When people hear about division of assets or finances in a divorce, one of the first things that might come to mind is a 50/50 split down the middle. While this works in some instances, there are other ways to divide assets that might make more sense in certain cases. Today we will discuss the two aspects of dividing finances, what a buyout is (and if it might be a good option for you), and why a lump-sum buyout might make the most sense if it is a possibility.
Aspects of Dividing Finances
When it comes to dividing finances during a divorce, there are two aspects to consider. The first is the division of the net worth of the marriage, which includes things like assets and debts. This is also called a property settlement. The second aspect is the division of income produced by the marriage, which includes spousal support and child support. Both of these are important to consider in divorce settlement buyouts, which we’ll explain further below.
What Is A Buyout?
As we explored in a previous article, “fair” means different things to different people when it comes to asset division and divorce settlement. Even though some couples may wish to go with a traditional 50/50 split of every asset, there are instances when such a split is not the best option (or might not even be a possibility). In the cases when it is not possible to split an asset down the middle, there may be the option to “buy out” a specific asset from your spouse. For example, one spouse may be a business owner. If they have spent substantial time and money building a business, they will likely want to keep that business while being willing to give other assets to their spouse in return.
Another example of a buyout is when one spouse has worked for a company or government entity that offers a pension, and they want to keep that pension intact since it represents their lifetime income. Rather than splitting the pension benefit down the middle, one spouse may want to have the pension valued and then “trade” that asset for something else of the same value (such as a separate retirement account or equity in the house). In this case, the spouse who wants to keep the pension intact can do so in a way that is fair to the other person. Negotiating buyouts such as this one is a great example of how a 50/50 split does not always produce the best outcomes for every couple going through a divorce.
Lump-Sum Buyouts of Spousal Support
As mentioned above, spousal support is one of the aspects of finance division that is considered in divorce settlements. In some divorce cases, the idea of paying spousal support for any length of time is unappealing to both parties. In these instances, it is possible to offer to buy out of spousal support in a lump sum rather than paying over time. When a couple decides to proceed with a lump-sum buyout, there is often a monetary incentive. Typically, a discount rate is given to the paying spouse since the funds that they are paying upfront can then be invested and potentially grow at a faster rate, which would be beneficial to the receiving spouse. If you speak to a financial professional and they believe that a lump-sum buyout is possible in your case, it may be the most beneficial option to consider.
It is important to be intentional when crafting a financial settlement that suits both parties in a divorce, and knowing your options is a great first step. Buyouts, regardless of how they are paid, can be a great way to ensure that each party has an outcome they are happy with. If you’re ready to talk about what a fair division of income and assets would look like for you, give us a call today at (877) 471-4654 to schedule your complimentary initial consultation.