Negotiation

The software contains several screens to help you get to settlement.  In an adversarial situation, they can help you and your client make better strategic decisions. 

These screens are very powerful and at the same time, very easy to use.

These screens, several of which do all their work with a single click, will help you:

The following sections of this guide discuss these screens.

Negotiation: Property Division

The software provides a screen for helping you arrive at a property division.

Click the Negotiate tab, then Property Division on the left.

Please refer to the screen image below, to which we will refer in the following text.

Figure 103- Detail of Property Division Negotiating Screen

At the top of the screen are totals and percents for each party.

In the body of the screen, shown above, you see each item of property or debt, together with the allocations you entered or the system defaulted when you entered the data in the Planner. 

On the illustration above, George is keeping 50% of 40 Winding Way, but he is keeping all (100%) of the marital equity in the vacation home.

You could enter any number from 0 to 100 in the “Harold % of Marital” column for any asset.  Or, you could enter any number up to the value of the asset in the “Harold Amount of Marital column. 

When you enter a new percent or amount, the property totals at the top of the screen will adjust immediately.

You can trade the assets, one against the other, until you reach both the overall settlement total and the allocation of items to the parties that gets the parties to settlement.

The entries on the screen are "live."  That is, changes that you make on the screen will be reflected throughout the software.

At the top of the screen is a link for screen options.

The options include:

Negotiation: Property Division Using the “Equalization Payment”

The software lets you see the dollar gap between the current property division and the desired overall property division.

Click the Negotiate tab, then Equalization Payment on the left.

The property shown here is “total” property, including both marital and separate property.

You enter the desired property division (50/50, 60/40, etc.)

The software shows the dollar amount that needs to be added to a party’s total to meet that overall goal.

It also shows the amount of property each party will have if that goal is reached and includes a pie chart showing the recipient party’s property without the payment, the payer party’s property without the payment, and the payment itself.



Figure 104 - Equalization Payment Screen

Negotiation: Property Valuations

The Property Valuations worksheet is a way to list each party’s proposed valuation of each property and proposed valuation date.

We also call this report the “He Said / She Said” report.

You may also use this report to enter additional assets, not only to list them.


Figure 105 – Property Valuations Report

Negotiation: Securities Gain

It often happens that two securities have the same value, but different untaxed capital gain amounts.

For example, suppose there are two stockholdings, both worth $10,000.  But suppose one was bought for $20,000 and the other for $4,000.  (The purchase price of a stock is typically its “tax basis.”)

If both are sold, both will bring in $10,000.  But the stock bought for $20,000 stock will have a $10,000 tax loss on the sale.  This will result in tax savings of around $2,000.

The stock bought for $4,000 will have a $6,000 tax gain on the sale.  This will result in a tax bill of around $1,200.

So in practice, there is a $3,200 ($2,000+$1,200) difference in the after-tax value of the two stocks.

One way of seeing this difference is to look at untaxed capital gain (the $10,000 loss and the $6,000 gain in our example).

The software automatically shows you the untaxed capital gain of each security and the total untaxed capital gain of each party, as shown in the figure below.



Figure 106- Allocation of Securities Gain Negotiating Screen

In the figure above, Marianne has approximately 72% of the securities, but she has 100% of the untaxed capital gain.  If you were representing Marianne, you might use this to argue that the division is really not fair, even though it looks fair. 

Marianne should perhaps get more of the securities with less untaxed capital gain, in order to reduce her overall untaxed capital gain.

Observe, however, that we have not entered a tax basis for the Bank of America or Timberland investments.  The software treats the basis as zero for those investments.  For this report to be useful,  you must enter the tax basis of all investments.

This is an interactive negotiation tool.  You can easily change which party keeps which stock, and all the relevant totals will update instantly.

The software will update each party’s share of untaxed capital gain, total securities, total marital property and total marital+separate property.

Negotiation: What-If Analysis

The "What If Analysis" screen allows you to compare up to twelve scenarios side by side, as shown below.


Figure 107- What If Analysis

Within the scenarios, you may vary child support, spousal support, wages, filing status, and the exemptions – many of the key decision factors in a divorce.

By clicking the link labeled “Show Another Column,” you may add a second scenario.  By clicking the next link labeled “Show Another Column,” you may add a third scenario.  And so on.

The most effective way to use this tool is to create two identical scenarios side-by-side.  Then, vary just one factor.  For example:

At the top of the screen there is a link to select options, labeled “Click here to set ‘What-if’ Analysis Display Options.”

