

Re: Advice on Divorce Settlement Options

Post by BillyG » Thu Dec 06, 2018 2:35 pm

SGM wrote:
Thu Dec 06, 2018 10:07 am
Billy, I am sorry for your breakup.

#cruncher helped Ed concerning the math associated with a reverse mortgage when he was in Manhattan. David Grabiner knows a lot about Maryland taxes.

How about giving your wife a life estate in your house or another house and putting the deed in your child's name. Give the wife a smaller lump sum and some alimony. Have your estate or a trust responsible for continuing the payments if you pre-decease her. Putting the deed in a child's name might help the both of you who might be interested in leaving a legacy.

As an aside with nothing to do with your relationship or you. My "brain trust" of old fogies at breakfast meetings always make me laugh or teach me something. A business consultant Brian says never give cut flowers after an argument. Flowers become associated with ill feeling. An obligation like holidays are only a little better. But giving cut flowers any other day start a long lived circular rhythm. The giver (usually a male) sees the appreciation and realization of love in the eyes of the receiver. The receiver sees the happiness in the eyes of the giver and the effect multiplies as they look at each other. I haven't read the study, but I think I will act on Brian's advice.


Best of luck Billy. I am sorry for you both.
Sam,

Thanks for this; I appreciate it.

We are past this point on our home; our kids are in college and there is no need for a large five bedroom house. My wife knows how much hard work I put into our home so she gets satisfaction out of a forced sale. I might have been able to keep it if she had not spent so much on lawyers. Too bad for our kids; they grew up in this home.

I love your comment about the cut flowers! On the good side of life I met a fabulous woman after my wife moved out of the house. We are on the same page in so many ways. She is full of energy and go-getter and a runner. We do whitewater kayaking together (so she's an adventurer) and we do Hot Pilates together. I gave up running for yoga so she may join me one day after running beats up her body like it did mine.

Anyway, we both love cut flowers and we buy them for each other, or cut them from the garden when they are blooming. On more than one occasion we surprised each other with flowers on the same day. It is interesting you mentioned this because it is something we share...

Billy

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