The short answer is Yes. What are reps and warranties? Why do you need them?
If you read a divorce decree you may or may not find representations and warranties inside the agreement. Yet, they are a critical aspect to any divorce.
What are reps and warranties?
When a representation or warranty is defined in a divorce decree it implies to the other spouse each claim and documented presented is truthful. The warranties are like any other warranty except that it focuses on protecting you from something (e.g. language embedded in a contract) that could create financial exposure for you in the present or at some point in the future as you were a part of the marriage for a period of time.
Reps and warranties must be specific to your situation. They could span any topic. Some examples of a representation or warranty are:
- Income has been fully disclosed, current and “known” future income
- The spouse did not steal anything from the business
- Monies were not funneled into separate accounts during a certain period of time
- There are no hidden assets
- You will not share the tax burden imposed from a future tax audit
- To not say or do anything that would create a bad outcome for your spouse
And the list goes on. It is dependent on many factors such as how you and your spouse “function” together, how your lives have been designed & constructed from a financial perspective and what you want or need for your future.
Why do you need reps and warranties in a divorce?
These reps and warranties are your mutual assurances to each other. They represent the backbone of your divorce decree. You count on the reps and warranties to bring the other party back to the table, or court if necessary, to get the issue resolved.
You can call the reps and warranties your “hooks” in the divorce decree. You can also call them your “peace of mind” that you don’t have to go back and forth again and again. You have a life to live and it is important to live it with peace of mind. Your reps and warranties give you the mental clarity that is critically important during these times.
Mental clarity and peace of mind are the reasons why you should have reps and warranties in your divorce decree. Many, but not all, of the reps and warranties are based on the financial architecture specifically built for your divorce. If your advisor does not understand how to architect the financial layers of your situation then she or he will likely not know how to build a comprehensive reps and warranties section for your divorce decree. As a result you will likely and unknowingly be left exposed to future aggravation from your divorce. Isn’t the goal to be done with this the first time and not go back to work things out later on?
Not everyone knows how to build reps and warranties, yet it is important to get them right. They provide you clarity the words and/or documents represented throughout the process are true and complete to the best of each party’s knowledge. They let you know there is nothing communicated in writing or orally to the contrary that should lead the other party to indicate otherwise.
Reps and warranties sounds harsh between spouses. Yet, when you put all of the emotions aside (which there are many of them) this is a financial transaction which requires the ‘mental security’ that everything discussed was truthful. Without the reps and warranties you are back into a ‘he said she said mode’ which doesn’t help anyone arrive at a clean settlement or strengthen their position afterwards if needed.
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.
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.