The $500 divorce: Kotlikoff's new service offers financial balancing act

"He's retired, she's working the next five years; he doesn't want to work or provide much in assets. How much alimony is needed to be equal? In looking at it, it became clear that it would be more tax-efficient for both of them for him to basically pay the taxes … If he hands over alimony, they have the option to make it excludable in his [adjusted gross income] or taxable to her or not; it turns out that in this case, somewhat surprisingly, it's better for it not to be excluded.

"That solution provides more resources for the two of them to share; it's win-win for both … Once they have a plan, they can go to their lawyer to write up the agreement," he says.

Kotlikoff clarifies that any individual can obtain the analysis with or without an advisor, with or without the other spouse. But Fair Divorce Decisions won't bias the information. "If someone says their income is X, then turns around and says 'Lower it,' we're not going to do it," he says.

For Kotlikoff, the venture is something of a charitable endeavor, given that he has lost money on his 20-plus years of perfecting and promoting his ESPlanner software — the engine of his new fair divorce venture.

"I like to help people and employ people," he says, without adding that he has also been making his software available at no cost to individuals, while charging modest fees to financial professionals.

The Wall Street Journal, Washington Post and Money Magazine are among the many reviewers that have heaped praise on his software; but beyond the tool itself, Kotlikoff stresses the quality of the service, hiring only bright, caring people whom he trains in understanding the program.

That 10-member team includes a son and son-in-law, and a former head of research for the Army Corps of Engineering — flakes need not apply.

"The industry is not as concerned about quality," he laments. "Planning is usually a loss leader to get assets under management and charge fees."

Kotlikoff's team puts time and personal attention into their fair divorce analyses. Team members, whom he personally supervises, don't just push buttons but spend time understanding the data inputs, and more time generating their 140-page reports that dig into the tax and retirement implications of the divorce, and Kotlikoff personally reviews the results before his consultants get back to the clients.

"Even the best professionals cannot make these calculations," he says.

While the variables — including such things as insurance policies, Roth vs. traditional IRAs, different ages, who gets a certain deduction and the like — are legion, the two most critical variables are each party's spending and their housing circumstances.

Except for the case of "a 2-minute marriage," he quips, where a big disparity may be fair, the software assumes the need for an equitable arrangement in these two areas.

So rather than one party bewailing his high mortgage, as if it's a cost, the focus is on consumption.

"When one of the parties has a much bigger house, we're just clarifying that that's also a living standard difference — that person's getting three times more housing services," he says.

The Boston University economist says he's seen up close one of his home state's key divorce judges apply his own arbitrary sense as to what constitutes fair alimony. That arbitrariness, he thinks, may account for the vast numbers who, he says anecdotally, settle five minutes before the judge shows up.

That bothered Kotlikoff, whose ambition is no less than to change divorce law, as much as divorce outcomes. 

"What we really have here is a living-standard machine," he says.