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Lifestyle Analysis in Divorce

LIFESTYLE ANALYSIS IN DIVORCE

Be advised that I, Eric Roy, write articles like this one here for my own personal benefit. It is simply a reference tool for myself and my staff attorneys. If you wish for a more thorough understanding of the subject matter then I suggest you purchase one of the many publications on the subject. A CPA or forensic accountant who regularly testifies in divorce trials can be an excellent source of information as well.

As divorce counsel you will always be thinking about a couple of core concepts. Property distribution and alimony. Remember that though the analysis for determining the distribution of each is generally thought to be separate that the two concepts are interrelated. At the end of the day Alimony determinations are made by considering past and future lifestyle of the recipient spouse. Although it is understood that given the economies which are lost upon divorce that the parties may not enjoy the same standard of life they enjoyed during the marriage. However, they and specifically the recipient spouse, should enjoy a standard of living similar to that enjoyed during marriage. This becomes more the case with longer marriages. In long term marriages, 20 plus years, this becomes essential.

In trial as in settlement negotiations there are many ways of eliciting lifestyle and future needs. Often times the process ends with observation of the recipient spouse's financial declaration and then determining current need based on existing resources, including assets and employment income. If you are dealing with a married party of not significant income or resources then this is going to be how you handle the matter. However, when you are dealing with long term high asset marriages you need to be able to articulate the matter. To do this you will either need to be well versed in preparing various schedules or otherwise have CPA ready to prepare them for you.

Depending on which side of the case you are on you are either going to be attacking the supporting spouse's purported income, arguing that it is undervalued and over expensed or if you represent the supporting spouse you are going to argue that the supporting spouse is understating his or her income or potential income and overstating his or her expenses. Of course there will be times when the other side's estimates are accurate and in this case don't argue against what is clearly reasonable. To do so equals strike one to your credibility. Along these same lines if you only have one or two expenses which seem slightly over or understated don't make arguments against them. Don't make arguments unless they are meaningful. However, if you have a case involving lots of different over or understated expenses for example then you should go through and systematically attack each one. The purpose of this might not be so much for the sole reason of diminishing or increasing alimony but even better diminishing credibility of the other side. Any time you can seriously undermine credibility you should do so. At some time later in litigation you may find yourself in a credibility contest, it's good to be on top.

Keep in mind that there are a few time periods of relevance to you and your client. The first is the pre-separation period, the second is the post separation pre divorce period, and lastly is the post-divorce period. You may have to walk your client through these three periods on direct examination. Make sure your client clearly understands that you are breaking time into three periods. Each period is relevant. Remind your client as trial approaches to live frugally. Advise them not to buy luxury items or spend lavishly. If they do so they may lose credibility in the courtroom. If you represent the supporting spouse and he or she purchases a $50,000 Rolex leading up to trial, advise your client he or she might get slammed on cross examination. If you represent the supported spouse and you find out about these lavish expenditures then be sure to hit your adverse witness with this fact on cross examination. Use it as a threat in negotiations to achieve favorable settlement terms.

If your client can afford it and the case warrants it then you should have your forensic accountant prepare a lifetime analysis report. In this analysis, using spreadsheets, your accountant will lay out an estimate of the financial future of the parties. The first step in this analysis involves a prosed division of assets and debt. If this can get hammered out first the remaining issue of alimony can be tacked individually and thus with greater ease. Thus, first thing prepare the marital balance sheet. This is the report that indicates division of asset and debt. Once this is prepared you can begin to look at what assets are relevant for the purposes of determining support. For instance, some assets may be income producing. Such as investments that pay dividends or real estate where rents are received for example. Some assets can also be liquidated over many years so as to provide for the remainder of the supported spouse's needs. The idea is to create a table that is reasonable and does not appear biased. The table should describe the supported spouse's needs and detail how those needs will be met year by year by year until the date of projected death. This table thus becomes an asset for you as counsel in settlement or in trial.

After you complete your marital balance sheet your forensic accountant can get working on the other reports. These reports include, spouse's need for support, both spouse's retirement savings, both spouses investment savings, both parties living expenses, supporting spouses ability to pay support, and finally the net worth accumulation of marital assets. Except for the personal living expense reports all other reports are created with a column for the current age of the spouse. Each individual row then accounts for the following year of life until anticipated death. The other columns will vary depending on the specific report. For instance a report on a spouse' investment savings over the next 30 years may have separate columns assuming for a few different projected interest rates. This report would likely have columns for annual return, cumulative return, draws, surplus contribution or deficit, and investment balance. In this way the calculations are easily understandable to potential readers. If you get to trial be sure to get your report on a projector or big screen and then have your expert walk you through the reports. With an expert describing the report combined with observing the report itself your trial judge can get a grasp on the proposal. Remember to make your reports credible. Don't provide for unlikely assumptions in your reports. If you do and these assumptions are undermined on cross examination well then your expert's report loses significant value as a whole.

Finally, you as counsel need to keep in perspective the differences in time periods mentioned above. Make sure one spouse isn't receiving the benefit of one asset twice. For example, when making alimony determinations courts will typically look at historical income of the payer spouse along with future income projections. If part of that income was derived form an asset that is now going with the supporting spouse either in whole or in part then take account of this fact. This income which will not be the payer spouse's income going forward cannot be built into the equation for determining alimony paid out in the future. To do so would result in a windfall for the recipient spouse, essentially receiving the benefit of the asset twice. That's why you should always have a report showing the supporting spouse's projected income post-divorce and thus post separation of assets. This is the report to use, at least if you represent the supporting spouse.

For more information on this subject I direct you to Miles Mason, Sr.'s work. He is a JD and a CPA and has written thoroughly on these subjects. Most of my learning such as the information provided above comes from his mastery and writing on the subject matter.

Categories: Family Law