The Myth of Being Fair in a Divorce

The Myth of Being Fair

The Myth of Being Fair by Vickie AdamsSometimes “even” isn’t really fair. I have a lovely client who came to me when her husband left the family home. After much delay, he finally served her with his self-prepared divorce documents. In learning about his personality and history, I believe he factored into his projection his wife’s innate sense of fairness and wanted to use that to his advantage. He has dragged his feet, refused to get a lawyer and represents himself. In reality, he has taken control of the entire process by refusing to play by the rules.

This couple has several million dollars worth of complex assets, which the husband would be happy to settle on the back of a cocktail napkin without exploring the long-term ramifications — but would that be fair to her?

During the marriage, my client was always the higher earner. The husband’s job was to manage the residential rental properties that they co-owned. Because of depreciation and the way tax laws are set up, on paper it seems like they bring in very little money. In this case, my client would be penalized if she kept those rentals as part of her settlement and sold them later. Because they had been depreciated they would be subject to greater taxation. And she would also be penalized if he kept those rentals which generated little income on paper; because she would be subject to higher spousal support.

Another idea floated was that she keep her IRA and pension, and he would take the marital home. Although the dollar values were similar and my client loved the concept of “even”— is it really fair?

Since retirement assets are subject to future taxation at approximately 30 percent federal and state, this type of simplistic logic could result in an UNfair settlement!!!

With so many complicated assets and tax consequences, it would be wise for this couple to unite against their common enemy: the IRS. They need to be willing to think outside the box. Sometimes assets or businesses owned and managed by one spouse can be shifted to the other spouse. As a divorcing couple, you might not be able to agree with your spouse on everything, but one thing I’m sure you can agree on is that the IRS is not there to help you.

Fair is a place where they judge livestock. Don’t fall into the trap of an even settlement; be sure to review all settlements, not just for the present value, but the future value and potential tax consequences as well. Don’t be guilted into the appearance of “fair.” If you’re not sure if your settlement is fair, call me.