By Wendy Diaz
An important step in the divorce process is an equitable division of your marital property. When a couple has no significant assets or debts, one can resolve property division quickly and cost-effectively. But the task of classifying and dividing property and verifying income are more difficult if complex financial assets are involved.
While a myriad of issues comes up in any divorce, your finances will be among the most important ones you need to resolve. Proper planning can help you avoid financial issues that come up before, during or after your marriage. Regardless of where you are in the divorce process, you need to protect your financial interests. Surrounding yourself with a competent team of advisors, including ones with advanced training in divorce finance, will improve your chances of an equitable settlement.
Asset division will be more complicated if you are concerned about hidden assets, or if your spouse is self-employed, has an ownership interest in a closely held corporation, limited partnership or trust, or has an executive-compensation package.
Other tricky situations involve pre-marital assets, inherited property, or third party real estate interests. While you may be tempted to rush into a quick settlement to mitigate the emotional or financial burdens of divorce, you may be cheating yourself out of significant assets or income.
The discovery of any undisclosed or improperly characterized asset that becomes part of your marital estate, or income that could support you and your family, can make a significant difference on the quality of your life after divorce and have a substantial impact on your future net worth. SELF-EMPLOYED SPOUSE While not all spouses are dishonest, business owners can and do control expenses and why not…income too. Business owners have an incentive to minimize their taxable income.
To the untrained eye, using their taxable income o establish a support award will result in less money available to support children and give alimony. A financial professional can review your tax returns and other financial documents to adjust your spouse´s income.
Some common expenses that may be adjusted are any personal expenses run through the business (such as an automobile, landscaping, or utility bill), depreciation and depletion expenses, or meals and entertainment. Any shortfall between this adjusted income and your marital lifestyle expenditures should sound a warning bell.
Deceptive spouses can also manipulate their accounting records to disguise the profitability of their business or to hide assets. Beware of delayed business contracts, a sudden increase in accounts receivable, large one-time business expenses or salaries paid to “ghosts” employees such as a family member or a paramour. A major piece of financial information needed in a divorce is the lifestyle information analysis. This analysis proves the marital standard of living, reconstructs financial statements, and identifies how much you need to sustain your lifestyle after divorce.
It will also document when marital expenditures exceed stated income. With this, your attorney can negotiate an appropriate spousal support award or conduct further discovery. CORPORATE EXECUTIVE If your spouse is an executive at a fortune 500 company or a start-up they likely have a highly complex compensation package that consists of a salary, bonus, perquisites, equity-based compensation, and possibly even a long-term incentive plan.
Be certain you understand the details of the package. We have seen the equity-based component represent more than 80% of an individual´s income in any given year.
If you plan to receive alimony or child support, consider preparing an historic analysis of your spouse´s compensation package. This analyisis can prove that annual grants of stock options, restricted stock or other forms of equity compensation will likely occur after divorce.
At WDA we work closely to our clients to help families protect and grow their assets before, during and after a divorce.