Case Study: Craig & Melinda Sanders

Attorneys – Scott Cottingham, Amy Kennedy

Financial Professional – Billy Peterson, CDFA®

Despite this case involving a long-term marriage with a high net worth couple and complex estate, a settlement was reached and divorce awarded within thirty (30) days of the collaborative team’s first meeting. The names of the parties have been changed to protect the real parties’ anonymity.

Background Information:

Craig and Melinda were married for 17 years. Craig was the main breadwinner, while Melinda received income from family owned real estate. They have four children all under the age of 16 and have built up many assets over the course of their marriage, making them a high net worth couple with a complex estate. Here’s their financial situation prior to divorcing:

Goals:

• Come up with an equitable settlement that works for them today and years down the road.
• Craig wanted to have the decree signed by the end of the year so that he could still deduct alimony.  Their divorce process started at the end of November.
• Melinda wanted to know that she would be financially prepared for life after divorce.
• Melinda wanted to know if she could afford to keep the current marital home.
• Both Craig and Melinda wanted to make this process seamless and not disrupt their children’s lifestyle.
• They wanted to pursue a Collaborative Divorce and avoid going to court or mediation.

Income:

• Craig: $400,000/year including bonus and deferred comp
• Melinda: $25,000/year (from a family business that is being considered separate property)

Assets:

• Multiple retirement, investment, and 529 accounts along with a joint trust totaling ~$800,000
• 4 vehicles
• Life insurance for Craig
• Large marital home worth $875,000
• An inherited trust from Melinda’s father worth $1.4mm (considered separate property)

Liabilities:

• $650,000 1^st mortgage on the marital home
• $10,000 owed on a Citibank credit card

Child and Spousal Support:

• After analyzing Craig’s income history and considering his ability to keep earning in the future, we used the State’s online calculator to come up with a Child Support number of $3,275/month (The amount decreases after each child turns 18).
• We did an in-depth review of their current budget and helped each of them come up with realistic monthly spending needs.  Based on that information and Craig’s ability to pay and Melinda’s need we suggested a spousal support award of $6,800 per month to Melinda for 18 years.
• Combined support $10,075 per month.
• We built in contingencies for Craig should his income decline which he expects to happen after the upfront signing bonuses and transition package phase out.  We used a base salary of $280,000 to calculate support of $2,795/monthly in child support and $5,200/monthly in spousal support.
• We created a formula to follow in future years for additional child support and alimony based on the amount Craig’s income exceeds his $280,000 base salary.

Division of Marital Assets:

• Melinda is able to afford the marital home which gives her net equity in the home of $220,000.
• We suggested that each party keep their own 401K’s and IRA’s to avoid having to prepare any QDRO’s. Craig had ~$450,000 and Melinda ~$190,000
• The checking and savings accounts where split 50/50 to give each party enough liquid non-retirement assets.
• Melinda was awarded the Joint brokerage account.
• Craig was awarded the HSA account and the cash value of his Whole Life policy.
• Consumer debts where split equally and each were awarded their own vehicle.
• Overall each party ended up with ~$820,000 in net assets on a pre-tax basis which was within 1% of a 50/50 split
• Craig received a large 401K plan which showed him on an after-tax basis receiving 46% of the total estate.  He was ok with this because he has much more earning potential than Melinda.

Summary

Craig and Melinda decided to pursue a collaborative divorce. This allowed each party to communicate their goals and feelings about the divorce.  Approaching their divorce this way sped up the process tremendously and gave a platform where each party could be heard.  Having gone another route this could have turned into a high-conflict case and would likely still be dragging on.