IAFP 2003 Considerations in Divorce Akeela Davis, CFP, RFP, FDS, EPC.
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Transcript of IAFP 2003 Considerations in Divorce Akeela Davis, CFP, RFP, FDS, EPC.
IAFP 2003Considerations in Divorce
Akeela Davis, CFP, RFP, FDS, EPC
Questions about Divorce
Can I manage by myself?
How much will I pay in Child Support?
Will I be a bag lady? Will it scar my kids?
Know Your Boundaries
Let the client know your boundaries!
What can an advisor do?
Be an information source Have a list of books you can recommend Have a list of referable counselors Have a list of referable lawyers Have a list of referable mediators
A Financial Divorce Specialist
Raise questions, give information Emergency funds Insurance Tax consequences
A Financial Divorce Specialist
Raise questions, give information Revoking existing POA Preparing for separation Credit rating
A Financial Divorce Specialist
Raise questions, give information Financial statements Demystify pensions Establish tax discounting rates
Modeling
Abstract information
Visual model
The Family
Michelle Brady – 46 years Frank Brady – 47 years Married 20 years Four children ages 14, 10, 5 and 4
Family Finances (Income)
Frank – Salary $67,000/yr Frank – Dividends IRS $30,000/yr Michelle – Salary $170,000/yr Michelle – Dividends IRS $30,000/yr Michelle – Dividends ABC $70,000/yr
Total Family Income $367,000/yr
Family Finances (Expenses)
Estimated Income Tax $114,000 Michelle’s RRSP $14,500 Accelerated Mortgage $74,500 RESP $8,000 General Living Expenses $146,500
Total Family Expenses $357,000/yr
Family Assets (Joint)
Value Liability Net Asset
Residence$650,000 $300,000 $350,000 MM Fund $52,000 $0 $52,000 IRS* $525,000 $121,900 $403,100
$805,100
Family Assets (Frank)
Value Liability Net Asset
RRSP $63,000 $0 $63,000 Pension $141,000 $0 $141,000 Vehicle $15,000 $0 $15,000 Boat $25,000 $0 $25,000
$244,000
Family Assets (Michelle)
Value Liability Net Asset
RRSP $181,000 $0$181,000
MM Fund $21,000 $0 $21,000 IRS* $20,000 $0 $20,000
$222,000
Exempt Assets? (Michelle)
Value Liability Net Asset
Mutual Fund $175,000 $0$175,000
ABC* $1,600,000 $127,700 $1,600,000
$1,775,000
Proposition #1
Frank Shares in ABC growth since marriage Gets cash buyout from both businesses Keeps 100% pension Gets open mutual funds for home equity Child support payments = income only Frank gets some of Michelle’s RRSP MM split 50/50
Proposition #1 – Summary
Frank Gets $939,847 in cash and RRSP No debts 100% of his pensions Pays $16,776 tapering to $6,636 in child support Lifestyle expenses = $62,000/year Gross income = $67,000
Proposition #1
Michelle Keeps the children Gets ABC ½ ABC growth since marriage Keeps IRS Takes out loans to buyout Frank ABC/IRS Keeps home with mortgage Gets child support payments Keeps most of her RRSP MM split 50/50
Proposition #1 – Summary
Michelle $214,000 in cash and RRSP Assets $2,775,000 - $941,000 debts, plus tax
liability on businesses Receives child support $16,776 - $6,636 Debt repayments $104,868 annually Lifestyle expenditures = $98,200 Gross income +$300,000
Client Concerns and Fears
Michelle & Frank - Net Worth
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
$7,000,000
46 51 56 61 66 71
Michelle's Age (Years)
Ne
t Wo
rth
($
)
Frank
Michelle
Client Concerns and Fears
Michelle & Frank - Liquidation
$-
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
