Divorce Finance
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our client, Dan, has provided you with an affidavit of financial information (AFI) and you’ve
received the AFI from the opposing party, Sue, and both seem pretty straight forward. Here
is a list of their assets.
1. Principal Residence
Market Value
$750,000
Mortgage Balance
$150,000
HELOC
$200,000
Equity
$400,000
2. Vacation Home
Market Value
3. Dan’s 401(k)
Property
Settlements
- When Equal Is
Not Equal
$300,000
$150,000
4. Checking and Savings
$30,000
TOTAL ASSETS =
$880,000
Dan says that he wants to keep the primary home and he will let Sue keep the vacation home. Sue
is in agreement with this plan and therefore, to provide a 50/50 split, Sue will get half of the checking
and savings, $15,000 and $125,000 of the 401(k) for a total of $440,000 each. Ah, a perfect 50/50 split.
No problem!!
TM
By Nancy Hetrick CDFA
Dan
1. Principal Residence
Sue
$400,000
2. Vacation Home
$300,000
3. 401(k) $150,000
$25,000
$125,000
4. Checking and Savings
$30,000
$15,000
$15,000
TOTAL ASSETS = $880,000
$440,000
$440,000
Dan plans to live in the primary home for two to three more years and then sell it and downsize.
Sue plans to sell the vacation home and buy a new residence for herself. Since she’s only 50 years old,
she is also going to take advantage of her one-time opportunity to withdraw $100,000 from the 401(k)
Nancy Hetrick is the owner of Divorce Financial Strategies, LLC and a financial advi-
subsequent to divorce with no penalty, although she will have to pay income tax on the money. Hmm,
could these plans impact this settlement? Let’s take a new look at each party.
sor with Clarity Financial LLC. As a certified
divorce financial analyst [CDFA™], she assists
clients and their attorneys to understand
how the financial decisions he/she makes
today will impact their financial future.
She has over 13 years of experience in both
About six months after the divorce, Dan realizes that the upkeep on the home is more than he
can afford on his own and decides to go ahead and sell. He’s able to sell it for $775,000. He pays off
the $350k mortgage and HELOC and has to pay 6 percent for sales fees or $46,500 leaving him with
$378,500 in equity. The original price of the home, bought with his wife 25 years ago, was $150,000.
investment management and financial plan-
That means he now has a capital gain of $228,500. As a single person, he can exempt $250,000 of gain
ning. Nancy is also an accredited wealth
on a principal residence, avoiding any capital gains tax.
management advisor (AWMA), an accredited asset management specialist (AAMS), a
chartered mutual fund counselor (CMFC) and
a trained mediator. For more information,
see her website at www.nancyhetrick.com
Let’s look at Sue. She moved into the vacation home for six months before putting it on the market.
She was able to sell it for $325,000 with selling expenses of $19,500 leaving her with $305,500. The
property had been in her family for generations and the basis was $60,000 so she assumed that her gain
or contact her at 602-349-0164 or
of $245,500 was well under her personal exemption and she sold the property and used the money to
[email protected].
buy a new condominium. When tax time came around, her accountant looked at her with big eyes and