From Bloomberg News:

Best and Worst States for Getting Divorced
By Joel Stonington and Alex McIntyre – Nov 11, 2011 Divorce is never easy — but in some states it is easier than others.

If Kim Kardashian and Kris Humphries lived in New Hampshire, their lives would be a little easier right now. The two ex-lovebirds were married for only 72 days before announcing they were filing for divorce. In New Hampshire they could have ended their marriage in far less time than that. How much less? Try less than a day. That’s because the Granite State is the easiest place to get unhitched in America, according to Bloomberg’s ranking of the easiest — and hardest — states in which to get divorced. All 50 states, and the District of Columbia, are analyzed and ranked.

The weather isn’t the only thing unpredictable about New England. New Hampshire’s next-door neighbor, Vermont, the liberal home of Ben & Jerry’s ice cream, is actually the toughest state in which to divorce. That state has a minimum processing time of more than a year, compared with a zero-day minimum in New Hampshire.

“When people come to me and say, let’s get divorced, I say, ‘Let’s do it in New Hampshire,’ because that’s the easier one,” said Cathryn Nunlist, a professor at Vermont Law School. Nunlist practices divorce law and lives near the border of Vermont and New Hampshire.

As with gay marriage laws, every state has different laws concerning divorce. Among the differences are such factors as state-mandated court filing fees, mandated separation periods, residency requirements, waiting periods after filing and minimum time requirements for completing the process.

How does your state stack up? To find out which are the “best” places to get divorced, Bloomberg Rankings weighed the above factors but did not take into account costly aspects of the divorce process, such as custody of minor children and the outside chance of a fault divorce.

Proving fault, for such things as infidelity, abandonment or idiocy, is no longer required for divorce in any state. In many states those laws remain on the books, though, making for interesting reading. In Pennsylvania, grounds for a fault divorce include “such indignities to the innocent and injured spouse as to render that spouse’s condition intolerable and life burdensome.”

“Fault divorce has really fallen into disuse,” said Harry Gruener, head of the Family Law Clinic at the University of Pittsburgh School of Law. “At least in Pennsylvania, you would have to look long and hard to find someone in the last 20 years who has brought a fault divorce.”

Southern states have some of the toughest divorce laws, while Western states tend to be lax. The filing fee for a divorce ranges from $50 in South Dakota to $409 in Florida. Even when both parties agree to the divorce, some states require a year or more of separation before even filing, and other states require six months or more of cooling-off time after filing. Pennsylvania, for example, requires a two-year cooling-off period if one party objects to the divorce.

One thing is clear: It’s easier to divorce than it was in the past, though much of the difficulty or ease remains up to the couple.

“People ask me, “How long will this take?’” said Gruener. “I ask them, ‘How stubborn are you?’”

Notable examples include:

Jack Welch, CEO of General Electric: Based upon filings in his divorce case, he was challenged by GE shareholder activists for receiving unreasonably high compensation

Frank and Jamie McCourt, Owners of the LA Dodgers: Information found in divorce flings have jeopardized their ownership of the team

Barak Obama: He would likely not have won the Presidency had information about his opponents activity at swingers clubs not been publicized via a divorce filing in the Illinois Congressional contest.

From Wikipedia: Jack Ryan is a Republican from the state of Illinois who was forced to withdraw from the 2004 United States Senate race due to an alleged sex scandal involving his relationship with his ex-wife, actress Jeri Ryan.[1][2] His eventual replacement, Alan Keyes, would go on to lose the general election to State Senator and future President of the United States, Barack Obama.

Individuals often lose their well guarded privacy as a consequence of the divorce process. The question many of my clients ask me pertains to how they can maintain their family’s privacy and not end up with the social and financial shocks that happen because of the way others view their marriages and lifestyles.

The core of the problem rests with the fact that a divorce is a lawsuit which takes place within the legal system. The public has a constitutionally-guarded automatic right to see all documentation filed with the courts. This public airing of dirty laundry is especially risky in a divorce situation because your court filings will center around 2 major areas: children and how you raise them and money – internal processes that most families keep private. In these 2 areas, divorce requires DEEP disclosure of all the intricate details of a parent’s finances and behavior. Adding to this is the fact that your actions within the divorce process are also publicly available. For example, how would your employer view it if you were sent to jail for contempt of court because of something filed by your ex wife?

