When you go through a divorce, everything changes. Some things you want to change, like your relationship to your spouse. But other changes can cause a great deal of concern and anxiety, like the change in your income, and the resulting change in lifestyle that may occur.
In addition to that concern, one of the most talked about, worried over and noteworthy aspects of going through a divorce is the separation of assets. How much you keep and how much goes to your husband is often the cause of fights and long legal battles throughout the process.
The good news is that a Certified Divorce Financial Planner has a tool that can prepare you and your legal team for those conversations, and help you plan for your financial future post-divorce–a lifestyle analysis. Of all the services we provide, I find that this one is the most critically important to helping you through a divorce and to set yourself up for a better situation after.
What is a lifestyle analysis?
To oversimplify a lifestyle analysis, it is simply plus signs (+) and minus signs (-). We look at the money that you and your husband have coming into your family as income, and we look at the money that goes out through expenses. Those expenses can be of the everyday variety, like groceries and utilities, or they can be more notable like large purchases and travel expenses.
Our job is to look at all the information we can get our hands on to help you uncover all the income and expenses that your family has. This information can be used in a variety of ways:
- To help you establish your current standard of living, including your living expenses and spending habits
- To understand how you and your spouse spends money
- To confirm or contradict your spouse’s income claims
- To reveal any suspicious use of the family’s money, like for a mistress or undisclosed business dealings
- To reveal if your spouse has been hiding income or spending from you
Different than a financial affidavit
In many divorces and jurisdictions, you may be required to fill out a financial affidavit, sometimes called a statement of net worth, in a divorce. Illinois is one state that does require this. This is supposed to give a complete and thorough listing of both you and your spouse’s assets, incomes and debts.
A financial affidavit is something that a CDFA like me can help you and your attorney with. So can an accountant or other financial professional. Once completed, you must sign your affidavit to swear that all the information you’ve provided is accurate and true. So must your spouse.
The financial affidavit is focused on your financial situation at the moment you are going through the divorce process. It doesn’t capture what your lifestyle was over the years you and your spouse were married. And it doesn’t make any projections of what your lifestyle will be like after the divorce is finalized. That’s where a lifestyle analysis comes in.
Looking ahead, financially
To truly be able to look ahead and make accurate estimates of future expenses, you’ll need to understand your family’s current spending habits at a greater level of detail than most people do.
In my experience, both personally and professionally, married couples do a pretty good job of keeping an eye on money coming in and making sure that it’s more than the money going out. But we don’t analyze the details of our income and spending habits. That means that we have a big picture view of our budget but we may not have a precise and accurate view.
A lifestyle analysis will get into these details to give you a clear understanding of your daily living expenses for the years of your marriage preceding the divorce. This timeframe is important because your expenses may have changed during those years, positively or negatively, and those changes should be considered when separating assets.
The lifestyle analysis will allow you to see your and your spouse’s spending habits, which will shed some light on who held more control of the family finances. It can also show spending that you may not have been aware of, which could be useful evidence in the proceedings, especially if it can show inappropriate behavior or infidelity.
Finally, all of the information is pulled together to provide an estimated representation of what your future expenses may be. This takes into account issues like custody of children and future employment prospects. This can be a good starting point as you plan your independent future after the divorce has been finalized.
Providing the information to analyze
Make no mistake, a lifestyle analysis is no simple procedure, like scanning your computer for a virus. You’ll need to provide your CFDA with financial records and documentation that you may not have at your fingertips. These generally include:
- All tax returns, both personal and business
- Any retirement accounts you hold jointly or individually
- Receipts and transfers of assets
- Major purchases
- Large payments
- Pay stubs from employers and other income
- All debts and liabilities
- Credit reports from one of the three credit reporting agencies
- Credit card bills and statements
- Any and all business interests and ownership stake, including details of business profit and loss
- Bank and investment statements
Digging into old files and searching for online banking account passwords may not seem like a good use of your time, especially considering all that you’re going through emotionally right now. And many women I work with may not have immediate access to this information because their husbands have handled the finances in their relationships for years. But to that I say two things:
- You’re going to need most of this information for other parts of the divorce process as well, so find it and keep it organized because you’ll be asked for it again.
- The more complete the picture the lifestyle analysis provides you, and the court, the better off you will be financially.
How to use a lifestyle analysis
A lifestyle analysis is an essential tool for you and the court to determine spousal support that you may be entitled to after the divorce. The analysis will show just how much both you and your partner have been spending and on what. It will also show you just how much money you bring into the marriage, and how much your partner does.
You’ll have a very clear idea of your personal expenses and how much money you spend on your children, if you have any. You can use this information to help you create a new budget for yourself, post-marriage.
All of this information will also be used by a judge to determine how much money you may be entitled to in a divorce financial judgment. This could include alimony, and the judge will also use the analysis to help decide how much you should potentially receive, and for how long you should receive it. He or she will use the analysis to establish the pre-divorce standard of living, and also the post-divorce alimony commitments.
All the more reason to get those documents to get the most accurate picture possible!
Have an expert run a lifestyle analysis
Because this is such an important part of the divorce process, you should trust it to an expert. Some law firms may offer to do this for you, but be wary. An attorney or paralegal may not have the financial background to dig into history and receipts to uncover funds or purchases that were meant to be hidden. Even a certified public accountant or financial planner likely doesn’t have the necessary background.
A CDFA has been trained to conduct a thorough lifestyle analysis, even in complex cases involving the ownership of business and personal assets. Most importantly, a CDFA can help you make accurate future projections. This is absolutely essential to ensure that you’ll be able to maintain something close to your current standard of living after the divorce is final.
When you’re sitting at a conference table with your spouse, surrounded by lawyers, or standing in front of a judge, a thorough and bulletproof lifestyle analysis will allow you to feel confident in your position.
Opinions expressed are those of the author and are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
