Divorce Analysis Blog

Advanced Ideas About Divorce and Money

Divorce and Privacy in the Age of Facebook

One of the most remarkable changes to the divorce arena over the past few years is how social media tools such as Facebook and our paparazzi-obsessed society have been able to open doors into people’s private lives because of their divorce.

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.

August 18, 2011 Posted by | Alimony, California Divorce, Child Support Calculation, Community Property, divorce, Prenuptial Agreement, Uncategorized | , , , , , , , , | Leave a comment

Divorce realities #1: Divorce lowers standards of living

Over the next few days and weeks, I will post some “divorce realities”.  These are simple facts that I have learned from working in many high net worth divorce cases.  While they are simple and short, they are powerful in that they apply to most situations.
Divorce Reality #1:  Your standard of living will, most likely, drop, the only question is: how much?

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.

March 15, 2011 Posted by | Alimony, California Divorce, Child Support Calculation, Community Property, divorce, Uncategorized | Leave a comment

Banking on a divorce?

When I was at Harvard Business School, we sometimes would socialize with students at Harvard Law School – the future elite legal minds of the world including people such as Barak Obama and Supreme court justices.  One common feature of my friends in law school was their expressed disinterest in careers involving math.  And these are the elite ones.  After graduating, not only did I notice that none of these great legal minds went into family law (which is why a good attorney is hard to find) but more than that, the attorneys in family law refused to do even the simplest math.  They get around doing math in two ways:

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.

December 6, 2010 Posted by | California Divorce, Child Support Calculation, Community Property, divorce, Prenuptial Agreement | Leave a comment

Top 10 things to know about divorce and money

Divorce is usually about a person’s financial well being and their children.  Logically one should have strong advice about money and kids.  Surprisingly these areas are not taught in law school.  Therefore it is important to have expert advice from skilled individuals trained outside of the law.

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.

June 10, 2010 Posted by | California Divorce, Child Support Calculation, Community Property, divorce | | 1 Comment

Child support calculation with unusual forms of income

Every year, our court system issues many important rulings pertaining to divorces.  While the legislators try to write very clear laws, sometimes, it takes a court to apply the law to individuals’ circumstances.  And even then, the court can err.  That is why we have appeals courts.

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.

In re Marriage of Berger
(January 29, 2009)

California Court of Appeal, 4 Civil G039234 (Div 3), 170 Cal.App.4th 1070, 88 Cal.Rptr.3d 766, 2009 FA 1376, per Bedsworth, Acting PJ (Aronson and Ikola, JJ, concurring). Orange County: Weinberg, Temp J, reversed and remanded with directions. For appellant: Marjorie Fuller,  (714) 449-9100  (714) 449-9100 . For respondent: Steven Briggs, CFLS,  (949) 673-7410  (949) 673-7410 . CFLP §§E.22.7.3, E.22.8.10, E.37.1.2.

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.”

August 4, 2009 Posted by | Child Support Calculation, divorce | , , , | 1 Comment