So who can obtain this information about your family life, lifestyle and financial affairs?

• General public curiosity: Neighbors and others who simply want to gossip or sell your story.

• Business/Political associates and foes: Mark Rich, the famed financier pardoned by Bill Clinton, was actually revealed via his divorce from his wife Denise. In fact Barak Obama might even owe his presidency to information disclosed in Gov. Ryans divorce which led him to drop out of the race (in which he was the most popular candidate in the history of Illinois), leaving his young opponent Barak Obama to win the seat in Congress!

• Your former spouse: postings on facebook, myspace and dating sites have often been used in arguments that one parent or the other was either unfaithful or was derelict in their parental duties.

So what can be done to increase your level of privacy?

1) Consider a new venue: often switching the filing location can isolate the divorce from a curious public
2) Ask the court to seal sensitive records.
3) Hire a private judge
4) Use a collaborative or mediated process.

At Divorce Analysis we apply all of the above and more to help clients protect their privacy.

In the area of differentiation, ie, who is a good attorney and who is not: clients are interested in factors such as: litigation skill, negotiation ability, win rate, and customer service levels. Unfortunately none of these is measured or disclosed by attorneys. Certainly there is no consumer reports rating of divorce lawyers. So ultimately they all offer the same set of skills: they finished law school and they passed the bar. That’s it.

Clients often tell me that an attorney was “recommended” or was a “good attorney” but never has a client been able to tell me a good reason why the attorney was recommended. Perhaps another person used them and was happy with their performance however my clients divorce is almost always completely different so there’s no saying the attorney would perform just as well under a different set of circumstances and with a different spouse as their foe. There is also an information asymmetry: if you’ve never been divorced before how do you know if your attorney did a good job?

Perhaps the attorney settled the case. Is this necessarily better than if they had litigated it? Not if you got a bad settlement. Perhaps they were “friendly”. Once again this does not get you the best settlement or the most money. But it is what we at Divorce Analysis are concerned with.

How many attorneys have I met with for an initial consultation who say “I KNOW the judge so they will rule in my favor” or “I know the law better than the judge so they will have to agree with me”. The subtle implication is that our justice system is biased towards certain attorneys or that the system is incompetent – I hardly believe the judges would agree with these statements. I will be the first to acknowledge the shortcomings of the courts however it doesn’t inure to the favor of one attorney.

A note about incentives.

So how do these divorce attorney/actors make their $10,000? A few cases in point and the incentives they create.

Case #1: I don’t have any money and my husband does
In this case, the attorney might get you to sign a motion allowing your husband to “advance” the money directly to them. You go to court and the judge orders the spouse to advance the estimated attorneys fees. This usually comes with the stipulation that this money will be deducted from your future settlement.

The incentives created in this situation are:

1. The payor for the service (the husband) has no connection to the delivery of the service
2. There is no recourse if the service is not delivered
3. Once the attorney is paid (and I know about trust accounts, we will address these later), their incentive is to do as little work for you as possible.
4. Even if they do the work, there is no incentive to produce a quality product.

But this never happens right?

The problem is that this money will eventually come out of your pocket. However since it didn’t come out initially, the attorney will behave as if the money is theirs and not yours. Normally when we pay for a service we are able to ask for estimates and pay once the service is done satisfactorily. In this case, the attorney gets paid and has no incentive to pursue any of YOUR objectives. Ironically, you come last in order of priority behind the court, your spouse and the attorney’s interests.

Case #2: Give me a big retainer and I will take care of your case

In the San Francisco Bay Area, divorce attorney’s $500 (for a run of the mill attorney) to $1,000 (for a run of the mill attorney who will return your calls). In most of these cases, they will ask for a retainer between $15,000 and $50,000. Let’s think about the incentives this creates.

