July 2, 2015
This is just one of the many topics we will be discussing at my session at the Interdisciplinary Catalyst Conference on October 3, 2015 at 4:15PM (www.DivorceCatalystConference.com). I just completed an assignment as a neutral financial expert and business valuator in a divorce for a couple who had been separated for many years prior to the filing of the complaint for divorce. They did not heed this advice!
The parties were co-owners of several businesses that needed to be valued. The valuation process was the easiest part of this disaster! As you know, emotions very often take over once the complaint is filed and the end of the marriage is in sight. Well, the couple accused each other of all types of financial wrong doings during the separation years. The biggest mistake was not involving a financial expert prior to or shortly after the separation to set out how the Companies' ongoing finances and operations were going to be handled and how they eventually would be split up. In addition, no agreements were made regarding the equitable distribution of retirement accounts, life insurance policies, responsibility for income taxes (the parties filed joint income tax returns during the separation period), or personal perquisites that were being paid from the Companies' funds. By the way, of course, only one party continued to manage the Companies while the other party got on with their life and moved out of the area. Because they did not retain a financial expert at the outset, they were not even aware of the many issues that eventually would have to be addressed!
So what happened? The equitable distribution of retirement accounts became a massive analysis as each had their own accounts and all went into payment status during the separation. To figure out who was owed what required thousands of dollars of professional time and the subpoena of years of bank and brokerage statements. Next, the analysis of who owed what income taxes was another complex issue as distributions were sometimes taken from the Companies to pay taxes and some years had balances due and some had refunds. So the spouse who was not in charge of the tax preparation claimed that they were cheated out of the refunds. Another extensive analysis was required.
Then as emotions continued to escalate, the perquisites taken from the Companies came up. More forensic accountings of many years of documents that had to be subpoenaed from banks resulted in more professional fees. I could go on for pages of other issues that could have been handled years before if the financial expert was involved at the outset.
Unraveling the financial issues in this matter involved tens of thousands of dollars of additional professional fees over what would have been incurred if the parties retained a financial expert when they decided to separate. The appropriate expression is "Pay me now or pay me more later." I guess the one good thing about this case is that both parties lived to actually get divorced. Can you imagine the litigation that would have ensued over the estate by heirs from different marriages and relationships that developed during the separation years? Yes, there were children from different marriages and relationships, just to add a little more drama!
I am honored and excited to have been chosen to present at the Interdisciplinary Catalyst Conference in October. We will be discussing many topics from business valuations to difficult equitable distribution issues and their income tax implications.
I look forward to meeting you and please bring your questions! If you would like to submit questions in advance of the session, my e-mail address is email@example.com.