Financial Guide: Maintenance For Property

1. Introduction

2. Psychological Warfare

3. Property in General

4. Maintenance / Alimony

5. Modification

6. Specific Assets

7. The Marital Home

8. The Family Business

9. Tying it All Together

10. Post Tax Outcome

11. Maintenance for Property

12. Closing Thoughts

13. About the Author

Maintenance for Property Deals

When you are considering a maintenance for property deal, evaluate carefully the additional property you would retain for such a commitment. Your accountant should provide you a worksheet on which he has analyzed the deal. Particularly he should incorporate tax analyses as well as “present value” calculations.

Present value calculations seek to reduce the value of money which will not be acquired until some time in the future to what it would be worth if acquired today, on the theory that a dollar acquired today is more valuable than a dollar acquired next year.

Next you must get some handle on the asset’s likely appreciation where lurking capital gains issues may force you to retain the asset. Additionally, you must weigh the likely present value of any future tax impact resulting from its sale or income.

If there are no existing capital gains problems, you still must calculate your likely future rate of return on such assets and reduce that number to a present value. If you have a financial background, you may have yawned as you jogged tolerantly through the preceding paragraph. If, however, your college major was history, you may have lumbered through it several times grumbling intermittently at its author.

In either case, I will reiterate here the importance of using experts in divorce – particularly accountants and psychologists. Where there are children, the parties sometimes exchange child support dollars for maintenance dollars, or visa versa, depending ,of course, on relative tax brackets.

For the reasons discussed above, if optimally calibrated, the resulting order can leave more money in both parties’ pockets. But there are a number of potential impediments to such a deal. One prominent problem is the IRS, which insists that child support and maintenance be properly denominated. (See Chapter 10 on Post-Tax Outcome)

Obviously my allocation must comply with the law. Another potential deal-killer is the applicable child support provisions in your state which purport to define the appropriate child support amount for each case. But there is some degree of elasticity in every state, which is stretched or contracted further by the particular judge in your case.

When making such adjustments, both you and the court must consider the impact of future changes in circumstances relating to the child’s support needs. For such a deal to be viable in virtually any jurisdiction, the resulting deal must permit future modification of the child support amount. The maintenance segment may or may not be modifiable depending upon the deal you are able to negotiate.

The bottom line is that any issue of tax consequence (again assuming the appropriate income disparities) should present an opportunity for a win-win deal. Other such examples are child deductibility, interest deductibility on debt and investment loss. There are too many possibilities to list. You must rely on your accountant and lawyer to help you spot these opportunities.

Another scenario commonly holding promise for win-win is where particular assets hold for greater “in-kind” value to one party than to the other and where the fair market value of the asset is likely much lower than its “in-kind” value to the first party. Real estate, typically the marital home, is a common such example. A small business may be another.

Rationally, in such circumstances there typically is an incentive for the parties to negotiate a number somewhere between the two values. This is particularly true where uncertainty exists in the event of trial as to whether the court will order the asset sold or, absent an order of sale, uncertainty as to the particular party to whom the court will likely award the asset.

If this analysis reveals that the court will give your wife those things she wants, then you are left with little leverage up to and including trial. For example, if your wife is expected to get custody and she wants the house. Absent the superseding circumstances previously discussed, she may have no incentive to make concessions for this provision by way of settlement, particularly where the court can be expected to order you to pay much of her attorney fees.

Alternatively, if she seeks the house under less reassuring circumstances, you may offer your consent in exchange for certain concessions relating to your objectives. Such concessions could pertain to virtually anything.

My clients often need liquid assets to set up a new household. Additionally, they often seek to keep their retirement benefits intact. They frequently place great emphasis on minimizing maintenance or child support payments.

Above all, perhaps (at least regarding money matters), my clients normally seek certainty. This means, among other things, locking down support amounts wherever possible. As to all the items listed in this paragraph, my clients will generally, if necessary, make concessions which, in simple numerical terms, exceed the value of that which they obtain.

Even concerning custodial arrangements, there are often implicit exchanges by which a party (often my client) will obtain a more favorable result (be it primary custody, additional temporary custody or provisions relating to legal custody) in exchange for financial concessions of one sort or the other. Rarely, of course, is such a quid pro quo overly discussed. Moms and their attorneys in such cases are careful to clothe such discussions in a proper attire for the court.

For example, the two topics are never placed in the same paragraph, much less the same communication (written or oral). As you might suspect, to accomplish such deals both sides must employ great skills of diplomacy and indirection in negotiations so that neither mom nor her lawyer appear ignobly mercenary. Ultimately, in the court of such dealings, the child-related terms reflect “best interests” and the property a “fair and equitable division.”

Conversely, to avoid any pretensions of moral superiority, I must add here that there have doubtlessly been occasions in which I pursued custody for a client whose motives I suspected to be at least in part monetary. My client’s cynical expectation may have been to simply create enough perceived risk in his opponent’s mind that she could lose custody, however improbable, to stimulate monetary concessions otherwise unobtainable.

I should add here that, while an attorney’s primary duty is to serve his client, he must do so within the parameters of both the law and his code of professional ethics. Therefore, if any such stratagem were at any time to necessitate fraudulent or other dishonest conduct vis-à-vis either the courts or opposing counsel, expect your lawyer to apply the brakes.

In such circumstances you must either proceed with a plan that is lawful and ethical or your attorney should withdraw from your case.

As you can see, the possibilities for settlement are usually there so long as you recognize what both your and your wife’s priorities and concerns are, and the two lists can be achieved, at least in part, simultaneously.

I will now close this guide with some some ideas our clients often find useful. (Chapter 12, Closing Thoughts)

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