1. Service delivered is not specified in advance. Imagine giving a car mechanic $10,000 and asking them to return whatever is left over after they finish working on your car. How much of that $10,000 do you think you’ll see?
2. High retainer blocks you from switching attorneys mid stream in case they don’t deliver. Why? Because it will be hard to get your retainer back (see #1).
3. Incentive to bill low quality minutes. What is a low quality minute? One spent on administrative tasks, filing, etc. These minutes cost as much as time in court litigating! Why would I do the hard work of litigating when I can bill you for reading a book about the law?

Case #3: The retainer trust fund

Once an attorney receives large retainers whether from you or from your spouse, they are supposed to place them in a trust fund with your name on it and bill that trust fund whenever they have an invoice. At the same time, they are supposed to deliver an accounting that includes your retainer balance and the location of your money. Unfortunately many attorneys bill the retainer and place in their personal bank accounts never to be seen again.

Case #4: Divorce Analysis Clients

Our clients control and minimize their legal bills while getting good results– the right way to pay for a divorce. They align the incentives of the attorney with the goals in their case. They have goals in their case because we work very hard on developing these before the client even meets with the divorce attorney. In this way, incentives are aligned and our clients realize VALUE for their dollars spent. Want to learn more? Get in touch with us!

Married couples share costs for big items such as rent/mortgage, cars, even cable TV. There are also intangibles such as child care time or time spent cleaning the house. Once couples separate, each party will need to pay for these necessities separately, ie on their own. In the absence of more income, these costs will comprise a larger slice of each person’s income.

Consequently after a divorce, one should plan for higher costs, and, if living on half (or less) of the previous income, should consider budget cutting measures. Others do well with increasing their earnings by retraining or re-educating themselves.

Some people derive hope from laws saying that divorcees have a “right” to live at their prior standard of living. In fact these laws are themselves divorced from the economic reality that this “right” is impossible for both parties to make into “reality”. The true “reality” is in fact, exactly the opposite.

1)       Formulaic doctrine:  Divorce laws are often written like the old “story problems” from math class in elementary school.  You may recall that these were the most difficult ones.  And yet, professionals with no interest in doing math are asked to solve them for clients in divorces!  Worse yet, if you actually do the math, you find that the equations cannot even be solved by folks with PhDs in math!  That is why many of the divorce outcomes seem random and unseen.

2)      CPAs:  CPAs are fine at adding and subtracting but they are not well trained in the world of analysis.  The difference can be seen in a simple example.  Most people are familiar with balancing their checkbooks – this is the domain of the accountant.  At the same time, most individuals must buy a house or rent an apartment.  This requires analysis of questions such as “how much can I afford to pay” and “would I rather have carpet or hardwood floors?”  Accountants count, which means they are very good at looking at the past and balancing numbers.  The problem is that most of the problems you encounter in a divorce require analysis (in fact in some cases you do have to evaluate whether to buy your house from your spouse!).  It is in this area that accountants fall short.

So how do we address this problem?  Learn from the pros!

Divorce, in many ways, is a business transaction; more similar to a corporation that wants to merge with another or, spin off a subsidiary.  For example, many are familiar with the fashion firm Prada.  When they wanted to spin off a part of the company, now called Mui Mui, who did the CEO call?  His attorney?  No.  His accountant?  No.  In fact, one thing we learned at Harvard Business School was that there are 2 types of professionals you should call first to make sure you capture the best of such a business transaction.  They are: management consultants and investment bankers.  At their best, these professionals have the experience and the analytical capability to maximize their clients’ financial benefits from the transaction.  So if a divorce is analogous, why do people call accountants and attorneys first?  Perhaps it is because Hollywood tells them to do that.  If they are serious about preserving their wealth, professionals who can give skilled tailored financial advise are the best first move.  Divorce Analysis is not an accounting or law firm, in fact, we stand as consultants and financial advisors giving highly tailored professional advice on the best ways to optimize the financial aspects of their divorce.

When I first started practicing, I told people that there was no use for prenups because prenups were, at best useless, and at worse a false source of security.  Why is this the case?  Well think about it this way, a prenup is a contract.  It is either valid or it is invalid.  For it to be valid, it has to comply with the current law surrounding such agreements.  So in essence, they do not assure you of anything that you weren’t already legally entitled to in the first place.  On the other hand, we often see the one that basically says “if we get divorced, you get nothing and I get everything”.  This is fine except for it gives a false sense of hope.  I would ask, why would anyone, uncoereced, give up something to which they were entitled?  Such agreements, while comforting during the marriage, are ripe for disappointment once the marriage dissolves exposing the high earner to a loss of more than if he/she had no agreement in the first place!

