Finances play a major role in divorce. It is unreasonable to think that just because your attorney is an expert at family law they are also a divorce financial expert. How will they handle these types of situations? Will they ignore them? Try to muddle through? Or will they seek outside help? Here are a few questions to help you know how your divorce attorney may respond.
In our last post–“Whose Side is Your Divorce Attorney On?”, we examined a few questions that you should ask your divorce attorney before you decide to file for divorce. Are they more interested in resolution or billable hours? This time we will look at specific financial issues you may face in divorce. Use these questions to help determine if you have the right divorce attorney.
6. “Can I Bring on a Certified Divorce Financial Analyst to Help Me Prepare for My Settlement?”
This should also be a YES answer. Attorneys are not a divorce finance experts, so having a professional Certified Divorce Financial Analyst (CDFA®) around is extremely helpful. They can make sure the attorney has all relevant information, and they can help with the intricacies of your case. Attorneys don’t want to get too deep into finance, so they often recommend 50/50 splits which are not always best. A CDFA® can make sure each party is getting what they need AND save you money in the end.
7. “I think my spouse may be hiding assets. How will you be sure we know about everything?”
This is a big one for a lot of people. An attorney should be able to go back several years in tax returns and bank statements to look for any anomalies and report that to you. If you’re having trouble finding anything but believe your spouse is hiding assets, a CDFA® or a forensic accountant (Master Analyst in Financial Forensics®) can take a much deeper dive and give you an answer.
8. “How Will a Judge Determine the True Value of My Spouse’s Business and Their Income from It?”
It happens often – your spouse says their business isn’t worth much, but you live on a 6-Figure income. Now you need to know numbers – how is that figured?
A good attorney will tell you that a formal business valuation should be ordered to establish the business’s fair market value. You may want to enlist the services of another divorce financial expert–a Certified Business Appraiser.
You may also want to do a lifestyle analysis to determine annual income accurately. Many self-employed individuals often run expenses to lower their income (and taxes) through the business. Unfortunately, some business owners even keep two sets of books and do some business “under the table.” However, attorneys don’t do these assessments in-house. You would need to get a CDFA® to establish the basis for an annual income claim.
9. “I want to keep the house but don’t have enough equity to refinance. What are my options?”
Experience tells me that most attorneys will say you have two options. Either you refinance the home, or you sell. Some attorneys may say that you can keep the house as long as your spouse allows you to keep their name on the mortgage. But there may be other options of which most attorneys are not aware. Here are a few that a CDFA® can help you explore.
- Continue to own the house jointly for a period of years (Usually 3-5 years), and then either sell or refinance and split the proceeds.
- Like the first option, except the spouse not living in the home would receive other assets in place of their equity share. For this route, you’d need something in writing to protect their credit. Your attorney should be able to write a clause in the divorce decree that requires proof of payment for the mortgage each month. And if at any point the mortgage is more than 30 days past due, the house is sold.
- Continue to own the house jointly and rent it out to others. This can be lucrative to both parties. I recommend getting a CDFA® to help with the terms of such an arrangement.
10. “I Need Money for a Down Payment on a House, but our Only Assets are 401(k) Accounts… How Can I Get Cash?”
You may have an opportunity to remove cash with no penalties. If 401(k) assets are transferred to the non-participating spouse by way of a Qualified Domestic Relations Order (QDRO), there would be no early withdrawal penalty (But the amount would be taxed as ordinary income). This is an excellent way for both parties to acquire cash if needed!
Asking a potential attorney these questions ahead of time will likely save you a TON of hassle, and make sure you align with someone who has your best interest at heart. The divorce process is time-consuming and draining; the last thing you need is to worry about the people on your team. You want people by your side who are knowledgeable, dependable, and ethical. You owe it to yourself and your family to have the best representation possible!