John and Jane are 40- years-old and have two children. They own a home worth $165,000 with a net equity of $77,500. Their retirement savings total $165,500. John earns $90,000 a year and has a take-home pay of $68,760 a year. Jane has never worked outside the home and has no job skills, but hopes to get a part-time job with takehome pay of $8,900 a year.
The following settlement has been suggested. After the divorce, Jane and the children will live in the matrimonial home, which will be deeded to her. She will also receive $44,000 of the retirement savings while John will receive the remaining $121,500, thus dividing the assets equally. John will pay Jane spousal support of $600 per month for five years, and child support of $225 per month per child. He will also pay the children’s college costs, starting in four years.
John’s expenses include his normal living expenses, child support, spousal support and education costs. Jane’s expenses include support for the children, and will be reduced as each child leaves home to attend college.
At first glance, this appears to be a reasonably fair settlement. However, a detailed analysis creates the financial future illustrated in Graph 1 (below). As you can see, Jane’s assets will be completely depleted within seven years, whereas John’s investments will grow dramatically.