Consider the value of liquid assets in divorce property divisions

On behalf of Bebout, Potere, Cox & Bennion, P.C. posted in divorce on Tuesday, August 2, 2016.

A divorce may require a significant readjustment in an individual’s long-term financial planning. For example, a decision to accept an illiquid asset, like the family home, over cash or securities may be unwise if a divorcing individual is near retirement.

An individual may be counting on spousal support, or alimony, to support his or her needs after divorce. However, such an award may be limited in duration, perhaps ceasing after several years. Spousal support is also taxable. Such support may also unexpectedly dry up if the other spouse passes away or becomes unable to work. One preventative strategy might be to take out a life insurance on the other spouse even during pending divorce proceedings.

The bottom line is that an individual may be facing more household expenses alone, yet have less income to meet those costs. Instead of giving up cash or securities for the family home, an individual may be better off downsizing and converting his or her share of marital assets into liquid form.

There are other reasons why real estate may be a less advantageous investment than securities or retirement accounts. A house may not appreciation as rapidly as stocks, bonds, or mutual funds. In addition, there are expenses that accompany house ownership, such as property taxes and maintenance costs. Finally, unrealized real estate appreciation will not directly impact an individual’s cash stream unless it is sold. Since an individual’s household income may be reduced or even halved after a divorce, it is important to estimate one’s cash needs.

An attorney can help an individual plan for his or new life after a divorce. That perspective will also inform property division negotiations.

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