A Divorce Attorney + a CDFA® = A Powerful Combination
Maybe. Maybe not.
What Your Divorce Attorney Doesn’t Know Can Hurt You
I don’t want to be a fear monger here, but the statement above is true. While family lawyers are steeped in training about law and how to apply the law, the majority of family lawyers do not possess advanced financial knowledge.
In my capacity as a Certified Divorce Financial Analyst (CDFA®), I recently worked with a client to review a settlement offer that had been made from the opposing party’s counsel, as well as the pre-trial statement draft drafted by their own attorney. As a numbers nerd, I nearly wept while reviewing, and spotting all of the errors and incorrect assumptions made. Here are a few examples:
Creative Rounding – Just Make Up a Number That Sounds Good!
My client’s employer offered an executive compensation plan, and the client had recently received some stock options, as well as some restricted stock units with a four-year vesting period. The client was also participating in an employee stock purchase plan.
The investment company that managed the executive compensation plans produces a combined statement which showed a total value of the client’s holdings as approximately $80k as of the date of the settlement letter (about 6 months post-separation). However, the opposing party’s attorney suggested that the current estimated value of the account was $100k, and that my client should pay $50k for the other party’s marital portion. (How the attorney arrived at that estimate, I don’t know – no basis for the estimate was provided. But it was far from accurate.)
In reality, the marital (or community) portion of the holdings as of the date of separation (the proper date to use for division) totaled approximately $65k. Not only had the attorney grossly inflated the value of the holdings, they had not applied a coverture fraction, which is used to determine the portion of assets that are marital and the portion that is sole and separate. If my client had accepted the settlement offer and had paid the other party $50k, they would have given their spouse a surplus of $17.5k. Seventeen thousand, five hundred dollars. Thankfully, this offer was not accepted.
50/50 is Fair, Right?
My client and their spouse had made a loan to a business partner during the course of the marriage. The promissory note showed the loan amount as approximately $37k. In a pre-trial statement draft, it was suggested that the loan amount be divided by two, and my client would receive their half in cash, in the sum of $18.5k.
Loans are commonly thought of as a debt. But when you are the lender, a performing loan is an asset. What the attorney didn’t take into consideration was that the loan is in an interest-only status, with no payoff date established. The interest income on the loan is approximately $5.5k per year. My client nearly gave up a claim to an additional income stream of $2,750 per year. It may not seem like a lot, but if the loan remained interest-only for say 5 years, that would be total $13,750. I don’t know many people who would turn down a passive income stream. As it turned out, my client wanted to cut financial ties as much as possible with their spouse. So, we instead came up with a higher value for the loan to take two years of interest income into consideration, and requested half of the higher value. The client asked for $24k, which was $5,500 in their favor. They realized by doing so, that their spouse may end up with more money if the loan was held for longer than two additional years. But it was worth it to the client to be out of that financial deal.
A Simple Mathematical Error Can Hurt!
My client’s spouse had unilaterally decided to file a separate tax return for a year in which they were still married. Because of the different filing status for each, the spouse got a refund of $19k. My client had tax due in the amount of $9.5k. The draft pre-trial statement suggested this refund and tax due be equalized between the parties, which makes sense. Here’s how that would look:
Tax Refund = $19,000
Tax Due = $9,500
Difference = $9,500, so each party is entitled to half of the remaining refund, $4,750 each
This is how it showed up in the pre-trial statement draft:
Tax Refund = $19,000
Tax Due = $9,500
Difference due to [my client] = $12,500
Clearly there was a mathematical error made. More importantly is that there was no equalization made. If not caught before filing, my client would have appeared to have been asking for more than they were entitled.
So, trust in your family law attorney to do what they do best: providing advice on applicable laws, conducting legal research and interpreting case law and court decisions to support a position, developing a case strategy, and appearing in court to defend your rights. Trust in us here at Smarter Divorce Solutions to partner with your divorce lawyer to review the financial factors in your case to make sure you’re getting a fair and equitable outcome. After all, divorce is a major life change with considerable financial impacts – we have the heart and mind to help! Give us a call to learn more at 877-552-4017!