In this episode: Knowing what you own isn’t enough. You need to know what it means for your future. Jon Peyton shows how to connect your assets, cash flow and benefits to household, personal and long-term goals, and walks through three examples where an even split on paper leads to very different lives a few years later.
Key insights
- Shared household goals, like college, vacations and paying off debt, get harder to fund once you’re running two households.
- Your new personal goals carry real costs, such as therapy, fitness or going back to school, and need to be built into the plan.
- A large settlement can still run out. Spending more than your income and alimony can drain assets within about a decade.
- A business owner’s income can be restructured in ways that lower the amount available for alimony or child support.
- Keeping the family home can trap money that might have grown elsewhere and leave you with fewer liquid assets.
Episode timeline
- 0:00 Introduction
- 0:37 Not a math person? You still need your numbers
- 2:28 Going beyond assets and income
- 3:13 Connecting the numbers to your goals
- 4:12 Household goals: college, vacations, debt, the next car
- 6:35 Your personal goals and what they cost
- 7:42 Your long-term goals and the real cost of divorce
- 9:20 When the money has to last longer than you planned
- 10:13 Example: an executive’s household
- 11:36 How a $1 million settlement can run out
- 12:58 Example: a business owner’s income
- 15:44 Without your numbers, you’re negotiating blind
- 16:59 Why applying the numbers matters
- 18:07 Example: who keeps the family home?
- 20:37 The opportunity cost of home equity
- 23:07 Equal on paper, different years later
- 23:52 Divorce planning versus divorce financial planning
- 24:45 One step at a time
The episode in brief
You don’t have to love math. Jon admits complex math was never his strength, but numbers made sense once he saw them applied in real life. In a divorce, you need to know your numbers and how they apply to you.
Go beyond assets and income. Ask where everything is, how much there is, and where it all goes. With that answer, you can work toward a peaceful agreement on dividing assets rather than a fight.
Household goals. As a couple you probably had goals: family vacations, college for the kids, paying off debt, the next car. Once there are two households, there may be less money for those goals. You might set aside assets now to pre-fund college, or accept that a child may need student loans.
Personal goals. Life after divorce brings its own goals and costs, such as therapy, a gym membership or going back to school to earn more. Include them in your plan.
Long-term goals. The bigger question is how you’ll fund your lifestyle and retirement without giving up what matters. Every cost of divorce, from legal fees to the emotional toll, reduces what’s left for the future. Handled well by both people, the financial burden shrinks and more remains for education, retirement and the things you want to do.
Don’t assume alimony will carry you. If you plan to live on alimony and child support and your assets don’t grow enough, you may have to work longer, sacrifice more or live below your means for years.
Example: the executive’s household. A couple has $1 million in assets and spends $200,000 a year. A judge may not split it evenly in an at-fault state if there was infidelity. In a community property state it may be 50/50. Each spouse now needs about $150,000 a year to keep the same lifestyle. An executive earning $250,000 to $300,000 can cover that plus $50,000 a year in alimony. The other spouse, receiving $500,000 plus $50,000 a year in alimony, would need to draw $100,000 a year from savings and could run out within about 10 years. A large settlement doesn’t guarantee long-term security.
Example: the business owner. A founder whose business brings in $500,000 a year pays themselves $200,000. If they change that to a $100,000 salary plus a $100,000 profit share, they can argue the profit share isn’t guaranteed and leave it in the business. Their reported income drops, and so does what’s available for alimony or child support. Paying extra tax during the year to get a large refund later is another tactic. A qualified divorce financial professional can review the numbers to make sure both sides are being truthful.
Without your numbers, you’re negotiating blind. You may know your assets and income without knowing what you need, what you’re fighting for, or how any of it connects to your goals. Numbers on paper mean little until you apply them.
Example: the family home. A household has $2 million, including an $800,000 home with a $200,000 mortgage, so $600,000 in equity. Splitting evenly, each spouse would get $600,000 of the remaining $1.2 million plus $300,000 of home equity. One spouse wants to keep the home and buys out the other’s $300,000 share using liquid assets. They now have the home and $300,000 in liquid assets, while the other spouse has $900,000 to invest.
The hidden cost of keeping the house. If the spouse who kept the home has to draw on that $300,000 to cover bills, it may run out in a few years, forcing a sale anyway. Meanwhile, money tied up in the home may grow more slowly than money invested elsewhere. Years later, the spouse who kept the house may have only the sale proceeds, part of which goes to the next home, while the other spouse has a home and a much larger portfolio. Equal on day one, very different five to seven years later.
Divorce financial planning looks past the decree. Divorce planning focuses on getting through the divorce. Divorce financial planning also asks what happens afterward: your new retirement plan, education plan and financial plan, now that you’re on your own. The better you know your numbers, the earlier you can test these scenarios and decide what’s worth holding firm on.
One step at a time. Start with what’s in front of you, then the next step.
Key action items
- List your household goals (college, travel, debt payoff, vehicles) and decide which still apply and how they’ll be funded after the divorce.
- Add your personal goals and their costs to your post-divorce budget.
- Test whether your settlement can sustain your lifestyle. Compare your expected income plus any alimony with your spending, and see how long your assets would last.
- Think twice about keeping the house. Compare what it costs to keep it with what the same money could do in liquid assets.
- Get help with complex income. If a spouse owns a business, ask a qualified financial professional to review how income is reported.
Listen next: Episode 6: Divorce – There’s No “I” in Team
Jon Peyton previously held the Certified Divorce Financial Analyst® (CDFA®) designation and no longer holds it. References in this episode reflect his credentials at the time of recording.
This episode is educational and isn’t legal, tax or financial advice. Speak with your own attorney and advisers about your situation.