46 51 56 61 66 71
Michelle's Age (Years)
Liqu
id A
sset
s ($
)
Michelle
Frank
Underlying Numbers
Michelle's Financial Sheet
Age Net SalaryOther Income CPP
Child Support
Living Expenses Mortgage
Expense Adjustment Cash Flow
Liquid Assets RRSP
Real Estate Equity Net Worth
46 2.00% 2.00% 14 Years 3.00% 20 Years 5.00% 7.50% 3.00%46 106,782$ 89,258$ -$ 16,776$ 98,806$ 104,868$ 52,500$ 9,142$ 26,000$ 188,900$ 1,814,000$ 2,028,900$ 47 108,918$ 89,258$ -$ 16,776$ 101,770$ 104,868$ -$ 8,313$ 36,442$ 217,568$ 1,916,518$ 2,170,527$ 48 111,096$ 89,258$ -$ 16,776$ 104,824$ 104,868$ -$ 7,439$ 46,578$ 248,385$ 2,023,189$ 2,318,152$ 49 113,318$ 89,258$ -$ 16,776$ 107,968$ 104,868$ -$ 6,516$ 56,345$ 281,514$ 2,134,238$ 2,472,097$ 50 115,584$ 89,258$ -$ 14,076$ 111,207$ 104,868$ -$ 2,843$ 65,678$ 317,127$ 2,249,902$ 2,632,708$ 51 117,896$ 89,258$ -$ 14,076$ 114,544$ 104,868$ -$ 1,819$ 71,805$ 355,412$ 2,370,438$ 2,797,655$ 52 120,254$ 89,258$ -$ 14,076$ 117,980$ 104,868$ -$ 740$ 77,214$ 396,568$ 2,496,120$ 2,969,903$ 53 122,659$ 89,258$ -$ 14,076$ 121,519$ 104,868$ -$ (394)$ 81,815$ 440,811$ 2,627,245$ 3,149,871$ 54 125,112$ 89,258$ -$ 10,764$ 125,165$ 104,868$ -$ (4,898)$ 85,512$ 488,371$ 2,764,130$ 3,338,013$ 55 127,614$ 89,258$ -$ 10,764$ 128,920$ 104,868$ -$ (6,151)$ 84,889$ 539,499$ 2,907,115$ 3,531,503$ 56 130,167$ 89,258$ -$ 10,764$ 132,787$ 104,868$ -$ (7,466)$ 82,983$ 594,462$ 3,056,569$ 3,734,014$ 57 132,770$ 89,258$ -$ 10,764$ 136,771$ 104,868$ -$ (8,847)$ 79,665$ 653,546$ 3,212,889$ 3,946,100$ 58 135,425$ 89,258$ -$ 10,764$ 140,874$ 104,868$ -$ (10,294)$ 74,802$ 717,062$ 3,376,501$ 4,168,365$ 59 138,134$ 89,258$ -$ 6,636$ 145,100$ 104,868$ -$ (15,940)$ 68,248$ 785,342$ 3,547,867$ 4,401,456$ 60 140,897$ 89,258$ -$ -$ 111,453$ 104,868$ (38,000)$ 13,834$ 55,720$ 858,743$ 3,727,485$ 4,641,947$ 61 143,715$ 89,258$ -$ -$ 114,797$ 104,868$ -$ 13,308$ 72,339$ 937,648$ 3,915,894$ 4,925,881$ 62 146,589$ 89,258$ -$ -$ 118,241$ 104,868$ -$ 12,738$ 89,264$ 1,022,472$ 4,113,676$ 5,225,411$ 63 149,521$ 89,258$ -$ -$ 121,788$ 104,868$ -$ 12,123$ 106,465$ 1,113,657$ 4,321,461$ 5,541,584$ 64 152,511$ 89,258$ -$ -$ 125,442$ 104,868$ -$ 11,460$ 123,911$ 1,211,682$ 4,539,934$ 5,875,527$ 65 155,561$ 89,258$ -$ -$ 129,205$ 104,868$ -$ 10,747$ 141,567$ 1,317,058$ 4,769,832$ 6,228,456$ 66 -$ 70,000$ 8,928$ -$ 118,581$ 96,148$ (14,500)$ (135,801)$ 159,391$ 1,415,837$ 5,011,959$ 6,587,187$ 67 -$ 70,000$ 9,107$ -$ 122,139$ -$ -$ (43,032)$ 913,394$ 1,522,025$ 4,185,663$ 6,621,081$ 68 -$ 70,000$ 9,289$ -$ 125,803$ -$ -$ (46,514)$ 916,032$ 1,636,177$ 4,311,233$ 6,863,441$ 69 -$ 70,000$ 9,474$ -$ 129,577$ -$ -$ (50,102)$ 915,319$ 1,758,890$ 4,440,570$ 7,114,779$ 70 -$ 70,000$ 9,664$ -$ 133,464$ -$ -$ 34,144$ 910,983$ 1,767,684$ 4,573,787$ 7,252,454$
Underlying Information
Assumptions about Interest rates Tax rates Inflation rates
Another Scenario
Michelle & Frank - Net Worth
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
$7,000,000
46 51 56 61 66 71
Michelle's Age (Years)
Ne
t Wo
rth
($
)
Frank
Michelle
Another Scenario
Michelle & Frank - Liquidation
$-
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$1,750,000
$2,000,000
46 48 50 52 54 56 58 60 62 64 66 68 70
Michelle's Age (Years)
Liq
uid
Ass
ets
($
)
Frank
Michelle
Summary – Michelle’s Concerns
Impact on children?
Summary – Michelle’s Concerns
Can she make it on her own? What would her retirement look like?