Instructions

Personal Data

Husband: Jason Dalton, age 51, Senior Executive for XYZ, Inc.

Wife: Andrea Dalton, age 48, Homemaker

Children: Ashley Dalton, age 14 (starting 9th grade); Carl Dalton, age 11 (starting 6th grade)

Jasons parents: Father deceased, Mother, age 77, in nursing home

Andreas parents: Mother, age 68, and Father, age 69, in good health

Other Pertinent Information

• Jason and Andrea have filed for divorce after 16 years of marriage
• Jason and Andrea do not live in a community property state
• Jasons cost basis in XYZ stock is $150,000, which he has accumulated over many years
• The Daltons are in a combined federal & state tax bracket of 41%
• The Daltons state that they are very conservative, and their investment account is primarily (80%) fixed income investments
• Jasons 401(k) account is also allocated to approximately 80% in fixed-income investments; Jason maximizes his 401(k) contribution every year
• Jason has a universal life policy purchased in 1989 with a death benefit of $500,000; Andrea is the beneficiary
• Jason has group term insurance through XYZ with a death benefit of $1,050,000 (3x salary) that is entirely paid for by XYZ; Andrea is the beneficiary
• Andrea has $250,000 of spousal group term life insurance through XYZ; Jason is the beneficiary
• Jason and Andrea are beneficiaries of each others retirement accounts
• Andrea is the beneficiary of Jasons annuity (where Jason is the owner and annuitant), which has a cost basis of $55,000
• Jason has disability coverage paid for by his employer as a nontaxable fringe benefit, providing 60% of monthly income up to $10,000/month; benefits are payable until 65 after a 90-day elimination period; disability is defined as the inability to perform the substantial duties of your regular occupation
• Jason receives adequate medical insurance coverage through XYZ for the family; the Daltons have adequate homeowners and automobile coverage
• The primary residence mortgage is a 30-year fixed-rate loan, and was originated 6 years ago at 6.75%
• The vacation home mortgage is a 5/1 ARM loan (payable over 30 years), and was originated 2 years ago at 5.25%
• Contributions of $500/month are being made to each of Ashleys and Carls UTMA accounts
• In the Daltons state of residence, minors receive full access to UTMA funds at age 18
• Jasons mother is utilizing her Social Security and survivorship pension income to cover nursing home costs, and will have very little other assets remaining
• Andreas parents have nearly $1,000,000 in retirement assets that they are spending minimally, which will ultimately be divided between Andrea and her sister

Financial Data

Income/Expense Data

Economic Environment

Current inflation, as measured by the CPI, is at 2% (however, college costs are inflating at 6%). 90-day T-bill rates are currently 3%. Long-term government bonds are yielding 5.5%. Economic growth is expected to be 4.5% in the coming year, and unemployment is at 4.5%. Interest rates are expected to rise in the near future.

Goals

1. Resolve divorce proceedings in an equitable manner
2. Provide for college education for Ashley and Carl, assuming $12,500/year (in todays dollars) for four years for each of them

5. If Andrea's parents were to be killed in a car accident tomorrow, and the divorce is still pending, how would Andrea's inheritance be treated for purposes of the divorce? a) Andrea will have to split the assets evenly with Jason, since they were inherited before the divorce was completed b) Andrea will not have to split the assets with Jason as long as she retains them in an account titled solely in her name c) Andrea would never have to split the assets with Jason, because she inherited them in the first place d) Andrea will have to split the assets evenly with Jason, since she did not sign a pre-nuptial agreement to protect them

6. How does the Dalton portfolio compare to their specified risk tolerance? The risk of the Dalton portfolio appears to be: a) Consistent with their risk tolerance b) Lower than their risk tolerance c) Much higher than their risk tolerance d) Unable to be determined with the information provided

7. If the cost of college for Ashley is $15,000/year today, how much will a year of college cost her when she starts in 4 years if school expenses are inflating at 6% (to the nearest dollar)? a) $18,600 b) $18,937 c) $16,883 d) $17,842

8. If the cost of college for Carl is $15,000/year today, how much will a year of college cost him when he starts in seven years if school expenses inflate at 6% for the next four years, and then at 5% for the remaining three years (to the nearest dollar)? a) $22,554 b) $21,922 c) $23,018 d) $20,878