Fresh eyes = Creative settlements
I’m often asked if I have experience crafting creative divorce settlement solutions.
Quick answer: Yes.
But this begs an uncomfortable question: Are family lawyers, by their nature, basically un-creative?
No. Of course not.
But this isn’t about literature. It’s about—ugh—math. My field. Not yours.
So you know, already, that your job is to help divide up the assets equitably for your client. If the bottom line of the “Husband” column matches that of the “Wife,” then you’ve done your job, right?
Not necessarily. And this is where it gets tricky, nerdy, and somewhat arcane.
“Who wants the house? The other party will get the retirement assets.” I hear those lines, or some variation of them, all the time. But if “House” is worth, say, $1 million and “Retirement Assets” are worth $1 million, aren’t they the same?
Not a chance. Tax treatment, liquidity, and cost basis are just a few of the differences.
Remember “nerdy and arcane”? Brace yourself: Performing what’s known as the value stream calculations for a pension fund is a level of higher math that would make your head spin, or your eyes glaze over. Your choice.
Consider: What if that pension doesn’t kick in for another ten years? You need to discount the payments, for settlement/valuation purposes, from the day it starts, through to the recipient’s reasonable life expectancy (yes, “death date”), then discount that lump sum back to today. The two sets of calculations (which I can do) are for the stream of payments, and the value back to the day of the settlement.
Which brings up another wonky, yet important detail: Calculations like I just described essentially have a shelf life. Technically, what I calculate today, if it’s not agreed upon ASAP, becomes outdated and inaccurate, tomorrow. This is a significant factor if the negotiations extend over, say, several months, and as you well know, that never happens, right?
Minding their own business
Here’s another. What do you do when, say, the husband owns a good-sized business, which he wants to keep, and which the wife doesn’t want to own or run, post-divorce? He must give her something of equal value, but often, every other thing he has wouldn’t add up to the value of half that business. In other words, he can’t afford to buy her out.
This is when solutions require creativity.
The new, creative factor here is time. The husband can make payments over time. Of course, in my experience, men hate writing alimony checks; therefore a lump-sum buyout feels far less painful.
But think about time again. That business is not a static asset. It will continue to generate income over time. And “payment over time” effectively means “interest.”
Yep. Interest. I see attorneys overlook this all the time, simply because it’s not presented to them (by someone like me). So if the husband is looking to offer a calculated amount, now, he effectively gets a discount because he’s kind of “paying in cash.” But if he pays over time, then he should pay more, based on what the wife could reasonably earn over that time span, based on factors as diverse as her age, her risk tolerance, the total amount of assets, and so on. In other words, she would never want to give her ex- what’s effectively an interest-free loan. And you should never let that happen on your watch.
Thus, I’m able to help my attorney clients either save their clients a lot of money, or get a lot more money than they would have otherwise.
I can tell you anecdotally that tons of my fellow English majors in college were pre-law. (The rest of the pre-laws were usually PoliSci.) Still, the main gist is that all attorneys hate math.