EP 120: Is my proposed settlement fair? For only $149, this software will help you find out - Interview with Larry Kotlikoff

larry-kotlikoff

"In the end after putting in the inputs the program, in less than a minute, it can figure out what each spouse is going to get to spend on an ongoing basis, and can compare the two living standards of the two spouses.” - Larry Kotlikoff

Want to get a fair divorce settlement for $150? Want to avoid a big legal fight? Well, Larry Kotlikoff, New York Times Best-Selling Author, is back to discuss Analyze My Divorce Settlement. This new software will help you answer a simple, but very important question: Is my proposed settlement fair?

Analyze My Divorce Settlement is comprehensive software that helps simplify many of the complex financial calculations you might face during divorce. You can potentially save a lot of time fighting and attorney’s fees by using this program.

Listen to this episode to learn more!

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This transcript has been edited for clarity.

Shawn: Today on the show I have with me, once more, Larry Kotlikoff. He is a Professor of Economics at Boston University and this time we’re talking about his company and his special tools that he’s developed in conjunction with his company called Economic Security Planning. They just released a new tool that you would all be interested in called Analyze My Divorce Settlement. Larry, welcome back to the show.

Larry Kotlikoff: Great to be back with you Shawn. This is exciting for us. We spent about a year putting this new tool together. It’s at analyzemydivorcesettlement.com and we market it for $149 dollars. What it does is it can potentially either eliminate or limit the divorce wars that we’re seeing people having. Something like 1.6 million people are going to get divorced this year, that’s close to five thousand people a day. Everybody that gets divorced has to come to an agreement on a settlement. There’s different elements here. One is how you divide any assets the couple has, what’s going to happen with child custody, what about alimony, what about child support, and our software incorporates all those elements, but more importantly it asks about the wage the spouse is going to earn and about the retirement account assets, regular assets, and how they’re going to be divided. It asks about housing; who’s going to stay in the house if they have a marital home, and for long, and who’s going to pay for the expenses until till its sold, and when it’s sold how the proceeds of the house sold, the equity to be divided. All these questions and if you’re not going to be living in that house, the question of what is your housing.

In the end after putting in the inputs the program, in less than a minute, can figure out what each spouse is going to get to spend on an ongoing basis, and can compare the two living standards of the two spouses. By living standards here, I mean what each spouse gets to spend after paying their taxes and other required of fixed expenses, like paying for the mortgage and property taxes and carving alimony payments, what each spouse gets in terms of discretionary spending to spend, and not just this year, but on an ongoing basis.

The program is set up to try and get each spouse a smooth living standard, a smooth level of discretionary spending, and it compares on a side to side basis. Here we’ve got, “I’m Sally and Joe is my husband. Joe is proposing to me something that’s going to involve him getting to a level of discretionary spending that’s five times my level and we’ve been married for 20 years. I don’t really think that’s fair and our housing is not going to be that much different, and I’m working just as hard as he is.” Or it could be, “We’ve been married 3 years and I don’t make much money. Joe makes ten times what I earn. He is proposing that his living standard be 5 times higher. That’s not so unfair. We were only married for 3 years, I don’t have a claim to all his future earnings. I think that’s reasonable and what he’s proposing to me, I think is fair.” So you get to see without arguing over things like taxes and social security benefits and Medicare part b premiums. The program, by the way, incorporates all the divorce spousal benefits that you can get and the divorce widow and widower benefits you can get. You get to see the answer right in front of you.

Every settlement boils down to what is that persons living standard going to be versus my living standard. That’s one element involved with the question of fairness. The second element is how much is he or she going to work and how much am I going to work, that’s the second question. Question three is housing; what kind of housing will he or she have versus how much will I have. If he’s going to live in a five million dollar house and I’m living in a shack, that’s very unequal. What you can adjust here is the housing, if you decide the housing arrangement is not fair, so you’d just address on that margin. The work arrangement may not be fair either because it could be that one spouse needs to work more. Whatever is decided on those issues, working and housing, you can then see the differential in your living standard and say, “That’s not fair!” or “It is fair.”, “I’m going to agree to this but I’ve put in your proposed settlement into the program and I don’t think it’s quite fair.” You can enter as many settlements as you want and compare them side by side. “This settlement I think is fairer. Here’s my response to you. If you agree to this let’s go to a mediator, or divorce attorney and keep the cost of the divorce to a minimum.”

Shawn the way this program came about was that I actually got divorced myself a couple years ago and I used our company’s software called Economic Security Planner to come to an agreement with my ex where I showed her what her living standard would be and what mine would be and there was some back and forth, some fiddling with the proposed arrangement, but we got to something we both agreed was fair, and we went to a mediator who happened to be an attorney and she wrote up the papers. The whole thing was a couple thousand dollars of her time. That was it. We had two children and we’re on very good terms. She’s been remarried a long time, about 25 years. I didn’t see any reason at all to go to war with my ex wife. This was my close friend, my closest friend for 25 years, nor did I want to spend 50 or 100 thousand dollars with attorneys, which I knew would happen. So I asked her to let me try and use our software to figure this out. I asked her to get her brother who is a former banker, she is an actress, and I wanted to make sure that she had somebody on her side that could look at these reports and say “Okay I understand what the program is doing.” And she had someone besides me that she could rely on to confirm that this was actually a fair proposal. That was the origin of the software called analyzemydivorcesettlement.com.

Shawn: Larry you’re preempting some of my questions. That was exactly my question; how that came about. You mentioned a lot in your answer. I got to play with the software a little bit before the interview. You talked about standard of living and how you can come up with a fair settlement using the tools. When you discuss that, how far in the future does it go?

