Our client was a business owner. He made a healthy living. His wife did not have to work. He was also the sole beneficiary of a realty trust. The realty trust was the landlord to the business.

The business was in the food manufacturing industry. The financial records were less than clear. The company’s financial statements did not have financial integrity; when you looked at the numbers over the years they did not make any sense. This placed our client, the financial breadwinner, in a compromised position to go through his personal divorce process with ease. If anyone used the company’s financial statements in their then-current form they would arrive at an inaccurate conclusion around:

  1. how much money was truly being generated from the business and
  2. what the value of the business was truly worth in the marketplace.

There were few, if any, reconciliations performed on the financial accounts year over year. This made it more challenging to follow the money flow, yet certainly not impossible. We reconstructed the financial statements to present a more appropriate financial profile. This was the first step in a series of things he needed to manage his negotiating position. Our work not only provided a roadmap to help our client get from where he was to where he needed to go but also completely repositioned his negotiating position.

Our services went beyond financial statement reconstruction. Other services were:

  • Profiling the marital estate
  • Assessing the financial risks
  • Designing a defensible business valuation
  • Providing divorce coaching
  • Creating effective negotiation strategies
  • Building clear and concise messaging to manage financial miscommunication risks
  • Among other services

This step-wise process created evidence for our client and provided him peace of mind. He new he had people on his team who were looking out for his needs.

The wife perceived her husband was stealing money. Evidence proved differently.

Our client’s wife thought the business made lots of money. She also believed her husband was hiding and stealing money from the business. Unfortunately, his wife’s team did not have any financial analysts and divorce architects on her team. As a result, her team kept on ‘fueling the fire’ from their own perceptions. Their internal discussions led them to create a story that in the end had no merit, yet cost both our client and his wife a lot of time and money. After we sorted through the financial details the evidence proved the husband was not stealing any money. It was quite the opposite. The business was struggling financially.

We reviewed his personal and business records. Neither one was in good shape. This required us to read between the lines and fill in the missing pieces. We had to build his financial storyboard to clearly communicate the situation and make sure everything made sense.

Our process uncovered the financial truth. We needed to know the picture we were seeing was right.  Everything had to be supported by evidence so anyone, including a judge, would understand. Getting to the financial truth up front saves everyone time, money and aggravation.

It’s important to have a financial profile of the marital estate for your divorce discussions

When we entered the picture, the parties were embattled in a 3 year negotiation. Unfortunately no one had profiled the marital estate, a fundamental document essential to any divorce. The marital estate helps parties shape their thinking and develop a conclusive outcome. We created one.

Everyone was fighting but using their own perceptions verses visual evidence to present their position. This was one reason, among others, why the negotiations were prolonged into a costly legal battle. The marital estate is a critical document to manage both parties’ financial expectations around financial worth, financial constraints, realistic outcomes, among other factors.

Many divorces are focused on financial matters, this critical missing document could have managed everyone’s expectations and financial exposure.

The ongoing legal battle created a lot of angst and inaccurate impressions around potential outcomes. Our documentation enabled our client to pre-experience his financial outcomes. He understood the likely possibilities and saw an integrated approach how to balance his risks. Having the ability to pre-experience outcomes not only managed his expectations but also helped him manage his emotional state. This was very valuable for the closing. Through our work, we reshaped the other party’s prior thinking and unseated prior verbal agreements to arrive at a more respectable financial outcome than was originally offered by the other party.

The business was constrained financially

Once we heard the name of the industry, we knew it was financially constrained. We started to think of a number of metrics immediately as to what was “normal” vs. not normal for this business. This gave us a leg up on the situation. We quickly arrived at the financial truth. With our analytical backgrounds and understanding how numerous industries operate from a financial perspective, we knew what the financials were supposed to look like. Three questions that must be answered early in the process are:

  • How stable are the income streams?
  • How much should and does the business generate in gross margins (revenues less the cost of the products or services sold)?
  • How strong are the net profits of the business and why?

These fundamental questions shape the rest of the numbers in the financial statements. Next steps were to see what they actually looked like.