Among the options you may set are the following:

Negotiation: Alimony Calculator

In a few states, an analysis that looks at something called "Cash available for living expenses" has become popular.

Family Law Software allows you to perform this analysis, on the Alimony Calculator screen.

Essentially, “cash available for living expenses” looks at the combined incomes of the parties after child support, taxes, and a few so-called "mandatory" expenses -- but before mortgage payments or most other expenses of living.

The parties then attempt to allocate this pool of cash in some specified ratio between the parties -- for example, 50/50 or 60/40.

Family Law Software allows you to specify this 50/50, 60/40, or other ratio.  The software will then calculate how much alimony is necessary in order to enable the parties to reach this ratio of “cash available for living expenses.”

The software will use the child support and all other income and expense numbers as they are entered in the Planner.  Then, the software will calculate the amount of alimony needed to reach the specified target.

The calculation is complicated, because when the alimony is increased, the tax payable on the alimony increases as well, and so the alimony needs to be increased again to cover the new taxes, and so on.

The software takes all of these rounds of increases into account and thus gives an alimony amount that reaches the desired point, even including the tax effects of the alimony itself.

Please note that this concept of “cash available for living expenses” is somewhat arbitrary and arose before software like Family Law Software made it possible to look in an analytical way at after-tax cash.

After-tax cash is the real bottom line.

The illustration below shows a sample screen.


Figure 108 – Sample Alimony Calculator Screen

The following lines describe how to use this calculator:

If you click the link labeled “Click for Expanded Report,” you will get a longer and more detailed report.

Negotiation: Alimony After-Tax

The Alimony Optimize > Alimony After-Tax screen automatically calculates the potential savings due to alimony.


Figure 109 – Net Tax Savings Due to Alimony

Using the amount of alimony that is specified in the Planner, the software automatically calculates the payer’s tax savings to paying alimony; the recipient’s tax cost to receiving alimony, and the net of the two.  The net of the two is the net tax savings due to alimony.

It also calculates these tax savings over all the years that alimony is due to be paid.

It is worth observing that the tax calculation here is not simply an estimate based on a marginal tax rate.  It is the result of a complete tax calculation of federal taxes and an estimate of state taxes. 

This gives you much more accuracy in the result.  For example, if the alimony pushes the recipient into a new tax bracket, that fact is reflected.  Or, if either party’s income is expected to increase or decrease in a coming year, that fact is reflected as well.

Negotiation: Alimony Breakeven

In a situation that arises frequently, a recipient spouse needs money to reach a point were his or her income, including the alimony, just covers expenses, including taxes.

The software lets you see what that point is with the click of a mouse.

Just go to the Negotiate tab > Alimony Optimize > Alimony Breakeven screen.

You will see a screen the like that shown below.


Figure 110 – First Few Lines of Sample Alimony Breakeven Screen

The screen looks at the first year only.

Also, it assumes that the alimony payments are being made for a full year.

As a result, if the first year's alimony payments actually are beginning mid-year, you may find that you substitute the alimony amount suggested here in the actual alimony field and the recipient spouse does not in fact reach break even.

This is because in the actual case, the recipient spouse has not received enough months of alimony payments.

The Alimony breakeven screen assumes a full year of alimony payments because it is searching for a number that could conceivably allow the alimony recipient to break even on a going-forward basis.

Because the screen looks at the first year only, however, you should view this result only as a starting point.  You may wish to take the result of this analysis and use it in the "Alimony What If" negotiation screen to see about impact of this alimony level projected several years forward.

Negotiation: Alimony Trade-Off

The Alimony Trade Off screen is useful for situations in which you have determined the total amount that a payer will pay and you are trying to allocate that amount between alimony and child support.

To get to this screen, go to the Negotiate tab > Alimony Optimize > Alimony Trade-Off screen.

Usually, the marginal tax brackets of the parties will be such that it is most tax advantageous to designate the payments as either all alimony or all child support.

But if the tax brackets of the parties are close, the alimony itself can tip the balance so that increasing the alimony payments actually decreases the tax benefit.

This screen shows where such an inflection point exists, if it exists at all.

To use the screen, first enter the minimum Child-Support amount to use (this may be zero).

Then enter the total amount of combined child support plus alimony that the payer will pay.

The software will then create 10 scenarios, each scenario being a step on the way from "all alimony" to "all child support."


Figure 111 – Alimony Trade-Off

For each of the scenarios, you may then view the combined tax amount and combined bottom line.

You would favor the scenario - that is, the combination of child support and alimony - that minimizes tax and maximizes the after-tax bottom line.

