The early stages of divorce can be emotionally trying and confusing on multiple levels, and for many women, nothing is quite as dispiriting as trying to locate and decipher the financial records required for an equitable divorce settlement. Of course, the challenge is even more difficult if you were not the one responsible for household finances during your marriage.
But, take heart. In order to achieve a successful divorce settlement agreement, you’ll need to Think Financially, Not Emotionally®, and I can start you down that path by walking you through the initial phases of the financial discovery process.
First, your lawyer will ask you to complete documents concerning your assets/liabilities and income/expenses. These forms are generically known as “Financial Affidavits,” but each state uses its own terminology to describe them. For example, in New York, a Financial Affidavit is called a Statement of Net Worth. In New Jersey, it’s known as a Case Information Statement. The courts in Utah call a Financial Affidavit a Financial Declaration and in Connecticut, it’s simply called a Financial Affidavit.
Whatever they’re called, these financial documents are critically important to the outcome of any divorce. However, most women (and their husbands for that matter) don’t know how to accurately complete them. When faced with these documents, many people will simply estimate. Others will take a guess, because they don’t have access to the information they need, or they may not know how to find and/or compute it.
But, using “guesstimation” as a strategy is completely wrong! It is critically important that Financial Affidavits are as accurate as possible. Omissions and/or errors in your figures could have a significant impact on the financial outcome of your divorce. So, as it turns out, what you really need is a Lifestyle Analysis, which will give you the numbers you need to accurately complete your Financial Affidavit. A Lifestyle Analysis identifies your spending habits as a couple, along with the day-to-day living expenses incurred during your marriage, with an emphasis on the last three to five years. It includes recurring and ordinary expenses, as well as unusual and non-recurring expenses, and it’s often required by the judge and serves as a verification of the net worth and income and expense statements submitted by both spouses.
Once your attorney has your Lifestyle Analysis and your now precisely completed Financial Affidavit in hand, he or she will hopefully be able to maximize the amount of alimony and child support you will receive and effectively argue for the most advantageous division of your assets.
As I’m sure you’re beginning to understand, compiling a complete financial dossier is no place to cut corners. Rather than wing it, please consider enlisting a divorce financial planning expert to help you prepare a comprehensive Lifestyle Analysis. Why? Because:
1. Your lawyer won’t get involved in the financial minutiae of your lifestyle. While you’re preparing your Financial Affidavit, don’t expect your attorney to meticulously comb through all your tax returns, bank account, brokerage account and credit card statements from the past few years. Absent any glaring omissions, your attorney will typically rely on the information you provide, and he/she will assume it is correct. (In fact, you will have to sign a statement on the forms attesting, under penalty of perjury, that the information you provided is correct.) In some cases, your divorce attorney or his/her paralegal may offer to assist you with a Lifestyle Analysis, but he/she is unlikely to have the expertise in divorce finances to do so as thoroughly, efficiently, or cost-effectively as a divorce financial planning expert. Even CPAs and financial advisors are unlikely to realize what analyses and projections they ought to conduct on your behalf. It’s not that these professionals aren’t competent at what they do; it’s just that divorce finance is simply not their specialty, so they haven’t had the advanced training or hands-on experience needed.
For example, while CPAs can provide good historical and present-day snapshots, few carry out future projections –and yet it’s precisely this type of analysis that will show you whether your future is likely to be financially secure or not.
Here’s another point to keep in mind: Only a scant one percent of financial advisors have earned the Certified Divorce Financial Analyst™ designation, which is so important in understanding the financial ramifications of divorce. In fact, many large financial services firms, including Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo, don’t permit their financial advisors to provide advice on real estate or closely held businesses, and yet for many affluent couples, these represent the vast majority of their net worth.
2. It’s essential to know where you’ve been in order for you to get where you want to go. In essence, a Lifestyle Analysis establishes what your standard of living was during the marriage. It reconstructs:1) the day-to-day living expenses incurred during your marriage and 2) the spending habits of both you and your husband. Generally, a Lifestyle Analysis has an emphasis on the last several years of your marriage, and it usually includes, but is not limited to, an analysis of:
- all financial statements (bank, brokerage, credit cards, etc.)
- personal and business income tax returns
- recurring and ordinary expenses within each category of expense (clothing, food, housing, entertainment, travel, etc.)
- unusual, non-recurring and/or seasonal expenses
- credit reports
- any discrepancies
- a realistic estimate of future family expenses, like college or boarding school for your children
At first, compiling the data needed for a Lifestyle Analysis might seem like a laborious, time-consuming chore. But working side-by-side with your divorce financial planning expert, it’s likely you will discover all sorts of regular expenses (and income) that you neglected to consider –and that information is essential as you plan for your future as a single woman.
What’s more, a Lifestyle Analysis can also prove an incredibly valuable tool for uncovering assets your husband is trying to hide from you and/or any dissipation of marital assets he’d rather you didn’t know (like when he took his girlfriend to Hawaii). In other words . . .
3. A Lifestyle Analysis keeps your husband honest. Any comprehensive investigation of spending habits and day-to-day living expenses is bound to reveal a few surprises here or there. However, in some cases, the details uncovered by a Lifestyle Analysis can be even more shocking. In fact, sometimes, when we are preparing a Lifestyle Analysis for a client, we find non-recurring or occasional expenses that take her totally by surprise. Unfortunately, it’s not unusual during this process to discover a husband has been pursuing some kind of nefarious activity, such as selling marital assets, concealing income, collecting art, or even supporting an extramarital relationship completely unbeknownst to his wife.
Once revealed through the analysis, this dissipation of assets can be taken into consideration when the judge determines the amount of your divorce settlement agreement and any alimony ordered.
Here’s a real-life example to illustrate my point. Divorce attorney Mudita Chawla of Chemtob Moss Forman & Talbert, LLP, recalls that she once represented a wife whose husband had controlled the family finances throughout their eighteen year marriage. In reviewing the various financial documents, however, it became clear that the husband was siphoning funds into an offshore account he had not disclosed on his Statement of Net Worth.
“We could not subpoena the documents from the offshore account because a New York State subpoena held no weight overseas,” Ms. Chawla explained to me. “But, by tracing exactly how much money the husband had transferred over the years from the parties’ marital accounts into the offshore account, it was determined that this sum amounted to approximately $3 million.”
The evidence from this Lifestyle Analysis, along with the husband’s failure to disclose all the assets, gave Ms. Chawla the upper hand in the litigation, and the case was settled with the wife receiving almost 60 percent of the marital assets, including the “missing” $3 million.
Clearly, divorce attorneys welcome the expertise and support of a divorce financial planning expert when it comes to the daunting task of conducting a Lifestyle Analysis or providing complex financial projections that justify their client’s position at the negotiating table or in court. So, make no mistake about it. The combination of a divorce financial planning expert and a carefully prepared Lifestyle Analysis represent a potent antidote to the stressful emotions and confusion often surrounding the divorce process.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com) a firm which exclusively advises affluent women throughout the United States before, during and after divorce. He assists women and their divorce attorneys with deciding on the most advantageous way to divide marital assets and enable them to negotiate more favorable settlements, especially when there are complicated financial and tax issues.Jeff also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future,a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
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