Going through a divorce is a highly stressful life event. Unfortunately, some spouses play financial games with the intent of “winning” in the divorce as they are pitted against the other spouse in the traditional adversarial divorce process. Here are some of the most common games that people play:
1. Undervaluing the Business
Often, in the year leading up to the divorce, the income of a community property business declines. This often happens in a professional practice, like a doctor, dentist, lawyer, optometrist, veterinarian, etc. The professional has an incentive to cut back on the practice, so the income decreases in the year prior to the divorce. This has an impact on the payout or equalizing payment being over or understated.
2. Money Spent on Lifestyle Exceeds Income
In some cases, the lifestyle exceeds the income of the business. One example revealed that inventory was being sold out the back door for cash. Since income was not being recorded, the value placed on the business for asset division was less than it really was.
3. Mismanagement of Community Funds
One example of mismanagement of community funds is when a business owner pays for the expenses of another party, who is not the spouse, out of business funds. This expense may appear to be a normal recurring expense. On a closer look, the mismanagement is identified. For example, it may be that the cell phone bill for someone who is not an employee is being paid.
4. Collections are Undervalued
One party may have a collection. This may include coin collections, firearms collections, stamp collections, for example. A collection may have been inherited, which makes it separate property. Or the items in the collection may have been purchased with community funds.
Sometimes, the very existence of a collection is kept secret from their spouse. Items may even be hidden in a safe deposit box.
How a Divorce Financial Consultant Can Help
A divorce financial consultant can:
- Request appropriate and necessary documents.
- Ask relevant questions about the finances.
- Follow the flow of funds to be sure beneficiaries have not been removed and that community assets have not been transferred.
A Collaborative Divorce is designed to help the spouses work together with the assistance of a neutral financial consultant so they can come to a financial settlement that works for each one of them. The goal is for both parties to be open, honest, and forthright with each other. But it is also the responsibility of the financial neutral to gather a complete picture of the couple’s finances.
For assistance in getting to the other side of your divorce in a timely and less costly process than a traditionally litigated divorce, contact us at Heberger & Company, an Accountancy Corporation.
From the Blog
How To Do A Business Evaluation For A Divorce
When income that is generated during a marriage comes from a business owned by one or both parties, there should be a business evaluation conducted as part of the process of determining the overall value of the estate. There are several methods for valuing a business. Which valuation approach works best for purposes of family law depends on the nature of the business at issue. The … [Read More...]
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