So is a prenuptial agreement ever useful?  The answer is yes.  But not for reasons cited in this Wall St. Journal Article.  A prenuptial agreement is useful in establishing the parties individual pre-marital wealth levels.  While this may seem mundane ( I mean, who doesn’t know their net worth when they say “I do”?), you would be how suprised how time colors the memory of wealth.  Like the old “fishing story” beliefs about net worth can change dramatically with time.  A test?   The average marriage last 7 years so I ask the reader to tell me their net worth 7 years ago.  If you are able to establish that number, would the person that you were in a relationship with back then be able to come up with the same number?  If not, you can imagine the the debate that would ensue whether in person or through the courts — you would likely have benefitted from a prenuptial agreement to memorialize that number and spare you the stress. 

But you don’t HAVE to do that. Why?

Because you can pay a forensic accountant like me $50,000 to $100,000 to do the math to tell you that number 7 years henceforth.  In that way, having a prenuptial agreement can actually save you, ironically, on accounting costs…

And that’s as good as it gets!

I Love You, You’re Perfect, Now Sign Here

Move over, heirs and heiresses: Baby boomers are flocking to sign prenuptial agreements, too.

By MARY PILON

New Yorkers Laura Jackson and Gary Zaremba met on a dating website in 2005. Two years later, Mr. Zaremba, a 52-year-old real-estate developer, popped the question. Ms. Jackson accepted.

John Kuczala

Then he popped another: “Will you sign a prenuptial agreement?”

He had been through a divorce, had a college-age son and several real-estate investments. She, a publicist and also 52, had never married.

“When he first mentioned it,” Ms. Jackson, now Ms. Jackson-Zaremba, says, “I thought, ‘Oh, my God.’ It definitely took a little bit of the romance out.”

Baby boomers looking to protect their assets are increasingly turning to prenuptial agreements—legal contracts drawn up before a marriage that dictate what happens to assets in the event a couple should part ways, either by divorce or death.

“They used to be for the rich and famous,” says Marlene Eskind Moses, president of the American Academy of Matrimonial Lawyers and a lawyer in Nashville, Tenn. “It’s become more commonplace in the market as an estate-planning opportunity for boomers.”

Even before the financial crisis hit, prenuptial agreements were on the rise: Some 80% of matrimonial lawyers said they had seen an increase in couples signing them in recent years, according to a 2006 survey sponsored by the matrimonial lawyers group.

The financial crisis—which hit boomers, those born between 1946 and 1964, especially hard—accelerated the trend. Many of them, just on the cusp of retirement, saw their investment portfolios pounded, as the Dow Jones Industrial Average fell 53% from Oct. 9, 2007, to March 6, 2009. Home values, which represented significant chunks of boomer net worth, were down almost 31% as of March 31 from their peak in mid-2006, according to the S&P/Case-Shiller national index.

As a result, boomers have become more anxious to hold on to whatever they have left, says Gabriel Cheong, a divorce attorney with Infinity Law Group LLC in Quincy, Mass. Today, the majority of inquiries come from boomers “concerned about protecting their assets,” he says. “Not just with the markets, but with protecting their spouses and children.” And they often enter a marriage with substantial assets—and children from an earlier union.

Kevin Bergthold/ThisModernLifePhotoMelissa Brides and Aaron Ockman ultimately chose not to sign a prenup.

Baby boomers are more likely to get married multiple times than younger or older couples because they also are more likely to have gotten divorced. Almost 40% of boomers who have been married have gone through at least one divorce, according to 2004 Census data, the most recent available, while only about 30% of all people who have been married have been divorced. By their 50th birthday, 27% of boomers have moved on to their second or third marriage.

