Success Story | A Woman in Transition

Life after Divorce: Getting the Financial House in Order

Client Profile

Sara, an interior designer, and Dan, the owner of a custom home building company, had been married for 41 years with marital investment assets totaling $5 million when Dan filed for divorce.

In need of some financial guidance during this difficult time, Sara was referred to Mosaic by one of her friends, a Mosaic client, who recommended that she speak with our advisors to help prepare for this new chapter in her life.

Known Issues

Asset Valuation — Dan holds a 50% ownership stake in the home building company. However, Sara doesn’t know its valuation, nor is she aware of all the assets his partnership owns. Going forward, Sara does not wish to be involved in the day-to-day operations of the business, but needs to determine the fair market value for consideration in the divorce settlement.

Monthly Income — Three years ago, Sara sold her successful interior design firm to spend more time with her grandchildren. Since she is no longer working and has no current monthly income, Sara, 59, is worried about making ends meet each month. She is also unsure of whether the divorce will affect her Social Security benefits.

Medical Insurance Coverage — Historically, Sara has been covered by Dan’s company’s medical insurance policy. However, once they are divorced, she will no longer be eligible for company benefits and will not qualify for Medicare for several years.

Care for Daughter with Special Needs — In addition, Sara is also extremely concerned about affording care for their youngest daughter with Down syndrome. She is unsure of how she can provide the care her daughter needs without her husband’s financial support and medical benefits.

The Path to Realizing Goals

Our advisors reviewed Sara and Dan’s current assets, carefully considering Sara’s future monthly income and housing needs, and the cost of providing care for the couple’s daughter. We developed a plan that would allow Sara to live comfortably after the divorce, while ensuring her daughter’s needs are met.

Determine Monthly Income Needs — To determine a baseline for Sara’s monthly after-tax income needs, we examined her monthly expenses and any guaranteed monthly income, including a small pension from a previous employer. In Sara’s case, because she and Dan were married for more than 10 years, she would also still be eligible to receive spousal benefits from Dan’s social security.

We also ran our Monte Carlo simulation and our retirement income segmentation analysis to gain insight into the income Sara’s current investment portfolio could generate, and to determine if it could reasonably support any gaps in her after-tax income needs. Our advisors developed a tailored income plan consisting of maintenance, child support, pension income and portfolio income. We also created a customized retirement income segmentation plan mapping her next 10 years of cash flow to help relieve Sara’s anxiety over her income needs.

Renting versus Buying — After reviewing cash flow illustrations and running financial analyses to compare buying a villa with renting a high-end condominium, our advisors determined Sara could afford to purchase a property in the range of $500,000 to $750,000. We also helped her evaluate whether it would be more cost-effective to carry a mortgage or buy the home in cash.

Business Valuation — We discussed with Sara the valuation of Dan’s business, and the importance of determining its fair market value in order for it to be properly accounted for in the divorce settlement. We referred Sara to an independent business valuation analyst who determined that the fair and proper value of Dan’s ownership in the business equaled $3 million.

Estate Planning/Care for Daughter with Special Needs — Our advisors worked with an estate planning attorney to create new estate planning documents and retitle Sara’s accounts. Together with the attorney, we carefully developed a new estate plan designed to take care of her younger daughter at Sara’s death without disqualifying her from receiving governmental support.

Results and Implementation

After discussing our analysis and recommendations with Sara, she hired Mosaic Family Wealth to guide her through this complicated transition. We introduced her to a CPA and a divorce attorney who worked together to negotiate a fair settlement. As part of the settlement process, Sara’s attorney asked Mosaic to run several derivations of the income required for Sara to live independently at the lifestyle level she was accustomed to, as well as to provide primary support for their daughter.

Because her divorce settlement guaranteed monthly maintenance of $6,000, we helped Sara feel secure in the purchase of a villa and recommended a 15-year fixed mortgage. We were pleased to work with her mortgage banker to speed approval of the loan.

We also referred Sara to an insurance consultant to help her find individual health insurance coverage. We worked with her divorce attorney to negotiate insurance coverage for their daughter under Dan’s health plan.

Finally, we collaborated with the insurance consultant and the estate planning attorney to set up a special needs trust for her daughter, and purchased a $1.5 million life insurance policy on Sara that was placed into the trust. Sara’s oldest daughter was made the trustee of the special needs trust. This will enable Sara to ensure her younger daughter is taken care of should additional needs arise, without disqualifying her from receiving public assistance.

Sara is now two years post-divorce settlement and doing very well. We have implemented her income plan and meet with her semi-annually to review her budget and portfolio, and to determine if any changes should be made. Sara is happy, and finds comfort in knowing that she is financially secure on her own.

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