Making Cash Flow, Flow Positively
One of the challenges of divorce is separating income that used to be joint income, along with separating into two households versus one. This is a recipe for cash flow drain for most couples. All of the sudden the same income(s) that supported one household must now support two households.
I want to share an example of how cash flow solutions can be achieved through the collaborative divorce process
. Assume we have a couple struggling to make their cash flow positive which is often the case with divorce. A substantial strain on their living expenses is secondary private school tuition for two more years for their child. This amounts to approximately $15,000 for tuition the first year and another $18,000 for the second year. They are attempting to make these payments from existing income. The strain of these payments coupled with divorce has become unbearable. The parents are both determined to keep their child in this private school through the eighth grade.
Additional assumptions include this couple having a small first mortgage on their home. This mortgage requires a monthly payment of approximately $1600. In our example, we would research refinance options including home equity loans. After researching options an acceptable bank loan could provide them with the flexibility needed to lower the monthly cash flow shortage from over $1300 to approximately $220. While this does not completely cover the entire cash flow shortage, it improves it significantly.
The parents could draw from other savings if needed to make up this shortfall or look to further reduce some expenses. An agreement could include that each parent would pay one-half of the cost of the second year private school tuition. They both would have the flexibility to pay their share of the tuition from income sources, from savings, or some combination of the two.
Structuring this part of their plan allows them to accomplish several goals. One is to keep their child in the private school for the two additional years until graduation. Secondly, it allows one spouse to stay in the home until the child enters the public school system and graduates from high school. At that time, the spouse retaining residency in the home could either buy out the other spouse’s interest in the home or the home could be sold with sale proceeds being shared between the two spouses.
Not all cash flow challenges can be so easily resolved. What makes this situation work is everyone knowing what the goals are and everyone working together to help the couple find solutions that are in the best interest of the family and their children.
Collaborative divorce, with the use of selected experts in their fields, can help divorcing couples navigate difficult issues with money, children, relationships, and emotions. To learn more about collaborative divorce visit www.collaborativelaw.org
and be sure to check out our blog site on a variety of topics at www.collaborativedivorceoptions.com
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