Lifestyle Analysis: Purpose and Process in Divorce Cases

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In this video, Tracy Coenen explains the purpose and process behind doing a lifestyle analysis in a divorce case. There are three main reasons why a lifestyle analysis may be done:

  • To determine the amount of money needed to continue living a lifestyle consistent with the lifestyle enjoyed during the marriage (This relates to child support and alimony.)
  • To find hidden sources of income
  • To find hidden assets

Financial Lies in Divorce

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Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.

Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further.

Undisclosed Accounts
The most straightforward red flag is the discovery of undisclosed accounts. This could be direct evidence of a spouse attempting to conceal assets. However, the nature of the undisclosed account should be examined. Is it an old account that hasn’t been used in a long time? Is there little to no activity in the account? Is the balance in the account insignificant? In these situations, little weight should be given to the non-disclosure, since it is more likely an oversight. Continue reading

Divorce Issues: Calculating Spousal Support

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Each state has its own guidelines for calculating spousal support. Generally, factors which may be considered in determining alimony include:.

  • The length of the marriage
  • The needs of the recipient
  • The relative earnings of each party
  • Career sacrifices made to benefit the family (i.e. one parent gave up a career to raise children or one spouse worked so the other could complete a college degree)
  • The earning capacity of each party
  • The ability to pay spousal support
  • The lifestyle of the spouses during the marriage
  • The age of the parties
  • The property divided by the spouses
  • The ability of the recipient to earn income in the future

Continue reading

Divorce Financials: Dangers of an Imprecise Premarital Agreement

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divorceA divorcing couple has a premarital agreement, so everything is simple when it comes to dividing assets and paying maintenance, right? Of course not. Premarital agreements are rarely simple, and they become even more complicated when the language in the agreement is imprecise.

This high net worth divorce case study provides some important insights into the process of completing a lifestyle analysis and calculating support. In this case, an imprecise premarital agreement led to problems in analyzing the marital lifestyle, excluding certain questionable expenses, and calculating future needs.

Marital Standard of Living
Premarital agreements typically speak to the factors to be considered in calculating maintenance, including the length of the marriage, the method for calculating the spousal support, and the lifestyle or the marital standard of living of the couple and their children. Unfortunately, there are many situations that are never contemplated when premarital agreements are written, so they aren’t addressed in the agreements.

The most hotly contested area is the standard of living, as this item is often elusive and subjective. In our high net worth divorce case study, the parties’ premarital agreement provided that the recipient spouse was to receive spousal support for three years in an amount to support her in the standard of living enjoyed by the parties during the last three years of the marriage. Continue reading

Divorce Financials: Analyzing Income Tax Returns

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Income tax returns are an important piece of financial information in a divorce or child support case. There is so much information that can be obtained from the tax returns, and if we have several years of data, we can make comparisons from year-to-year. In the video below, Tracy talks about the financial data she analyzes on the income tax returns and what these items may tell us about the financial situation of the family.

Written Reports in Divorce Cases

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After completing a lifestyle analysis for a divorce case, a written report is often requested. In the below video, Tracy describes the information she puts in her written reports, which often includes things like background information, documents utilized, important estimates, and methodology used.

Proving Income in Family Law Cases

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Icase-of-moneyn divorce and child support cases, one party may attempt to hide income and assets to deprive the spouse or children of their rightful support. It can be difficult to prove hidden earnings or assets, particularly if the other party owns a business, owns assets within corporations or partnerships, or has other financial vehicles that could be used to conceal wealth.

However, there are ways to discover the existence of assets or reasonably estimate the person’s level of earnings. One such way is a lifestyle analysis, which calculates the earnings necessary to live the known lifestyle of the target.

The logic is simple: Life costs money. We can calculate how much you’re spending based on what we know about your mortgage, car payment, eating habits, utilities, toys, vacations, and other expenses. The money to fund these expenses has to come from somewhere, so we can infer that the cost of your lifestyle equals your earnings.

This type of analysis can be done in several different ways, or through a combination of these methods: Continue reading

Unreported Income: Bank Deposits Method

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When the Internal Revenue Services suspects that a taxpayer has unreported income, the agents can use one of several methods to uncover that income. These methods can also be used to help calculate hidden income in a divorce or child support case. One such method used to determine unreported income is the bank deposits method, in which the forensic accountant analyzes bank deposits. In the video below, Tracy explains how this is done.