Negotiation: Using Scenarios

It is often nice to be able to show several scenarios side-by-side.

Family Law Software lets you do exactly this.

Click the Negotiate tab, then Scenarios on the left.

The Scenarios screen has several parts.

Negotiation Using Scenarios: Creating Scenarios

Your first step is to create the scenarios.  You do this by clicking the ?button at the top of each column.? The row of “Copy” buttons is shown below.


Figure 112 - The “Copy” Buttons That Create Scenarios

Each “Copy” button makes a copy of the Base Plan in the relevant column. 

You may give each scenario a long name and a short name, by clicking the link near the top of the Scenarios screen labeled Click here to enter labels and titles for Scenarios.

Once you have created your scenarios and  (optionally) named them, you may change one or more numbers from the Base Plan in each scenario.

The most common things to change are child support and alimony.  But you can change filing status, exemptions, major expenses, and assumptions relating to inflation as well.

Negotiation Using Scenarios: Viewing Scenarios Results and Reports

Now, let’s look at the impact of those scenarios.  Click the links shown below:


Figure 113 - Links to Click to See Results of Scenarios

First click the report of Scenario Differences. You will see results like this:


Figure 114 - Scenario Differences Report

At the top, you can see a description of what is different from scenario to scenario.

Below that, you can see the impact of those differences on gross income, expenses liquidations, taxes, and after-tax cash.

Further down (not shown here) the screen displays the impact of the differences on net worth.

There is another scenario report as well: the Multi-Year Comparison report (“Click here for a Multi-Year Comparison.)


Figure 115 - Multi-Year Comparison Report

This report shows how this will play out several years into the future.

The screen image below shows values for year #5.  The report itself shows values for years 1, 5, 10, 20 and 30.

Finally, if you would like to see line-item detail for each scenario, click the “Totals” button for the relevant column.

That will generate reports like the After-Tax Cash Spreadsheet Style and

Helpful HintKeeping Scenarios Current.? If you change the base case (that is, data in the Planner) after creating the scenarios, the scenarios do not update.? They remain fixed.? If you wish to update the scenarios, erase them (see section 7.10.4 below) and create them again.

Negotiation Using Scenarios: Naming Scenarios

You may give each scenario a name.  The name will print with the scenarios.  To name the scenarios, click the link at the top of the screen, as shown below.


Figure 116 - The Link to Click to Give Titles to the Scenarios

Negotiation Using Scenarios: Deleting Scenarios

To delete any Scenario, click the ?button for any column, as shown below.


Figure 117 - The Erase Buttons, Which Clear a Scenarios Column

You may erase any column.  Then click the ?button again, to create another copy of the Base Case in that column.

Negotiation Using Scenarios: Comparing More Complicated Scenarios

Occasionally, you may wish to create more complicated scenarios.  For example, you may wish to compare results with different options in the more complicated sections of the Residence, Pension Plans, or Living Expenses topics.

To do this, you can create two complete files that differ only in the ways that you specify.

To create a copy of the current file, click the Files tab, then the ?button, then the ?button.

Give the “Save As…” file a new name.

You will have created an identical file with a different name.

Now, you may change the one thing (or several things) you want to differentiate.

Then, separately open each file and print the reports for each file.

Note: If you want to make a change that affects both scenarios, you have to change each file separately.  You have to be careful to keep the common numbers in the files in synch.

Negotiation: Alimony Present Value “Buyout” Amount

The software can help you figure a present value (alimony buyout) amount.

Click the Negotiate tab, then Alimony PV (Buyout) (in some states this will appear as Support PV (Buyout) on the left.

The buyout amounts for each spouse will be displayed, as shown below.
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Figure 118 - Alimony Present Value

The remainder of the screen explains in complete detail how the present value calculation is performed.

The software uses the parties’ actual marginal federal tax rates in the calculation.

You may change the present values by changing the discount rate.

The software uses a current 20-year United States Treasury Bill rate, by default.  You may change this simply by typing in a different rate.

You may also change the marginal state and federal tax rates, although, the software calculates federal marginal tax rates and does an estimate of the state marginal tax rate.

Helpful Hint: Different Present Values. The payer’s buyout equivalent may be less or more than the recipient's.  That is because the payer and recipient typically have different discount rates, because they invest differently, or they are in different tax brackets.

Negotiation: Alimony Recapture

The calculator on this screen lets you ask “what if” for alimony recapture.

You enter three alimony amounts, and the associated years.  (Typically, these are the current year, the next year, and the year after that.)

