This is not only important, it’s critical to have as part of your process! Why? Your life depends on the outcomes. Anything less places your financial future in jeopardy.
Let’s step back a minute and talk about the value of having these types of frameworks in your divorce (i.e. a divorce accounting framework and divorce finance framework).
- Maintain 100% traceability to resolve your and your spouse’s questions
In a divorce process isn’t it important to make sure everything is traceable from the source documentation through the final settlement structure? We think so. Why? Who cares? The spouses in the divorce process care. They want to make sure that everything is properly taken into account first in the profile of their marital estate and later in the design of their settlement structure. If you do not maintain 100% traceability you end up spending more time and money in the process, which is unnecessary. It is important to have a high quality process to manage your outcomes. Without a divorce accounting framework you will be missing a key component in your process.
- How can anyone keep track of the movable components?
Without a divorce accounting framework, how can anyone — even a sophisticated, financial divorce architect — keep track of all of the moving parts in a divorce process? If you leave your financial life to be organized in someone’s mind (a less than structured process) you will discover issues will fall off of the wagon per se and leave you holding the bag. This will not be good for you, your spouse or your children who are the ultimate beneficiaries of your individual financial estates.
- The importance of a time tested label structure for your divorce
A divorce accounting framework enables you to leverage a time-tested label structure (label descriptions such as 401k plans, value of real estate, etc.) to your benefit. To be clear the label descriptions that are incorporated into any good divorce accounting framework should have a body of work that exceeds 750-1,000 line items. Why? No single person will ever utilize all of these line items. Yet, each person’s situation is different and the comprehensive list of labels provides a checklist to the advisor to help you take into account all of the issues. All you need is one line item to be found to make money from this process. Yes, you can make money from your divorce process if your financial components are properly designed for your future life.
- Integrating the accounting aspects with the finance aspects
So, it’s one thing to keep track of everything in an accounting framework. It is another issue to make sure the accounting flows all of the way to your settlement structure. Your settlement structure is the “finance” portion of the framework. These elements inform your advisor (and you) how to best structure your settlement using 100% debits and credits. Why use 100% debits and credits in your settlement structure? The reason is you will want (and truly need) to make sure you understand the impact your settlement structure has on your future. Without debits and credits you can guess but truly not know the impact. As a result, a finance framework is critical to have in the process.
- A bedrock for your negotiations
The divorce accounting framework becomes your foundation to negotiate. Why? It captures all of your financial components. It helps your advisor to formulate and later articulate the right words in context to your exact situation so another person can understand the logic and rationale. If a simple spreadsheet or a back of the napkin approach is used in your divorce process you will discover the hard way your future financial life will be compromised. Aren’t most financial decisions embedded within the bedrock of accounting? If you don’t have that construct how do you make a clear and informed decision, especially when it will govern the rest of your life?
The spouses who are going through the divorce are truly the “auditors” of the process and the outcomes. They ask many questions simply to seek clarity in their minds about the impact that one or more decisions will have on their financial future. An accounting and finance framework specifically built to manage the outcomes of a divorce manages this process for advisors and divorcing parties.
It is important to note, if each party can’t make sense of the numbers they will not sign on the dotted line. They will continue to ask questions until they arrive at their desired mental clarity. Given the divorce decree will define how each person’s financial and non-financial life will be governed it is critically important a divorcing party asks lots of questions and makes the final decision with complete mental clarity. No one should become exhausted from the process and succumb to a decision. Nor should anyone be forced into submission to move into a certain direction. Everything should make financial sense regardless of a person’s educational background. There is simply too much at risk to execute the process otherwise.
It is very easy to make a mistake in a divorce process. All of the financial components need to be grounded in debits and credits, the bedrock of how all financial decisions are made in business and should be in life too. If you have a divorce accounting foundation to capture every transaction from the marital estate to each spouse’s post-divorce estate then everything is traceable from its source document to its final destination.
This should not be a mysterious process to anyone. It is an important part of your life. To manage your financial risks, you will want (and you will need) a divorce accounting & finance framework to be used in your process. So a key question you will need to ask your divorce advisor is whether they utilize a divorce accounting and finance framework in their divorce management process. If not, you need to question whether the process will generate your desired financial outcomes.
About the Author
Larry Smith CPA, MBA
Larry is a Founding Partner of Divorce Outcomes, a specialty professional services firm that analyzes, architects and negotiates all of the financial aspects of a divorce.
Since 2003, Larry has worked with divorcing parties as their fiduciary to design sophisticated divorcing strategies that enable clients to preserve and create wealth from their divorce. As a technical financial expert, he uncovers hidden tradable components through various analytical and architectural processes to arrive at desired outcomes. He is an alumni of KPMG and Andersen and has expertise in:
- technical accounting, taxation, business consulting, risk management, M&A
- forensic analysis, performance analytics
- M&A, business valuations, divorce management, family equity transfers, multi-party negotiations, communications management
- advanced process engineering, cognitive performance technologies
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 a 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
- close the divorce process as soon as possible
Throughout the process we evaluate our clients’ current wealth-at-risk and architect desired outcomes to best preserve or create wealth.
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.