Gross and Net After-Tax Income for the Parties
Joe’s income currently derives from three sources- military, Strong Service Co., and Big Data. The cumulative gross monthly income from all three sources is $17,890 per month or $214,680 per year. Combined and comprehensive taxes, including federal, state, and FICA/Social Security, equate to approximately $74,000 on this income, resulting in net after-tax income of $140,680 per year or $11,723 per month.
This compares with Jill’s gross monthly income of $6,167 or $74,000 annually. Jill’s combined and comprehensive taxes equate to approximately $17,310, resulting in a net after-tax income of $56,690 per year and $4,724 monthly.
Joe’s net monthly after-tax income is approximately $7000 greater than Jill’s ($11,723-$4,724) before any health insurance or child support adjustments.
If Joe pays Jill child support of $2,492 per month as well as being responsible for Child 1’s tuition of $500 per month, tutoring of $350 per month, and tuition for XYZ in the amount of $1100 per month, his total combined expenses will be $4,442 ($2492 + $500 + $350 + $1100). This would result in Joe being left with a remaining monthly household budget of $7,281 ($11,723- $4,442). In contrast, Jill would have a monthly household budget of $7,216 ($4,724 +$2,492).
Even though Joe and Jill would end up with identical household budgets under the scenario described herein, granting Jill use and possession of the house tilts the net household budget much more favorably for Jill. This is because the home is secured with an incredibly low mortgage interest rate of 1.75%, which results in a payment of only $1340. Joe will never be able to rent or purchase suitable housing at an equivalent cost. Therefore, although their household incomes are virtually the same, granting Jill use and possession extends her household income much further than Joe’s.
Granting use and possession on Joe’s part is also a huge concession because it will require that he remain liable for the mortgage and other consequences associated with owning the property. It also will severely restrict and most likely eliminate any chance for Joe to purchase real estate for himself during the use and possession period.
For all of these reasons, coupled with the fact that Joe’s income depends on his deployment status and is therefore uncertain looking prospectively and may result in only one of the current three sources of total income, beginning January 2024 and each year after that, child support should be recalculated based on the Maryland Child Support Calculator, and the tuitions, tutoring, extracurriculars, and extraordinary medical expenses should be shared on a pro-rata basis based on gross incomes net of cumulative income taxes.
Offsets
In addition to the advantages of use and possession bestowed to Jill, in exchange for Joe walking away from his interest in the marital home, I advocate for him to receive full distributions from his pension.
The net equity in the marital home is projected to be $90,000, resulting in a $45,000 interest for each. Walking away from his $45,000 interest is tantamount to Joe sacrificing $45,000 cash today for the benefit of Jill. It also provides much more equity in the home when Jill elects to refinance or sell after the use and possession period. Furthermore, by relinquishing his interest in the home, all of the additional accrued equity benefits Jill exclusively. In addition, if and when Jill elects to refinance, the additional equity she is being credited will result in a significantly lower loan amount and payment. Joe’s relinquishment of his share of the equity, quite frankly, may very well result in Jill’s ability to remain in the house and own it exclusively and permanently. This will provide continuity, stability, and financial flexibility for Jill and the children.
After twenty years of service, the marital share of Joe’s pension is projected to be $1387, each with an interest of $694 monthly. In exchange for Joe relinquishing his interest in the home equity, he should fully retain his pension. The value of his $45,000 share of home equity is equivalent to just under 65 months of distributions from Joe’s pension, which would otherwise have been payable to Jill, not adjusted for the compound growth of $45,000 over the next four years until Joe is even eligible for distributions, and not to mention the income potential that can be derived from that figure. At a conservative compound rate of return of 5% per annum over the next four years, the $45,000 would grow to almost $55,000, equivalent to 79 months of alternative pension distributions. Furthermore, if the $55,000 were invested for 20 years hence at 5% per annum compounded, it would equate to $146,000. If the $55,000 were invested for 25 years at a 5% per annum compounded rate, it would result in $186,250. If the $55,000 were invested at a more reasonable rate of 7% per annum, it would grow to $212,833 in 20 years and $298,509 in 25 years.
Summary
Based on this comprehensive proposal, Jill would not have to uproot herself or the children during the use and possession period. Furthermore, she would greatly benefit from such a below-market rate of mortgage cost. By retaining 100% of the home equity, she would benefit from its continued appreciation and more equity. Therefore, there is less to finance if she remains in place following the use and possession period. She would also own a disproportionate share of the marital assets at the date of divorce. On top of all this, at least concerning the current calendar year, she would not be responsible for any of Child 1’s tuition or tutoring, and based on the financial assistance package from XYZ, likely be no tuition contributions for Child 2.
This should be contrasted with Joe having to have multiple employers to satisfy these commitments, less real disposable income than Jill, bearing the brunt of the tuition and tutoring expenses, and walking away from the one real marital asset – the home equity in exchange for one thing – the retention of his pension.
Respectfully submitted,
Greg Gann