If the actual alimony is “per year,” than this alimony is “per year” as well.   If the actual alimony is “per month,” then this alimony is “per month” as well.

The alimony recapture amounts appear beneath the alimony amounts.


Figure 119 – Alimony Recapture Calculator

The help text on this screen also gives an extensive explanation of alimony recapture.

Negotiation: Best Filing Status

By choosing the best filing status on their final tax return before the divorce, the parties can save hundreds, or even thousands of dollars.

You can advise your clients about this with the click of a mouse.

Click the Negotiate tab, then Filing Status on the left.

The software will automatically recommend the best filing status for the parties (in terms of saving money on taxes).

The software calculates the actual tax in the current year for every possible filing status. 

This is a complete tax calculation, not an estimate.  So the results are very precise.



Figure 120 - Filing Status Computation Screen

In order to reach this conclusion, the software makes two preliminary calculations.

First, it looks at the “married filing separately” filing status.  With that filing status, if one party itemizes deductions, then both must.  The software automatically calculates taxes with both itemizing, then with both claiming the standard deduction, and it figures out which yields the least overall tax.

Second, for each party, it looks at the question whether that party might be able to file as “head of household.”   That filing status is tax-favored.

If one may be able to file as “head of household,” the software uses that filing status for the party instead of “single.”

Having done these preliminary comparisons, it is now ready to compare the three possibilities: married filing jointly, married filing separately, and single / head of household.

It calculates the taxes each way, then shows which is best, and which is second, and which is third.  And it also shows the overall tax dollars to be saved by choosing one over another.

To view more information about filing statuses, click the Planner tab, then Tax Filing Status on the left, then the links for pop-up help at the bottom.

Negotiation: Who Should Claim the Exemptions

The software helps you decide which party should claim the tax exemptions for the children.


Figure 121 - Detail of the Exemptions Screen

Click the Negotiate tab then Exemptions on the left.

It works by doing a complete tax calculation assuming that the first party claims all the children.  It does this for the current year, and also for future years as well.

Then it does a complete tax calculation assuming that the second party claims all the exemptions.  It does this for the current year, and also for future years as well.

Then it compares the results of each calculation to the current exemptions claim, and sees which situation gets a bigger tax benefit.

Helpful Hint: Guessing Which Parent. The naïve view is that the higher-income parent always gets more tax benefit from claiming the exemptions.  Often this naïve view is correct.  However, at high income levels, the tax code phases out the deduction for exemptions.  So sometimes, it’s the lower-income parent who gets more tax benefit.  The best way to be sure is to use this screen of the software.  

Negotiation: Figuring Alimony Recapture

Alimony recapture is designed to find people who try to disguise property settlements as alimony. 

Click the Negotiate tab, then Alimony Recapture on the left.

Typically, the parties would want to characterize the payments as alimony, rather than property settlements, to get possible tax benefits.

In general, the tax law of alimony recapture says that if the so-called "alimony" payments decline "too quickly" over the first three years, then some of the alimony will be recategorized as a property settlement.  The tax deduction is then taken away.

Because the determination of whether the payments are alimony does not occur until after the third year in which alimony is paid, tax writers say that the government "recaptures" the alimony deduction.  Hence the name "alimony recapture."

The software will automatically determine whether alimony recapture applies.  If there is none, it will so indicate.


Figure 122 - Alimony Recapture Screen, No Recapture

In the illustration above, there is no recapture.  This is usually the case.

If there is alimony recapture, it will display the amounts, as shown below.


Figure 123 - Recapture Results from Alimony Recapture Screen

Negotiation: Figuring the Tax Impact of Alimony vs. Child Support

In some situations, and especially in California, you have the option of taking some payments that would be child support, and labeling them as alimony.

Doing so may reduce the parties’ combined federal tax bill.

The software will show you how much, if any, the federal tax bill is reduced if you were to recategorize all the “child support” as “alimony.”

Click the Negotiate tab, then Family Support on the left.

Helpful Hint: Alimony Must Meet Federal Requirements. Note that the “alimony” must still pass muster with the federal government.  That means that, for example, the alimony may not change upon any child’s 18th birthday, 21st birthday, college entrance, leaving home, getting a job, or any other date that is significant in the life of the child.  

The way the software does this is as follows:

1. Calculate the actual tax payments.
2. Calculate what the tax payments would be if the child support payments specified became alimony payments.
3. Calculate the difference between 1 and 2.  This is the tax savings (if any).

The software calculates the savings per year, and then the cumulative savings, as shown below.


Figure 124 - Tax Savings If All Child Support Payments Are Reclassified As Alimony