Larry Kotlikoff: It goes to your maximum age of life, which we have a default age of 100. Suppose you’ve got a 70 year old man who is married to a 50 year old woman. The settlement has to take into account that she has many more years to support herself compared to him. For both of these people we set the default value to 100. You can change that to a different value but the default assumption is 100. We have to plan to live to our maximum age of life. We can’t count on dying on time. We can’t count on dying at our life expectancy, that’s when people our age will die on average. An average is just an average, it’s not going to apply to us, we’re not going to die exactly at our life expectancy. The probability of that is zero. We have to worry about the worst case scenario. The worst case scenario is not dying tomorrow. The worst case scenario financially speaking is living to our maximum age of life because you have to keep paying for yourself. All the bills keep coming in for electricity, gas for the car, all the basics; food, clothing, entertainment, housing, all those bills keep coming.

The middle name of our company is Security. We have software that adheres to what good economics says to do. I’m an economist and I’m a professor, as you mentioned at Boston University. I’m 66, so I’m not a puppy here. I’ve thought long and hard on how to set up software so that people can safely use it. We’re talking about somebody’s entire future because that’s what they’re facing, their entire future. It could be that if we’re talking about younger people, that the notion of what’s fair would be different than somebody who’s been married for 20, 30 years. The software does not purport to say what’s fair. It purports to give you a tool that can very quickly show you what the proposal means in terms of relative living standards, then you can talk among yourselves to see whether or not you both agree that figure settlement is fair, or how to fix it, to make it fair.

Shawn: Got it. And so what kind of information do I need going in to the software? Do I need my housing expenses? Do I need income information? What sort of stuff should I plan to gather up in order to use the software?

Larry Kotlikoff: Well you do need your housing expenses and information about your assets, and how they will be divided under the settlement that you’re going to look at. Again, you can enter multiple settlements in the software so you could try 50/50 or 75/25, whatever split you think is fair. You need to know about retirement accounts, non retirement accounts, which we call regular assets. You need to know how much each person is contributing to the retirement accounts and how much employers are matching the contributions. You also need to know about the labor income; how long will your spouse likely work, what is your spouse likely to be earning, how long you will we working, and how much will you be earning. So we have to make some projections here. We also need to know your past covered earnings from social security, and the other spouses past covered earnings, or your best estimate of them. You can enter what you think he/she earned if you don’t have that information handy. Then, that’s pretty much it.

If you go to a typical divorce attorney today they’ll ask you to write down what you’ve been spending on clothes, food, and so forth, and all your expenditures. They’ll look at your credit card bills and everything else to determine what your expenses have been. That’s no longer relevant once you get divorced because you cannot afford the same living standard. You and your spouse, by getting divorced, can no longer afford the lifestyle that you had in the past. You’re now going to have to pay for two homes, whether they’re rented or purchased. You’re going to have to pay for two heating bills, two electric bills, two televisions. All the economies of shared living are going to go away. This software is also good for thinking through whether or not you want to get divorced.

Look, if I get divorced my living standard is going to drop down the tubes, even if we divide everything 50/50 and we set it up so that alimony was such to produce exactly equal living standard for both of us. My living standard being divorced is going to be 20% of where I’m at now. It’s just too big of a hit and it’s smarter for me to stay married and try and get along with this person that I’m not perfectly happy with. So the tool also has that ability to help you think through whether or not you want to get divorced or not. The information requirements are much less than what’s required from the typical process. The typical process involves you figuring out the budget for what you have been spending. That budget has absolutely no relevance to the future. It really doesn’t. The only relevance is what your resources are. Once we know the resources of the couple and how things are going to be divvied up, in less than a couple seconds, really figure out what it means. It doesn’t need to know about stuff that’s not relevant anymore. Maybe you took 20 vacations in a year in the past. Well, you can’t afford it anymore. Why do we need to know about it? It doesn’t help. It’s just something to make you miserable in thinking about your new life. Also, I just think the ability to argue endlessly over things that can be resolved in a half a second by software, it’s just amazing.

Think about social security benefits. Maybe the wife is a lower earner than the husband and she could say “Look, you’re going to get this really big social security benefit.” and he could respond, “Well yea, 85% of it is going to be subject to federal income taxation, you’re not taking that into account.” She could say, “Well I don’t think your tax rate is going to be that higher, you’re going to be in retirement.” And he could say, “Well I think it’s going to be high.” This could go on and on for an hour till it starts ending up in screaming. Just over that issue, that’s resolved in our software in half a second, including everything else.

Shawn: You had a lot of great insight with that answer. For the people who are interested, give us two things. One is, tell us how much it cost again, and then also, where can they get Analyze My Divorce Settlement?

Larry Kotlikoff: So the program costs $149 dollars which is probably less than about half an hour of any divorce attorneys time. Many are much more expensive than that. The website is www.analyzemydivorcesettlement.com. If you are getting divorced I recommend it wholeheartedly. If you know somebody else getting divorced, please pass the word. If you don’t wan to do these, you’re not comfortable using software, we do have a service for $1500 dollars as a base price where we will actually run the numbers for you with our software and walk you through the reports, and we can work with you and your spouse together. We’ve done this already with some couples. I think the main thing is that this thing can really stop the fighting over things that can be resolved. Things that can’t be resolved, one can fight over. Why fight over things that really smart software can figure out within a half a second? 

Shawn: Excellent. Well Larry, thanks again for coming on to the show today.

Larry Kotlikoff: My great pleasure. Thank you.

Thank you for listening to the Divorce and Your Money Show. Visit us at www.divorceandyourmoney.com for 1-on-1 coaching and a full transcript of this interview. If you enjoyed the show, please take a moment to leave a review on iTunes, as it will help other people discover this free advice.

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.