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The Role of the Financial Advisor and Forensic Accountant on Your Divorce Team
Financial decisions made during your divorce will have a tremendous impact on your lifelong wellbeing; therefore, you deserve the best professional guidance to ensure those decisions are made in your best interest. While navigating the divorce process and assembling your team of professionals, you must first understand what financial advice and analysis will be required and who is the right is fit for your specific needs. In many cases, both financial advisors and forensic accountants work with your family law attorney during the dissolution process; however, it can sometimes be unclear differentiating the role each financial professional assumes, as well as when they are needed most. In order to bring clarity to their differences, one should first understand the three general categories of financial analysis in the divorce process: historical assessment, future projections and asset division.
The historical assessment is a look back on the marriage from a financial perspective to ensure all assets and income streams are accounted for in both legal disclosure and financial analysis. This initial stage of the process generally demands a significant amount of time and energy researching and preparing the completed analysis of all marital assets and income streams. That data is critical to a successful dissolution process, as it is the basis for determining the division of community property. Once a foundation of data has been compiled and reviewed, this historical assessment will be used to determine the possibility of child and spousal support, as well as create the definitive community asset base that will ultimately be divided between parties.
The next major financial consideration of the divorce process is future cash flow projections. Cash flow projections look beyond the divorce to help you envision your future financial landscape by testing various “what if” scenarios. ”What if” scenarios will help you understand the long term impact of your available options by projecting the results of various asset and income combinations. Generally, this analysis is found to be very helpful as parties focus on finalizing their settlement agreement where proposals and counter proposals are often trading back and forth, and where the quick understanding of those tradeoffs is important. Not only is cash flow analysis valuable to helping you understand your settlement decisions, but it is equally important in building the framework of your future financial plan that includes budgeting and investing.
The last financial consideration would be the division of assets. The time and resources needed for the division of assets phase is directly correlated to the complexity of the community assets and how amicable the two parties are towards each other. Generally speaking, the need for financial oversight and analysis through this stage of the process increases significantly when assets will not be split evenly down the middle. As often happens, one party or the other will want to retain the entirety of a specific asset, therefore making an equalization payment necessary. It is also important to realize that similarly valued assets often have very different underlying qualities such as tax liabilities, risk profiles and liquidity. Therefore, a full understanding of the impact of trading assets should be in place before agreements are made. Forensic accountants and financial advisors each play a pivotal role in these stages; however, both tend to focus in different areas that complement each other rather than duplicate.
The forensic accountant’s role spans all three financial stages mentioned above, but typically the bulk of their work takes place in the beginning of the process – during the historic assessment stage. Forensic accountants are specialists of the accounting profession with the expertise to provide deep analysis in many financial areas of the dissolution process, while also offering unique proficiency in complicated spousal support, income and asset tracing and business valuations. Forensic accountants also provide the ability for parties to untangle community and separate property assets that were comingled during the marriage.
Generally speaking, the family law attorney will often recommend a forensic accountant to join the team once the basic framework of the dissolution is understood and there is likelihood that the divorce may include unique complexities. Some of those complexities include the concern of hidden assets and/or income, entangled separate and community assets that requires clarity, unclear private business valuations that need validation and a high likelihood that expert financial testimony will be needed if the case goes to court. Forensic accountants are not limited to the circumstances mentioned above and are not only needed in very complex cases; however, when those circumstances do arise, it is very common for clients, family law attorneys and financial advisors to rely on the forensic accountant for their deep expertise.
A financial advisor is involved in all three of the financial stages as well, but their expertise becomes vital during the later stages – future cash flow projections and the ultimate division of assets. Forensic accountancy is an extremely niche profession, and their expertise is generally known. In contrast, financial advisors have wide ranging specialties and come in great numbers. An ideal candidate for your team should have the following attributes in order of importance: divorce planning experience, expert witness testimony experience, firm resource depth in divorce planning and financial planning credentials, such as the CERTIFIED FINANCIAL PLANNER™ designation.
During the divorce process, you can expect your financial advisor to help gather and organize the asset, income and expense data that will be required for legal disclosures and financial analysis. In cases where forensic accounts are called in to find and value assets, as well as build the community balance sheet, financial advisors will utilize those findings to populate the “what if” future cash flow projections and division of assets worksheets – both of which help the team strategize around settlement proposals. Once agreements are made between parties and assets are ready to be split, your financial advisor, in coordination with the family law attorney, should be utilized to execute and oversee that the liquid investment assets are properly transferred and the settlement process is complete. Once the dissolution process is complete and assets are divided, your financial advisor will then have your financial foundation in place to help you rebuild, maintain and monitor your new investment portfolio. Following the divorce, your financial advisor will also help you coordinate your estate planning, insurance and taxation needs with professionals in those fields to ensure all areas of your new life begin on a solid foundation.
As with any major legal and financial event in your life, the quality of the outcome will depend largely on your ability to make well informed decisions and in the case of divorce, under less than optimal circumstances. Since well informed decisions are challenging even in a favorable environment, it is advantageous to align the best resources available to gather the information needed to navigate the dissolution process effectively. Connecting with an experienced family law attorney to create a team of competent financial professionals is the most important step in being prepared to not only successfully navigate divorce, but to also build a realistic and sustainable financial foundation for your new life.
This information has been developed internally and/or obtained from sources that Sand Hill Global Advisors, LLC (“SHGA”), believes to be reliable; however, SHGA does not guarantee the accuracy, adequacy or completeness of such information nor do we guarantee the appropriateness of any investment approach or security referred to for any particular investor. This material is provided for informational purposes only and is not advice or a recommendation for the purchase or sale of any security. This information reflects subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. This material reflects the opinion of SHGA on the date made and is subject to change at any time without notice. SHGA has no obligation to update this material. We do not suggest that any strategy described herein is applicable to every client of or portfolio managed by SHGA. In preparing this material, SHGA has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you should consider, with or without the assistance of a professional advisor, whether the information provided in this material is appropriate in light of your particular investment needs, objectives and financial circumstances. Transactions in securities give rise to substantial risk and are not suitable for all investors. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.