Financial Ramifications of Divorce

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Newsletter from
Steve Richardson & Company, Certified Public Accountants

Dear Friends:

I have recently (hopefully) completed my involvement as an expert witness in a substantial divorce action.  It was brutal for me; I can only imagine how terribly difficult it was for the people most affected by this legal action.

It’s legal; I can talk about the people involved and the specifics of the case.  A divorce action is a public record; but, to me, it’s not ethical.  At the very least it’s not polite to talk about other people’s business in any event.  So, I’m not going to do that at all.

This letter is about the financial ramifications of divorce from my perspective as a CPA.

The Rules:

The first three rules for divorce are as follows:

Rule #1: Don’t Get Divorced

Rule #2: Avoid Divorce at All Costs

Rule #3: Do whatever is necessary to Stay Married

I’m not being funny here; this is a very serious discussion.  Divorce is a financial disaster.  This family that is suffering through this divorce is (was) very wealthy, not any more.

Rule #4: Stay Married – The best research on the subject is compelling.  If you manage to get to the other side of a marital crisis, your marriage will be happier and healthier than it was before the crisis.  To summarize Rule #4: Practice the arts of forgiveness and reconciliation.

The marital estate is being split between two people.  This is an extremely continuous division of assets involving many lawyers (too many by half) and at least five CPAs.  The legal fees and CPAs fees are horrific!  I worked so hard on this case, hour after hour; my fee is ginormous.  I worked hard; I earned the money; I did a really good job.  The job that I did was an invaluable help to my client.  All these CPAs and lawyers are expensive!  This divorce is so expensive that the marital estate has been substantially reduced merely by the costs of litigation.  Contested divorce actions are brutally expensive.

Rule #5: Do not go through a contested divorce.

By all means, hire a lawyer; a good one.  I know several and I can make a referral if necessary.  But, negotiate a settlement to your divorce.  Hear me very clearly: Negotiate a Settlement!  Negotiate a Settlement before you go to trial!

Rule #5 has an important subsidiary rule; I’ll call it Rule #5(a).

Rule #5(a): Tell the Truth.

You cannot beat the system.  If you do not tell the truth you will not get a negotiated settlement.  If you fail to get a negotiated settlement you will go to court.  If you go to court you will be (100% guaranteed) extremely unhappy with your settlement.  There are no exceptions to this rule!

If you do not tell the truth the CPAs and the lawyers will help sort out the truth as best they can.  When CPAs and lawyers are allowed to sort out contentious issues their fees are ridiculously expensive.  There are no exceptions to this rule either.

When a “willful misrepresentation of the truth” (a lie) is presented in a divorce action everything slows to a crawl.  When legal machinery slows to a crawl it is far more than merely expensive.  The family issues, particularly with children involved become more unstable.  The potential for emotional, even physical abuse rises.  A lie creates a no-win scenario for either party.  A lie hurts the person who perpetrated the lie, the other party to the divorce and certainly the children.  Rule #5(a) is very important: Tell the Truth!

Rule #6: If you lie once you will do it again.

Lies perpetuate lies; it’s a cycle that, once started, is hard to stop.  In point of fact it often doesn’t stop.  Years after the divorce action a lie will cause the parties to be back in court again over child support, custody rights, alimony and other adjustments to the initial court order.  The lawyers and CPAs will continue to bleed you dry if you tell a lie.  Sorry; the rhyme is accidental.

Rule #7: No one wins a divorce (except for the accountants and the lawyers).

A divorce has no winners, only losers. Everybody loses.  The tax and financial implications of divorce are complex and very unfair. You will need a CPA for years after a divorce merely to keep up with tax rules that are crystal clear to non-divorced taxpayers.

Rule #8: Do not deliberately compromise the marital estate by incurring substantial debt or starting up new high-risk business ventures.  A basic financial planning rule applies to this situation; when you are in a high risk economic environment be careful; be conservative; avoid additional debts.  The wisdom on this should be obvious. Running up super large credit cards or mortgages is counterproductive.  It helps no one and it hurts everyone involved.

Rule #9: Beg, cry, plead, get counseling, pray, pray some more, do any and everything possible to avoid divorce.

Rule #10: If a divorce becomes unavoidable, call me! Get professional advice early in the process.  Even an uncontested divorce requires professional advice before you do anything!

Divorce is absolutely, and I mean, absolutely the last resort.

Again, thank you for allowing us to be of service.

Sincerely,

Steve Richardson, CPA

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