Money Talk: The House or the IRA?
by Jean Sherman Chatsky
The House or the IRA?
You can now hire a “certified divorce planner” to help you decide.
As Diane O’Rorke tells it, money was the only contentious issue in her divorce last year. A 45-year-old South Florida mother of two, O’Rorke and her husband quickly agreed on how to handle the house (they sold it), the custody (joint), the visitations (he gets weekends) and even their furniture and belongings (split down the middle). But when it came to their cash and stocks — some of which he brought with him to the marriage — they tried to find some middle ground. And failed. Several months and a few thousand dollars in legal bills later, O’Rorke’s attorney suggested bringing in a different kind of pro — a financial planner specializing in divorce called a “divorce planner.”
In just 12 hours, David Twenhafel, a divorce planner in Rockville, Md., untangled the mess for less than $2,000. How? He ran two sets of numbers showing the division of assets. The first depicted a split of only the couple’s marital assets, the second of all their assets. The comparison highlighted that the 50% of marital assets O’Rorke was requesting was only 35% to 40% of their total net worth. “The pie charts seemed to make my husband feel more comfortable,” O’Rorke explains (her ex-husband declined to comment). All of a sudden they had a deal.
Divorce planners are a fairly new breed, but their numbers are growing. The Boulder-based Institute for Certified Divorce Planners has certified some 500 financial planners, accountants and attorneys as C.D.P.s since 1993 — more than 200 in just the past year. They focus on the specific tax, pension and alimony issues that hamper most negotiations, using software to project how proposed settlements will change the net worth of one or both spouses 20 years out. And after they’re certified, C.D.P.s work not only as consultants like Twenhafel but as expert witnesses whose goal is to get a judge to mandate a split, that’s equitable.
If you’re going through a divorce, you may want to consider adding a C.D.P. to your payroll (You can call the institute at 800-875-1760 for a referral). Borrowing successful strategies can also help you avoid mistakes:
♦ Hire pros to value pension assets. Only someone who’s familiar with a particular pension plan can give you an accurate estimate of an account’s worth. Institute Founder Carol Ann Wilson recently testified for the wife of a longtime state trooper. His pension statement showed what he had contributed and the income those contributions had earned—but not that the state was going to kick in a significant sum upon his retirement. Wilson got her client an extra $1,500 a month.
♦Watch capital gains. A split of assets won’t be equitable unless taxes are taken into account. This goes for stocks, funds and real estate.
♦Don’t guess about spending. With spreadsheets, says C.D.P. Twenhafel, “I can say to my clients, you’ll be financially secure if you spend this much each year — but if you spend even $4,000 more a year, you’ll be in bad shape.”
♦ Consider whether the assets are growing. IRAs usually appreciate. Houses often don’t. That can make the former a smarter bet—even though many women, in particular, don’t see it that way. “We can’t tell [a woman] that she can’t keep her house,” says Wilson. “But we can draw up spreadsheets to show her that she’ll be broke in 10 years if she does.”
Editor-at-large Jean Chatzky appears regularly on NBC’s Today. You can contact her by e-mail at email@example.com.