It’s often difficult for individuals and couples to fully understand how a Certified Divorce Financial Analyst (CDFA) can assist them in their divorce process. So, I am developing a series of case studies that illustrate how I’ve helped my clients achieve their goals and reach a divorce settlement they are satisfied with.
This divorce case included a prenup, lots of separate property belonging to the husband and my sorting out his complicated executive compensation benefits.
I’m typically hired by the woman in the marriage, but also have been hired by couples to help sort through the financial details of their divorce, and secure an equitable division of the marital estate.
The woman in the marriage, let’s call her Rebecca, was referred to me by her therapist. For the last 10 years, she had primarily focused on being a homemaker and caring for the couple’s three children. Although Rebecca held a law degree, she had put her career on hold to devote herself to homemaking. She was justifiably concerned about her prospects for reentering the workforce after divorce.
The husband, let’s call him Charles, had filed for their divorce and was seeing someone new. When Rebecca came to me, she brought a draft offer from her husband for me to review and discuss with her. She was very worried and apprehensive about hers and the children’s future. She and Charles had lived a very lavish lifestyle during their marriage. His offer surprised her, but made me a bit suspicious. She also had many questions about the couple’s complex finances, and wanted me to review all the financial documents she and her attorney had pulled together.
This is an important function I perform for most of my clients. In my experience, many family law attorneys aren’t well trained in complex divorce finances and tax issues, and sometimes miss crucial and pertinent financial opportunities clients may benefit from.
Charles was a long-time CEO with a large organization and earned a very nice annual income. He also benefited from a variety of executive compensation packages, including stock options, phantom stock options, incentive compensation, restricted stock (time-based), performance based restricted shares, bonuses, etc. Charles and Rebecca also had a prenuptial agreement identifying all the separate property he brought into the marriage, including a very expensive home they would be living in.
Often, I am hired to help my client gather and examine a couple’s financial documents as a first step in their divorce process. In this case, Rebecca and her attorney had already completed this step for us.
At our first meeting, I want to find out all I can about a couple’s marital finances and their personal goals. What are their concerns? What are their priorities going forward?
According to Rebecca, the prenup indicated what separate property would be excluded in a settlement, if ever there was a divorce. She was concerned about how much the separate property had paid in dividends and interest during their years of marriage, and wondered if some of that appreciation could be considered community property. She also worried that he may have deposited part of his earnings (which is community) into the separate accounts.Rebecca had a legitimate concern. So, I set about digging into the accounts.
They had been married 10 years so there was a lot of research to do to see if any part of the current value of Charles’ separate assets had been co-mingled with community accounts, or had portfolio income that is considered community property. This required significant research and tracing on my part to figure this out. Among other revelations, I reviewed the couple’s prenup and discovered almost $300,000 that should be included as community.Turns out, the prenup language overrode the rules for separate property interest in stock options and restricted stock.
In Rebecca’s favor was the fact that there was significant cash assets to be divided. So, she would be in a position to pay cash for a home. The question was, how much should she spend on a house? Would she be able to quickly find a good paying job after divorce? What about her household budget? Should she cut back in some areas to ensure her long-term security? What about the expensive college her son wanted to attend?
In Rebecca’s case, I used the data provided by her attorney, along with what we found, to prepare spreadsheet tables. Then, we used these tables to run various scenarios using variables such as proposed settlement terms and level of spending, to calculate what Rebecca’s financial future might look like.
Rebecca wanted to keep her children (from a prior marriage)in private schools until they graduated, and then wanted to make sure their college expenses were also covered. In this case, Charles was very amiable toward Rebecca and agreed to help with children’s expenses.
Ultimately, the settlement agreement included considerable cash assets, staggered contractual alimony for Rebecca for a number of years, as well as partial support for college for the children. I worked with her attorney to review the settlement agreement and verify that recently vested restricted stock was indeed deposited to the proper account. The couple then moved forward and finalized the divorce decree and other associated documents.
Rebecca was so happy with the results of her experience, she hired me to help her with her finances moving forward.
For more information on how I can help you with your divorce finances, visit my website at www.lifetimeplanning.cc, or call me at 832-858-0099.