So, you’ve just been served with divorce papers. What now? Following the initial shock of being served, panic and a feeling of being overwhelmed often seems to hit next. If minor children are involved, the biggest fear often revolves around custody and parenting plans. At the same time, financial concerns such as who is going to live in the house and pay the bills become a reality, because in most cases, one party to the divorce moves out and the other stays, at least temporarily.
If both parties to the divorce are employed and drawing equal incomes or there are substantial liquid assets, the stress of covering the monthly bills may be less of an immediate worry. In many cases, though, one party to the divorce is earning much less (sometimes nothing if they are staying home raising the kids) and all of a sudden, they are left in the very vulnerable position of relying on the other spouse to support them.
If the parties are amicable (believe it or not, this does happen), the party that is earning the majority of the income is often willing to support the other one for a period of time by agreeing to spousal maintenance. If the parties agree on the amount and duration of spousal maintenance, as well as the division of assets and debts, then the financial stresses that often go with divorce are reduced to the logistics of how to actually divide assets and debts. If the parties do not agree, then mediation is a good next step, along with the assistance of a family law attorney. Either way, it is always a good idea to review the resources available online at the Coconino County Law Library (coconino.az.gov/870/Family-Law).
If child support and/or spousal maintenance (alimony) are going to be an issue, then additional information will be needed other than assets and debts. This includes monthly income (from employment, a business, a rental property, investments, retirement, etc.) and household expenses. Often, gathering this information can be stressful, especially if one of the parties to the divorce did not handle the finances.
Child support is governed by the State of Arizona and accurate monthly income is very important to the calculation, as are certain expenses that pertain to the children. Spousal maintenance, on the other hand, is more complicated. A note of caution with respect to business income is in order. Usually, the parties report net business income from their tax return (or a K-1) for the “income” number without factoring in expenses that may be of personal benefit (auto expenses, health insurance, meals, home office, etc.). If those expenses are reported as household expenses as well on the Affidavit of Financial Information to the court, then they are either overstating their expenses or understating their income. With regards to reporting monthly household expenses, bank statements, credit card statements and source documents such as receipts can be used to analyze monthly expenses if this is a big unknown.
Prior to dividing assets and debts, the first step includes gathering statements for all bank accounts, non-retirement and retirement accounts, values for real estate and other property (autos, boats, etc.), values for any life insurance policies that have a cash value, mortgages, car or other loans and credit card statements. If possible, try to use the same statement date for the assets and debts, at least initially. If there is a closely held business, a business valuation may be needed. Also, defined benefit pension plans (such as ASRS) are valued differently than a 401(k) or IRA, so it is important to gather any information you can on estimated benefits upon retirement that you can.
If there are concerns about the misuse of family money, it is a good idea to gather both asset and debt statements for several months or perhaps years. While the data gathering may seem overwhelming, it is also an important part of educating and empowering the spouse that hasn’t been part of the finances. Finally, realize that there are professionals who can assist with the daunting process of determining income and household expenses, as well as preparing various property division scenarios. QCBN
By Jenny Staskey
Jenny Staskey, CPA, CFE, CDFA is a Certified Fraud Examiner and Certified Divorce Financial Analyst. She routinely provides forensic accounting and litigation support services in civil, criminal and family law matters in Northern Arizona. She can be reached at 928-814-8569 or via email: Jastaskey@gmail.com.
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