The case of the prosperous McLean couple who decided to end their marriage is hypothetical, but their situation is real to many middle-income families facing divorce.
Along with the emotional upheaval, what is the split going to mean to their wallets?
Jack, 45, is a business executive earning $90,000 a year, a not-unusual income in this area.
His wife, Anne, 41, is a homemaker whose only work outside the home since college has been as a volunteer for church and civic groups. Anne is worried she may have to find a job.
Their son John, 17, is about to enter college. Although daughter Marie, 10, suffers from a long-term medical problem, she will be able to go on to college also. Both parents have doubts about being able to afford these expenses.
The couple owns a $175,000 house, a $110,000 beach house, a $20,000 Cadillac and an $8,500 Oldsmobile. Will these have to be sold? With Jack's income, the family is accustomed to spending up to $6,000 a year on recreation and entertainment alone. That undoubtedly will have to be cut back substantially, but by how much?
"There's no way to divide up this household and live the way they do," says Fairfax County lawyer Judith Bragan, who specialized in domestic relations and real-estate law.
Bragan was among participants at an all-day workshop on the "Financial Aspects of Seperation and Divorce," presented jointly by the D.C. Metro Chapter of the International Association of Practicing Certified Public Accountants.
Although Jack's income is large, the same financial concerns affect other couples earning $30,000 or more.
Divorcing couples, say these money managers, "must make many important decisions" concerning their financial future. For one thing, "the tax laws associated with divorce are complex and lined with many pitfalls for the unwary."
Meanwhile, these matters must be dealt with at a highly emotional time -- "one of the most stressful experiences one can encounter," says planning association president Charles Thomas Martin of DeRand Investment Corp.
A workshop assumption was that the couple will emerge from the divorce better off economically by reaching a money agreement in advance, rather than waging a court battle and paying costly trial lawyers' fees. To do so, they might consult a financial planner, a CPA and a lawyer.
Says Bragan: "I always start off looking for an agreement. There's so much more you can do by agreement."
An agreement, for example, might include annual cost-of-living increases in alimony. In a court settlement, Anne would have to initiate legal proceedings each time she wanted the payment increased.
The idea, says accountant Tug Richman of Laventhol & Horwath, is "to keep the taxes down and protect the net worth of both parties." Even after the divorce, "They have an economic stake in each other. If Anne beats his head too heavily, Jack may lose his incentive to maintain his career.
At the workshop, a detailed financial history of the fictional couple was created to closely approximate a 'real-world' situation." Two people enacted the couple's problems on stage, while accountants and planners in the audience offered options aimed at resolving them.
In the drama, the pair arrive at the office of their planner looking for help because, "We don't know what we want to do."
The divorce, the planner learns, is Jack's idea, and already Jack has discovered one of the consequences. He's paying rent on the apartment he moved to three months ago while still keeping up the mortgage on the McLean home for Anne and the children. That cuts heavily into the budget. (The mortgage is also not deductible as alimony, since the couple has not yet obtained a court decree of divorce or seperation.)
Anne is unhappy -- and frightened:
"I've never had a job for pay," she says. "I spent 20 years backing up this man. I'm a career executive's wife, and I've got nothing. I want to make sure I'll get my fair and square."
Homemakers, says Bragan, "don't get retirement" and the "rest of the benefits" most employes expect. Anne's future "is really insecure at this time."
Among the issues:
alimony vs. child support:
For tax purposes, the workshop leaders conclude, it would be to Jack's advantage to have any payment of support in the form of alimony, which is deductible. Anne might want the payments in child support, which is non-taxable. But the ages of the children, who will outgrow support payments, and Anne's future remarriage plans -- which would affect her alimony -- must be considered.
should Anne find a job ?
The financial planners appear to agree she should, principally to provide herself a retirement income to supplement the Social Security payments she is eligible for, based on her marriage to Jack for more than 10 years.
health insurance for Anne :
Anne and the children have been covered by Jack's group policy at the office, but often the ex-spouse is no longer eligible and must provide her own. If she does, Jack might increase the ailmony to meet the cost, which would be deductible.
who gets the houses and other assets ?
Striving to meet the individual desires of both parties and avoid or minimize the tax impact is difficult," say the workshop leaders, noting that division of property varies by state. If Anne took both houses, as she wishes, she would not be entitled to much else in assets and would be "cash poor."
If she kept only the beach house, she would have "a much better asset posture," they say, and the overall tax impact be reduced. Selling the homes seems inadvisable because of current high mortgage rates.
who claims the children as tax exemptions ?
While Anne has custody, it would be to Jack's advantage, the planners say, to claim the deductions since he has the higher income and would provide at least $600 in support.
As the list of complicated decisions Jack and Anne must make in their divorce increased, one financial planner raised the inevitable question. Shouting out from the audience to the two role players, he asked if they had considered "changing their minds."