Moving Beyond Quicken Software for a Lifestyle Analysis

divorce financial analysisThis article was originally printed in the ABA Section of Family Law eNewsletter, February 2013.

Forensic accountants and Certified Divorce Financial Analysts often use Quicken personal financial software to complete the lifestyle analysis in divorce cases. Unfortunately, Quicken is not the best option for accurately and thoroughly analyzing a couple’s finances before and during divorce.

Why is it used so often? For years, Quicken was one of the better options available for compiling and analyzing personal finances. Also, since a fair number of consumers use Quicken to manage their finances, divorcing spouses sometimes provide a Quicken file to the attorney, which may be used as a starting point for the lifestyle analysis.

Quicken software should not be confused with QuickBooks software, which is a software package used for small business accounting. QuickBooks can be used effectively in divorce financial analysis, while Quicken is much more limited and does not produce as good a result in terms of accuracy or usability.

There are several reasons why Quicken is not the best alternative for compiling data and completing a lifestyle analysis in a divorce case. The drawbacks include:

  1. It is personal finance software, not litigation software. While Quicken software is great for managing personal finances, it is not geared toward litigation. The software is too limited to be used effectively in the litigation setting, as it was never designed for this purpose. For example, standard reports generated with Quicken are useful for managing personal finances, but do not provide enough detail or allow for customization that is necessary in litigation.
  2. It was not intended to be used for lifestyle analysis. Quicken does not allow the analyst to easily drill down to the level of detail that is often needed in a lifestyle analysis, and the reporting function is too limited when evaluating the data. Most times, it is not enough to simply categorize expenditures, or “split” them between categories. More detail is needed, in terms of dividing expenses between family members, differentiating between marital and non-marital spending, and segregating certain expenses which may be unusual or non-recurring,
  3. It requires manual input.  Manual data entry by staff is the primary way financial information is put into Quicken. While it is possible to download data from banks and credit card companies, there are too many problems with the downloads to use them reliably in litigation, so each transaction is instead manually entered into the software. In small cases, manual data entry is not a problem. In large cases, it is a problem. Data can only be processed as fast as a staff person can enter it. Only one staff person can work on the file at a time. If multiple staff people work on the file, consistency is not guaranteed. Data may be duplicated, similar items may be categorized differently by staff members, and it is difficult to track whether all data has been captured.
  4. It leaves too much room for error. Quicken allows the user to reconcile bank and credit card statements, increasing the likelihood of accuracy. However, unreconciled transactions can exist in the software and will affect the final analysis. It is sometimes difficult to tell whether the data set is complete and accurate, and Quicken doesn’t make it easy to monitor this issue.
  5. It is inflexible. As mentioned above, a lifestyle analysis often requires an analysis of expenses which goes beyond simple categorization. Quicken uses only categories and “tags” to classify expenses, and this makes it difficult to create multiple layers of categorization. For example, suppose an expense is classified as a travel expenditure. What if the analyst needs to divide the travel expense between family members? What if the analyst needs to further divide the travel expense between business and personal trips? The analyst using Quicken could make these distinctions by manually creating multiple categories and dividing each expenditure into these categories. However, this is cumbersome and the result is difficult to work with.
  6. Changes are difficult. If the financial analyst decides midway through the process of categorizing expenses that additional categories are needed or multiple transactions need to be categorized differently, the process of changing those transactions is time-consuming. Each transaction must be opened within the database, and a manual change must be made. There is no simple way to make bulk changes to items in the database. This is inefficient, and again, the manual process leaves too much room for error.

While Quicken is an easy-to-use and inexpensive tool for financial analysis, it is simply not the best tool available to complete a lifestyle analysis in a divorce case. It is less efficient and less effective than other options available to forensic accountants.

A combination of specialized financial investigation software and Microsoft Excel has proven itself to be very effective for a lifestyle analysis. It offers the following advantages for the divorce case:

  1. Investigation software has been designed for litigation. It was developed for financial investigators doing civil and criminal investigations. The software was designed to capture the relevant pieces of financial data and deposit them into a database specifically for use in financial investigations. All details of transactions are captured so the investigator can dig deep into the data.
  2. Speed is increased with the right software. Transactions are captured much faster with software than a staff person could ever enter them into a spreadsheet or database. This means that the financial investigation can begin and end much sooner, because the forensic accountant is no longer forced to wait for data entry by staff. The result is faster answers that can help the divorce attorney evaluate asset division scenarios in settlement discussions.
  3. Digital data capture ensures accuracy. Financial investigations are more accurate when the right software is used to extract data from account statements. Errors due to inaccurate input are eliminated, as transactions are reconciled three different ways to ensure completeness and accuracy.
  4. Categorization is simplified and controlled. The process of assigning categories to expenditures is much easier than with personal financial software, as each transaction does not need to be accessed, opened, and categorized. Instead, the transactions can be categorized in “bulk” to speed up the process. It is also much faster and easier to ensure that transactions are consistently categorized. For example, it is simple to verify whether all payments to a specific payee were categorized the same way. It is easy to see if any transactions have not been categorized, and it is easy to change the categorization of any item or a large group of items. Creating multiple layers of categorization is easy, as is the addition of new categories mid-way through the analysis.
  5. Data analysis can be tailored to the needs of the divorce case. The use of Microsoft Excel and the pivot table feature allows maximum flexibility in analyzing the data. Multiple layers of categorization of expenditures are possible, and data can be easily reviewed at any level or layer. For example, it is easy to look at spending per year, spending per year by family member, or spending stratified based on custom variables. Alternate scenarios can be quickly evaluated, without the need for additional time-consuming data entry.
  6. Subsequent document productions are easy to integrate. It is not unusual to encounter supplementary document productions in divorces. With financial investigation software, it is easy to integrate those statements into the working database while ensuring accuracy and completeness. There is no risk of missing transactions or duplicate transactions with the use of reconciliation tools within the software.

A traditional lifestyle analysis can be done with Quicken, but it can be done better with other tools available to the financial investigator.  Using financial investigation software and Microsoft Excel together provides a more accurate, more cost-effective analysis. The conclusions and underlying data for the lifestyle analysis are more reliable and easier to use. Questions about the data can be answered quickly, and customized reports on varying scenarios and alternatives can be generated swiftly.

There are many ways to complete a lifestyle analysis, and they can all end with an accurate, valid conclusion. It makes sense, however, to shift the process toward using better, more accurate, and more cost-effective technology tools that make the lifestyle analysis more relevant to the attorneys and clients. With more flexible software, it is possible to look at the data in multiple ways that may aid in evaluating settlement offers, making demands, and dividing assets and income.

Tracy L. Coenen, CPA, CFF is a forensic accountant and fraud investigator with Sequence Inc. She specializes in cases of embezzlement, financial statement fraud, white collar crime, securities fraud, and family law. She can be reached at 312.498.3661 or tracy@sequenceinc.com.

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