None of this, of course, makes discussing a prenup with one’s betrothed any easier. Ms. Jackson-Zaremba and Mr. Zaremba “put the elephant on the table,” he says, and disclosed everything to each other before their lawyers drafted the agreement. Though his net worth was significantly higher than hers, she had retirement savings and an annual salary she wanted to keep separate. He owned a string of properties in several states and several lighthouses he was in the process of restoring that he, too, wanted to keep separate.

Under the terms of the prenup, one investment property on Long Island’s North Fork that the couple purchased would be owned 75% by Mr. Zaremba and 25% by Ms. Jackson-Zaremba. A second property on Long Island would have the same split, but after five years ownership would change to 50-50. Assets filed on a joint tax return wouldn’t be considered joint assets, the agreement states, and Mr. Zaremba’s name would be added to the lease on Ms. Jackson-Zaremba’s New York apartment. Neither party would take on each other’s debts. Ms. Jackson-Zaremba also would receive a life-insurance policy, a provision added in the drafting.

“The prenup changed me,” she says. “I became more assertive.” Most of all, she finds it much easier, both professionally and personally, to discuss money.

Lawyers usually recommend that couples with substantial assets—or those who expect to inherit such assets later on—consider a prenup. Without one, they are at the mercy of a smorgasbord of state laws in the event of a divorce or death. In “community property” states, such as California, marital assets are typically split 50-50. In “equitable distribution” states, judges generally look at what is “fair,” so all marital property is considered before it is divided.

Such uncertainty has helped prenups gain favor as estate-planning tools. Yet they are anything but simple to execute, and prospective couples need to make sure they avoid some common traps.

Bulletproofing a Prenup

The drafting of a prenuptial agreement, and the discussion surrounding it, should begin several months before the wedding date. If the signing terms of a prenup are later deemed rushed or ill-informed, a court can choose not to enforce the contract. Prenups are contracts, after all, and lawyers rely on decades of case law for guidance in drafting them. That has made the documents more complicated.

There still isn’t any guarantee that the agreement would be bulletproof from future challenges by a former spouse, says Gary Skoloff, a family lawyer with Skoloff & Wolfe in Livingston, N.J. “A lawyer can no more guarantee that a prenup is enforced than a doctor can guarantee the result of a surgery,” he says. Having each party represented by a lawyer generally decreases the likelihood that a judge might deem a prenup unfit, experts say.

Still, there are some general rules that experts say will help the document hold up in court. When drafting a prenup, lawyers generally divide goods into two major pools: assets created before the marriage and assets created during the marriage. In addition to assets, responsibility for paying off debts incurred both before and during the marriage can be divided in a prenup.

Some older prenups cited fixed-dollar amounts. That made it easier to contest them, as inflation eroded the value of many assets or, conversely, as some assets, such as real estate, saw their value sharply increase. Lawyers now prefer to disclose the ownership stake—and, when possible, the value—of all assets for transparency, but also to address how appreciation of assets or new contributions will be divided.

One of the biggest mistakes you can make is trying to hide assets. “The worst thing you can do is play games,” Mr. Skoloff says, “because then you’ve lost credibility with your spouse. And a judge.”

Another rule of thumb: A prenup can’t contain anything that violates a state’s laws or public policy. In Florida, for example, any kind of debt incurred before a marriage—regardless of what a prenup says—is considered a nonmarital debt, so it wouldn’t transfer over to a spouse, says Mitchell Karpf, a marital and family lawyer with Young, Berman, Karpf & Gonzalez in North Miami Beach, Fla. Some couples do choose to insert sunset provisions, so that the prenup expires after a certain number of years of marriage.

Doctors, lawyers, members of a family business or others who have a shared practice may suggest their peers draft prenups to ensure a spouse can’t take income from the business. Conversely, a spouse who contributes to a business might want to ensure that their work is compensated.

The Next Generation

Tanya Porter, 60, and her husband, Darrell, 72, signed a prenup when they were married 27 years ago for one overriding purpose: to ensure their assets would go to their children from previous marriages in the event of a divorce or death. Today, many things in the agreement are moot, with stocks sold, cars long since traded in and kids all grown up. “It’s funny now to reread it,” says Ms. Porter, now a full-time wedding planner in Englewood, Colo.

