Jeff Landers, Contributor
I write for women who are going through a financially complex divorce.
From forbes.com 2/14/2012 @ 11:03AM
If you’re in the early stages of the divorce process, your lawyer has probably already asked you to fill out forms concerning your assets/liabilities and income /expenses.
In general terms, these forms are 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.
Whatever they’re called, these financial documents are critically important to the outcome of any divorce. However, most women (or their husbands for that matter) don’t know how to accurately complete them. 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.
Unfortunately, though, estimating or guessing when filling out financial affidavits can prove disastrous. Instead, complete accuracy is of the utmost importance.
Because your attorney will not meticulously comb through all your tax returns, bank account, brokerage account and credit card statements from the past few years. Instead, absent any glaring errors, your attorney will typically rely on the information you provided them, and he/she will assume that 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.)
Even more importantly, these documents will be used to determine the division of your assets, alimony and even child support. Omissions and/or errors in these documents could have a significant impact on the financial outcome of your divorce.
So what can you do?
You can have a Lifestyle Analysis prepared.
What is a Lifestyle Analysis?
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
At first, compiling the data needed for a Lifestyle Analysis might seem like a laborious, time-consuming chore –and the last thing you want to concern yourself with as you start navigating the rocky waters of divorce.
But, please, keep reading.
The truth is, a carefully-prepared, comprehensive Lifestyle Analysis could very well make the difference between a financially successful divorce settlement agreement and one that is considerably less so. 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 (like when your husband took his girlfriend to Hawaii). So, make no mistake about it. The process of preparing a Lifestyle Analysis absolutely deserves your time and attention –even during what can be the stressful initial stages of the divorce process.
Why is a Lifestyle Analysis so important?
In many divorces, a Lifestyle Analysis could be required by the Court. The details in the analysis serve as verification of the net worth and income and expense statements submitted by both spouses, and it can help a judge determine the amount of your divorce financial judgment including the amount and duration of alimony.
In addition, once the Lifestyle Analysis is completed, you’ll have a more accurate picture of what funds are required to maintain your standard of living. The analysis will help determine how much you and your husband spent on an average basis month-to-month and year-to-year, and you can use these calculations as a guide to help you develop a budget for yourself as a single woman/mother.
How can a Lifestyle Analysis uncover hidden assets?
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. You see, 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.
Who should prepare my Lifestyle Analysis?
In some cases, your divorce attorney or his/her paralegal may offer to assist you with a Lifestyle Analysis or another financial aspect of your divorce, but he or she is unlikely to have the specialized training and expertise in divorce finances to do so as thoroughly, efficiently, or cost-effectively as a divorce financial planning expert will. 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 these future projections that will show you whether your future is likely to be financially secure or not.
Similarly, only a scant 1 percent of financial advisors have earned the Certified Divorce Financial Analyst™ designation, and most of them have not completed additional training or education in the field of divorce finance and law. 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.
Divorce attorneys welcome the expertise and support of a Certified Divorce Financial Analyst™ 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.
The early stages of divorce can be emotionally trying and confusing on many levels. And I understand that locating and deciphering the financial records necessary to complete a thorough Lifestyle Analysis can seem overwhelming at first –especially if you weren’t the one responsible for household finances during the marriage. But, the end result is extremely valuable. Ultimately, your goal is to receive the most equitable distribution of assets possible, and a Lifestyle Analysis provides the basis for credible arguments that can demonstrate the cost of supporting the lifestyle you are accustomed to.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com/ ), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce.
He 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.