The Cost of Divorce and the Financial Risks Involved

A Glance at Property Distribution

When reaching conclusions with respect to property and assets to be divided, generally the experts agree with respect to the old adage that goes "take the money and run". However, there are two important concepts which must be kept in mind when dealing with King Cash. For example, let's say that John and Suzie are going through a divorce. John has offered Suzie two main options. She can have a BMW worth $50,000 or a mutual fund worth the same amount. She also has the choice between a secured note promising $1000 dollars a month for the next ten years or a payment of $120,000 at time of settlement. These two concepts, which should dominated Suzie's decision, would be that of the time value of money and inflation. Suzie ought to take the mutual fund because, even though it is not cash, it could be converted to such readily where as the car is bound to, over time, depreciate in value and might not command the same resale price as the converted mutual fund. She also ought to opt for the lump sum payment for two specific reasons. One would be inflation; even with an inflation rate that is at its minimum, the value of the money received in the future does not have the buying power as it would today. That, and there is always the risk that John could either default, or worse, die and she would never receive those monies. It is for these reasons that it is accepted that it is better to accept cash or liquid assets now, as opposed to property or the promise of future payments.

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