In recent years, as more couples have drafted prenups, the documents have expanded to spell out terms of the marriage itself, addressing issues such as adultery, intimacy or weight gain, Ms. Moses says. Some prenups also determine things like what religion children will be raised as, or where they will attend school. However, child-support and custody agreements typically aren’t included in prenups because those are to be determined separately by the courts.

Because prenups are general legal contracts, same-sex couples may be able to draft financial agreements, even if their state doesn’t legally recognize the union, she says. “People are free to contract,” Ms. Moses says.

Some baby boomers, anxious about how their assets will be passed on, are even requiring their children to consider prenups, says Daniel E. Clement, a divorce lawyer in New York. Typically, younger couples just starting out with equal assets wouldn’t need one. But if a spouse has wealth such as a trust or inheritance they either intend to give or receive, a prenup might make sense.

“When they hand that money down, they want to make sure it’s not lost on an heir’s spouse when they want to give it to the heir,” Mr. Clement says. “I think people are more cognizant that money can be there today, gone tomorrow in a flash.”

Another concern for many couples: how inheritances are spent. A spouse’s inheritance may belong only to that spouse, but if it is spent toward a home that both live in, it could be considered joint property. Couples can use a prenup to clearly spell out ownership stakes.

Melissa Brides and her husband Aaron Ockman of Santa Monica, Calif., decided that a prenup wasn’t in order, even after his parents suggested one. Although taken aback, Ms. Brides—herself a child of divorce—says she “understood why they were asking.” The two 34-year-olds have roughly the same net worth, but Mr. Ockman co-owns an apartment building with his parents.

Even though the couple finally decided against getting a prenup, having the discussion was beneficial. Mr. Ockman’s parents drafted a separate agreement among the three family members stipulating what share of the property Mr. Ockman owns in the event the building is sold.

As for the Jackson-Zarembas, their prenuptial agreement was written to sunset after 15 years. It was signed on July 11, 2008. The couple was wed the next day and have been happily married ever since.

“Sometimes,” Mr. Zaremba says, “the best contracts are the ones you don’t have to use.”

Write to Mary Pilon at mary.pilon@wsj.com

Printed in The Wall Street Journal, page B7

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

*  The divorce rate does not increase because of no-fault

* No fault reduces the likelihood that one party will persist in an abusive marriage

* Women were less likely to commit suicide to get out of a bad marriage

* Couples might not be as “bought into” their marriages if they know it could disappear without their consent.

You can read the New York Times Article here: 

Published: June 15, 2010

The top 10 things to know about divorce and money:

1. The couple’s net worth does not necessarily get divided in half:  most divorces end up at something other than 50%
2. Both sides will  take a decrease in their standard of living
3. You will be selling everything whether you like it or not
4. There is no relationship between price and performance of divorce attorneys
5. Private judges are not necessarily better than the public courts.  But sometimes they are
6. Alimony (support) is, financially, a loan:  look at the repayment likelihood
7. Two different settlements of the exact same amounts can have vastly different values
8. The system places no value on risk – you can end up with lots of them (common risks—credit, investment, liquidity, tax, no recourse)
9. Divorces almost always have tax implications
10. The system, while “equal” can create cashflow assymetries that can sink you

Accountants COUNT, but the best decisions are made as a result of decision ANALYSIS.  CPAs are usually not forensic accountants:  Forensic accounting can mean many things.

Working in the Silicon Valley, I often deal with “unconventional” types of income.  This is why I find special interest in rulings dealing with startup CEO’s, investors or anyone else who doesn’t derive regular income from a standard every day paycheck.  Below is one such summary reprinted from the California Family Law Report.

In this divorce, “Marriage of Berger”, the court deals with the issue of whether someone who is wealthy, can basically “live off their savings” and as such claim they have little t0 no income (On which support is based).  I think it is interesting that the court states:

“The justices saw no reason to allow Marc to avoid paying his fair share of support simply because he was wealthy enough to defer a sizable amount of his salary. “It would be ironic indeed,” the justices declared, “if we allowed the fact that Marc does not need a job to support himself in the short-term — as a less wealthy man would — to be spun into the justification for granting him a break from the obligation to support his family.” The panel reversed the lower court’s order and remanded, with directions to the court to recalculate Marc’s support obligations “at a level commensurate with” his deferred earnings, and to reconsider an attorneys’ fee order by “treating Marc as though he has actually received that income.”

