Know the Liquidity of Assets in Your Divorce
Key Points
  • Having money in hand is often more advisable than holding onto a barren asset such as the home. Yes, you may be able to sell it later, but there are expenses that need to be taken care of in the meantime.
  • A house pays nothing to you until it is sold, while a bank account can be cashed out immediately.
  • If you cannot maintain the marital home, or if you need to borrow against the home’s equity can be costly.

Often in a divorce settlement, one spouse receives mostly illiquid assets, such as the home, while the other spouse gets liquid assets, such as retirement plans and brokerage accounts.

Liquidity is the ease of access to the cash value of an asset. For example, a bank savings account is highly liquid because it can be withdrawn from the bank; an antique automobile, however, is nearly illiquid because it is very difficult to quickly sell this asset to access the actual cash value. Illiquid assets are also barren; that is, they pay nothing until they are sold.

In a divorce settlement, the dollar amounts may be equal and seem equitable, but the potential problem with this type of settlement is that of cash flow. The most common example of this division going awry is the woman who gets the house and then cannot afford to maintain it and pay the taxes.

She can borrow against the equity of the home, but that's costly (closing costs, interest), and it takes time. In worst-case scenarios, the home must be sold, a smaller home is purchased and the remaining equity is utilized for living expenses. Unless there is a good reason, settlements should always provide for liquidity, with enough cash flow throughout the years to handle living expenses (particularly if these living expenses happen in the so called Golden Years).

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Separation Agreement Software
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Separation Agreement Software
It is very difficult to move on with your life without getting the facts in writing, like, who gets what property and who is responsible for what debt, so a separation agreement outlines the rules in a legally binding format. Once you have a signed separation agreement you are on the right path to successfully negotiating your divorce settlement.

Suggested Reading
Fairshare Divorce for Women Fairshare Divorce for Women
Fair Share Divorce for Women is the first book that gives women the support and guidance they need to safeguard their marital assets. Too often women find themselves at a disadvantage when their marriage ends and they have to fight for what is rightfully theirs.

Author: Kathleen Miller, CFP, MBA

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DIVORCE AND MARITAL HOME– Many custodial parents want to keep the marital home so that the routines of small children are less disturbed by the divorce. A house can also be a valuable asset, but one should consider these ownership expenses before taking on the responsibility. A house is a barren asset; it pays nothing until it is sold. Selling the home and walking away with cash may be a better decision.
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Featured Download Basic Principles of Law for Construing Separation Agreements

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