Unfortunately, this business experienced a number of financial constraints including but not limited to the way the contracts were designed, the gross margins and net margins the business generated, among other financial components. As a result, the business was challenged to generate significant income which also impacted the business’ ability to create lasting value. These factors positively influenced our negotiations and the final value reflected on the marital estate.

We identified where the lack of financial integrity existed. We applied a level of analytical rigor to the business that unfortunately has never been done before. Our work created evidence needed to communicate what was truly going on behind the scenes that was not apparent on the surface.

The wife thought It was worth a lot of money. Unfortunately, not true.

The story goes on. His wife thought the business was worth a lot of money. She hired a business valuator who unfortunately lacked common sense, business thinking. He focused on the algorithms and did not apply pragmatic thinking to his work process. This complicated matters further. The value that he assigned to the business was much higher than the real value of the business. It became apparent the value he established for the business would have destroyed the business, its supplier relationships and employees’ livelihoods. Our client would not have been able to pay his wife what her valuator assigned as a value. No one would have benefited as a result. The lack of pragmatism in his work process dragged out the legal process.

How did we know the value was overstated? It became evident when we asked ourselves this fundamental question:

What would a reasonable buyer pay for this business and why?

When you use a rigorous analytical process and leverage financial thinking frameworks you are able to gain insight about the business and the underlying business model that usually hides in the data. You can understand how the business operates and what drives the ‘economic engine’. When properly equipped with the right thinking frameworks, processes and technology the answer becomes clear.

Our objective is to bring about transparency in the work process to arrive at mental clarity. Its about getting to the truth of the matter for the person who is going through the situation. In a valuation process you always have to ask practical questions to figure out if the value assigned makes sense or not.

Algorithms do not help the divorce process. They confuse them.

The opposing party’s valuator used an ‘algorithm’ in his work process to establish the value of the business. He did not perform an ‘acid test’ to evaluate whether the pre and post transaction health of the business was in tact from a third party buyer’s perspective. This is a critical, yet often missed, step in the valuation process.

We used our decision support software in the process. In fact we inserted the value from the other business valuator into our software to figure out whether the business was overvalued. If you were able to see what our client pre-experienced you would quickly know the value did not make sense either. Our technologies enabled our client to pre-experience the outcomes of his divorce.

The only way to substantiate the opposing party’s valuation was if a buyer was willing to wait 17 years to receive his or her investment back, assuming the “seller” would receive 100% cash up front. Then, in the 18th year, the “buyer of the business” would start to earn a return on her investment. We do not know any buyers who want to wait this long to achieve their investment objectives.

Financial divorce coaching. What you say and how you say it is important.

Our client was using certain words that created the wrong impression in the opposing party’s mind. He didn’t know what he was saying would create that impact. The goal was to state the truth yet use the appropriate language so he would not get caught in a noose accidentally. So, we had to share with him how to communicate during this process. During our coaching sessions we shared with him how certain words could impact the end result. He didn’t know what he didn’t know. He shared with us later on that he was unaware such simple words he was using could have cost him a lot of money later on.

Diligent work processes are critical at these moments in time.

Our work processes saved our client from overstating the value of his marital estate. If he kept moving forward in his current process he would have paid 82% more than he would have had to pay to extract himself from an already painful situation. Our client shared with us that he knew the opposing party’s financial thinking made no sense. He just didn’t know how to shape his thinking, how to approach the topic, how to create evidence to communicate along with a number of other factors that were swirling around in his mind which created much of his mental anguish.

Having the right experts on your side during these precious moments are critical as they can and likely will shape your financial future life which will impact many other dimensions of your life.

About the Author

Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.

For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.

If You Have a Question

If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.

About Divorce Outcomes

Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:

  • unfold, analyze and repackage their financial life so they are well positioned after their divorce
  • preserve the value of their business or marital estate
  • continuously strive to provide a return on our services
  • build balanced financial solutions grounded in evidence
  • find ways to make our client, and at times both parties, money through the process
  • design their divorce to work for them and their family’s life
  • provide mental clarity to make decisions
  • reduce the total process time from start to close
  • minimize the stress and unpleasant memories that can last a lifetime

As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.

Learn more about us at divorceoutcomes.com or review our blogs to gain a clearer understanding about our approach and how we maximize the financial outcomes for our clients.


This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.

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