Here is the full text.

Rachael and Marc Berger were married in 1991; their two daughters were born in 1992 and 1994. In 2001, Marc resigned as a partner at PricewaterhouseCoopers (PWC) in order to work full time as president and CEO of X-Scapes, a landscaping business that he and other investors had started earlier that year. X-Scapes offered financed landscaping to new-home developers, who could then offer it to home buyers as an optional enhancement. The business, which was Marc’s brainchild, was capitalized by $1 million in cash contributions from the other investors; Marc got credit for $500,000 in “ ‘sweat equity.’ ”

Rachael and Marc separated in November 2002; he filed for divorce 13 months later. In October 2003, the trial court entered their status-only disso judgment, and ordered Marc to pay $3,500 in monthly child support and $4,000 in monthly spousal support until the remaining issues were resolved. In mid-2005, the parties sold their family home and split sale proceeds that exceeded $2 million. A few months later, Marc filed an OSC, seeking to modify the support orders; he claimed that he couldn’t make the payments on his current salary. He asserted that he had earned up to $600,000 annually at PWC, but said that his salary at X-Scapes never exceeded $215,000, and was then about $2,000 a month.

In February 2006, Rachael and Marc stipulated that his support payments would be suspended from December 2005 on, subject to reinstatement at trial. They also stipulated that Rachael would have custody of the girls, and Marc would have scheduled visitation. Prior to trial, Marc submitted an I&E declaration, reporting income that “ ‘varies’ ” and monthly expenses of $21,372. Rachael, who worked part time at a financial firm for $15 an hour, reported monthly expenses of $17,749. At the start of the trial in April 2006, Marc testified that because X-Scapes was in financial trouble, he and the other officers agreed to amend their employment contracts by reducing and deferring their salaries. Marc had been paid, he said, $2,000 a month “since some time in 2005,” an amount that covered only health insurance for himself, Rachael, and the kids; he’d been living on his share of the divided community-property assets, which then amounted to $800,000. Marc admitted that the annual income he agreed to defer “was as high as $350,000,” but said that he believed that the deferred salary “would ultimately be ‘converted to some type of equity ownership’ ” when X-Scapes was on more solid financial footing. Meanwhile, Marc testified, he’d obtained a $1.8-million loan for the purpose of purchasing a lot in Laguna Beach and building a house thereon. He explained that he was sticking with X-Scapes because he’d made loan guarantees that would force him into bankruptcy if the company failed. The trial took place on four days spread over six months, ending in October 2006. In his final testimony, Marc said that his liquid assets had dropped from $800,000 to $450,000, and that he had $500,000 equity in the Laguna Beach lot. In April 2007, the court issued a statement of decision in which it declined to impute to Marc a level of income comparable to what he earned at PWC, as Rachael had requested, or to order him to pursue other job opportunities. The court did order Marc to report quarterly on the financial status of X-Scapes and on any jobs that he had sought. The court found that Marc had accrued “ ‘somewhere around $350,000 in deferred income,’ ” with actual monthly income of $2,000, to which it added imputed income of $3,168 a month from return on investments. The court also imputed income to Rachael of $1,875 for return on investments. Marc was ordered to pay child support of $1,115 a month, but no spousal support was ordered. The court declined to make an attorneys’ fee order, citing the parties’ parity of income. It reserved jurisdiction over the deferred salary and future loans or monies that Marc might receive from X-Scapes, as well as over attorneys’ fees.

Rachael appealed, and the Fourth District reversed and remanded.

