10 Dec

Why is a Lifestyle Analysis So Important in a Divorce?

In the early stages of divorce, clients are required to complete financial affidavits, financial declarations, or other similarly titled disclosures.  The importance of an accurate disclosure of assets, liabilities, and income is obvious. Yet many clients are unable to accurately prepare this financial information.

Particularly in high net worth divorces, it may be difficult for the husband or wife to report these financial details because of a large volume of data and/or an inability to compute the numbers. The financial declaration will be a primary piece of information used to divide assets, calculate alimony, and calculate child support. Errors can therefore be very costly.

A lifestyle analysis completed by a forensic accountant can solve this problem, and can add other value to the divorce process. The lifestyle analysis is typically done to demonstrate the spending (or the lifestyle) of the family prior to the separation. Read More

04 Dec

Standard of Living in Divorce Cases

In a typical divorce with one or both of the spouses having traditional jobs and earning middle to upper class wages, the calculation of alimony and child support are pretty easy. States have charts or standard percentages that are applied to the income to figure out how much one spouse should pay the other each month.

With high income households, it is not necessarily so easy. This is especially true for ultra high net worth clients. In those cases, the courts will look to the standard of living during the marriage. A forensic accountant will evaluate the cost of the lifestyle of the parties during the marriage (and also the lifestyle of the children) and that analysis will be used by the court in calculating support payments.

For the purpose of calculating alimony, courts consider a variety of factors, and the standard of living established during the marriage is included in those factors. It is important to not only consider the standard of living during the marriage, but also whether the parties are able to maintain a reasonably comparable standard of living following the divorce. In many cases, the same standard of living cannot be maintained because there is not enough income to maintain two households of comparable quality to the marital household. Read More

26 Nov

Consulting Versus Testifying in Divorce Cases

A financial professional can fill two distinct roles in family law cases. He or she can be a consultant who provides analysis and opinions privately to the attorney and client. The consulting expert’s work and conclusions are not intended to be presented in court, and are intended to be of an advisory nature. The other role is that of a testifying expert, alternately called an expert witness.  The testifying expert must be disclosed in the event that the case goes to trial.

The services of a consulting expert may include:

  • Explaining financial topics to the attorney and client
  • Providing opinions and advice on financial matters, including the value of assets and liabilities, the taxability of settlement scenarios, and the strengths and weaknesses of the financial portion of the case
  • Helping to develop a litigation strategy
  • Devising a strategy for presenting financial issues to the court
  • Evaluating a testifying expert’s work as a “second set of eyes,” which may help identify weaknesses or opportunities in the testifying expert’s work
  • Scrutinizing the work of a financial neutral appointed in the divorce

Read More

13 Nov

Divorce Financials: Lifestyle Analysis in Family Law Cases

This article was originally published in the American Journal of Family Law (Volume 32, Number 2 / Summer 2018)

Determining the income of the parties to a divorce or child custody case is critical, as it affects spousal support and child support. It may also affect the division of assets, particularly if there are income-producing assets to be divided.  In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have accurate numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.

It is not unusual for a closely held business to suspiciously suffer from declining revenue and profits once a family law case comes to fruition. The spouse in control of the business may state that the economy is negatively affecting the business, or that other conditions such as competition or changing technology are the cause for a decline in the financial condition of the business. Is it a coincidence that a thriving business just happens to suffer a decline at the precise time that a family law case is initiated? Of course it is no coincidence, and the numbers must be investigated to present a true financial picture to the court. Read More

08 Nov

Getting Business Tax Returns During Divorce

When one or both spouses have an ownership interest in a business, it is critical to get both income tax returns and financial statements for the entity. It is impossible to fairly evaluate the business and the income from it without both of these.

Many times we meet resistance from the spouse during discovery. It is common to hear “we already gave you the financial statements, why do you need the tax returns too,” or vice versa. Both are important because they provide different information. Occasionally the two will have identical information, but the vast majority of the time there will be different numbers and different levels of detail. We want as much information as possible on the business, so both are critical. Read More

22 Oct

The Family Law Engagement Process

Serving as a forensic accounting expert in a family law case  begins with setting the stage for the work to be performed for the attorney.  One of the most important steps is developing the scope of the engagement. There are almost always limitations on the work based on budgets, deadlines, and available documentation. Therefore, it is important to evaluate what is available, what work is most critical and will be most valuable, and what problems the limitations might cause.

The typical divorce engagement will follow this general process:

1. Secure the engagement – Determine the nature of the engagement, the identities of the parties involved, and whether or not there are any conflicts of interest. Determine whether work can be completed in the time frame identified by the client, and whether the forensic accountant has the necessary expertise to complete the engagement. Read More

05 Oct

Why Investigate a Business During a Divorce?

Closely held businesses present special challenges in the family law setting. Typically, only one spouse is actively involved in the business. Therefore, not only does the spouse control the family’s finances, he or she also controls all of the records of the business. When a spouse is attempting to quantify the income from the business or the value of the business, the spouse who works actively in the business can purposely (and often very effectively) obstruct attempts to get accurate and complete data.

Certain types of businesses, such as restaurants and retail stores, can be prone to manipulation because they have so many cash transactions. Construction companies, real estate ventures, and auto dealerships are notorious for “creative” bookkeeping. Professional service providers, such as doctors, dentists, and attorneys are at risk for financial maneuvering because it is so difficult to verify the amount of professional services actually provided to patients or clients.

Any business that is closely held and has finances that are easily manipulated by the owner is at risk. If this happens, the “out” spouse is left looking for alternatives to get to the bottom of the finances.  Techniques used in the personal lifestyle analysis can also be applied to businesses to ferret out the truth about the money.

26 Sep

Hidden Assets in Divorce Cases

Hidden assets can impact both the property division and the award of support payments. Assets hidden by one spouse deprive the other spouse of a share of them. If the hidden assets include income-producing assets such as a business venture or an investment portfolio, the spouse receiving support may receive a lesser amount of support than he or she is entitled to.

Some of the most common personal and business assets hidden during a family law case include: Read More

13 Sep

What is a Divorce Lifestyle Analysis?

The divorce financial analysis is one very specific set of services that can be offered by a forensic accountant. The lifestyle analysis is the process of tabulating and analyzing the income and expenses of the parties. The lifestyle analysis is then used to determine the standard of living of the parties, which will influence support calculations, and maybe property division.

Calculating the lifestyle of the spouses prior to separation can provide insight on the lifestyle the married couple enjoyed and the cost of that lifestyle, as well as the income that is or was required to fund the lifestyle of the married couple. The results may be used to prove a spouse’s financial needs following divorce. In other words, a detailed analysis of the spending during the marriage can be the basis to calculate the funding the spouse needs to maintain a similar lifestyle after divorce.

The lifestyle analysis may also help confirm or refute income claims made by a spouse. If a spouse has declared income that is well below the cost of the lifestyle he or she is leading, the lifestyle analysis may suggest that undisclosed sources of income exist. It may also help identify previously undisclosed assets, which may have a substantial impact on the property division.

The lifestyle analysis is not only used to sort out the numbers post-separation. It may be used to evaluate the finances of each part at the time of a prenuptial agreement. If a party did not make a full and accurate disclosure prior to the signing of the premarital agreement, the spouse may attempt to have the agreement set aside. A prenuptial agreement can also be instrumental in the forensic accountant’s work post-separation, as it provides a starting point for the tracing of funds or assets.