Coulda, shoulda, woulda . . .
Rachael contended that the first mistake the trial court made was failing to impute to Marc the same level of income that he earned at PWC. The justices disagreed, pointing out that in order to prevail on this point, Rachael had to show more than the fact that Marc had once earned a certain amount or even that he still possessed the same “skills and qualifications” that made his previous earning level possible. She needed to present evidence, the justices said, showing that Marc “could have resumed that work,” either through the testimony of a vocational evaluator, as was done in In re Marriage of Mosley (2008) 165 Cal.App.4th 1375, 82 Cal.Rptr.3d 497, 2008 CFLR 11001, 2008 FA 1354, or through other evidence showing the availability of jobs for which he was qualified and that paid what he once earned. But Rachel had failed to present any such evidence at trial. Therefore, the panel concluded, the trial court had not erred by refusing to impute a higher income level to Marc.

The long and the short of it . . .
The justices then looked to see whether the lower court erred by failing to measure Marc’s current income or earning capacity “by the salary he was contractually entitled to receive,” without considering the income he deferred. They were willing to assume, as the trial court had, that Marc was deferring his income in good faith because that was the prudent thing to do, given the financial condition of X-Scapes. But the panel reminded him that the “first and principal obligation” that a parent has is to support his or her children. By voluntarily deferring income, Marc was, “in effect,” investing in X-Scapes while depleting his other assets. But as he was “shoring up the company’s capital,” the justices said, Marc was “able to claim only minimal current earnings, and thus minimal ability to pay current support.” Marc hadn’t been forced to defer his income, the panel noted; he could have decided not to defer his salary, used his other assets to prop up the company’s finances, and had monthly income with which to make his support payments. The justices concluded that “Marc cannot unilaterally, and voluntarily, arrange his business affairs in such a way as to effectively preclude his children from sharing in the benefits of his current standard of living.” Therefore, the trial court erred in calculating his support obligation by failing to consider the amount of monthly salary that Marc deferred.

Isn’t he special . . .
The justices also reasoned that the lower court could have looked at Marc’s deferred income as a special circumstance justifying a departure from guideline child support. The special circumstance here, they explained, was the voluntary agreement by Marc to keep working for a company that is unable to pay him his full salary and his ability to take that action because he has sizable assets he can use to support himself. The panel pointed out that this decision hadn’t diminished Marc’s lifestyle, but it had shortchanged his family. The justices saw no reason to allow Marc to avoid paying his fair share of support simply because he was wealthy enough to defer a sizable amount of his salary. “It would be ironic indeed,” the justices declared, “if we allowed the fact that Marc does not need a job to support himself in the short-term — as a less wealthy man would — to be spun into the justification for granting him a break from the obligation to support his family.” The panel reversed the lower court’s order and remanded, with directions to the court to recalculate Marc’s support obligations “at a level commensurate with” his deferred earnings, and to reconsider an attorneys’ fee order by “treating Marc as though he has actually received that income.”

*  I’ve worked on over $100 million of divorces advising clients on how to best preserve and grow their money.  I only work with the best clients on high net worth divorces.

*  Economics degree from Stanford and an MBA from Harvard:  so I look at divorce as a financial transaction in a business context.   I have spent many years translating the legal constructs in a divorce into financial rules and analytical models

* The law is not economically rational:  my guess would be that the vast majority of divorces don’t end up at half.   There are laws governing divorce which we can make into “word problems”.  When we do this and try to solve the resulting equation, guess what?  The answer is etiher infinity or it is impossible to solve!  This means that some laws defy rationality!

*  I do more than accounting, I analyze.  Accountants COUNT but they aren’t as equipped to do financial analysis as I am.

If you were the CEO of a multimillion dollar enterprise and you wanted to do a merger or a spinoff, who would you call first?  Your lawyer? NO.  You would call your investment banker and ask him or her about the financial and tax implications of the transaction.  You would be very happy to pay them to structure the transaction.  Once this is done, then you call the attorneys.  So why do people call a lawyer first when they think of divorcing?  Perhaps they don’t know I exist.  (and thus, the blog)

Since my job is to make cold hard rational financial decsions, this is not the best place place to deal with emotional issues.

I am beginning a lecture series titled “Divorce and Money”.  The two presentations I have so far are:

“How to hire and manage a divorce attorney”

“Forensic accounting:  what it is and what it isn’t”

These will be given in the LA (Bel Air, Beverly Hills, Santa Monica) and San Francisco Bay (Palo Alto possibly Walnut Creek) Areas