divorce - financial questions and answers for women

A Case Information Statement, often referred to as a “CIS,” is a ten-page document required by the court. You and your husband will each have to submit a CIS. This document will ask for personal information, insurance coverage, detailed financial information, and other information pertinent to your separation. It also requires supporting attachments to prove that the statements made within it are accurate. 

You are not alone if you feel overwhelmed by the detailed financial information requested by the CIS. As an experienced forensic accountant, I can help you prepare your CIS. 

The status quo (current family lifestyle) should be maintained during your divorce proceedings. For example, if your husband normally pays for all of the family’s expenses, he should still pay all of those expenses during the divorce. If your husband is not maintaining the status quo, your attorney can file a motion requesting the judge order your husband to pay pendente - lite (see next bullet point for information on pendente - lite). Keep in mind the status quo also applies to you. If you normally spend $5,000 per month on your credit card, do not start spending $10,000 per month and expect your husband to be required to pay for it.

Pendente - lite is temporary support (alimony, child support, and/or custody) to maintain the status quo (current family lifestyle) during the divorce proceeding. It is based on affidavits, certifications, and case information statements. There is no set calculation to determine the amount of temporary support you might receive. There are several factors to be considered, a few of which are the lifestyle during the marriage, your husband's ability to pay, and the length of the marriage. 

Generally, the lower earning spouse in a long-term marriage will receive alimony.  The amount of alimony you will receive depends on several factors including your husband’s ability to pay and the lifestyle during the marriage.  

A general calculation to give you an idea of a possible alimony number would be to take the difference between both of your incomes and multiply by a number between 20% - 25%. Again, there are several factors that go into the final alimony calculation, but this will give you a general idea.  If you are not working currently, but have the potential to earn, income may be imputed to you for this calculation. 

For example, if your husband makes $250,000 and you make (or could make) $50,000, the difference between your two incomes is $200,000. Multiplying this by 20% would be $40,000 per year ($3,333 per month) in alimony. Multiplying the difference by 25% would be $50,000 ($4,167 per month) in alimony. This gives you a very general idea of a potential alimony range between $3,333 - $4,167 per month. Your attorney will explain all of the factors that constitute your final alimony number.

Similar to the calculation of alimony, there are many factors involved in the calculation of child support. Some of these factors include the income of the parents and time spent with the children. Your attorney will use New Jersey Child Support Guidelines to assist in the calculation of child support.

Child support does not necessarily end when the child turns 18. Many children are not self-sufficient until they graduate from college. You can negotiate when your children are considered emancipated during your divorce proceeding.

Alimony

IRS - No! Alimony is no longer taxable to the receiver of newly divorced couples. Your husband will not get a deduction for the alimony payments he makes to you either. This relatively new law is beneficial to the federal government as it leaves the alimony as income on the higher earner’s tax return (meaning the alimony money gets taxed at your husband’s higher tax bracket).

New Jersey - Yes! Unfortunately, New Jersey did not follow the new law established by President Trump’s Tax Cuts and Jobs Act. This means that the alimony you receive from your husband is considered taxable income by New Jersey and has to be included on your New Jersey tax return. Your husband will receive a deduction for the alimony he pays you on his New Jersey tax return. 

Child Support

IRS - Child support is not taxable income per the IRS and not a tax deduction for your husband.

New Jersey - Child support is not taxable income in New Jersey and not a tax deduction for your husband.

Quit - No, under normal circumstances, he cannot quit his job, get fired, or take a job for significantly less pay to avoid paying alimony or child support. Your husband’s current income is not the only factor that goes into the calculation of alimony and child support in New Jersey. There are several factors to be considered which include your husband’s earning capacity. On the other hand, being laid off during a recession and unable to find a new job, a new disability, or a new serious illness could legitimately affect his earnings capacity and lead to a reduction of alimony and child support.

Retire - Generally, since 2014, there is no longer permanent alimony in New Jersey. Alimony usually does not last longer than the length of the marriage and ends when your husband reaches full retirement age as defined by the Social Security Administration.

Maybe. Your husband will have to agree to pay a lump-sum (also known as an alimony buyout), you will both have to agree on the amount, and he will have to be able to afford it. Many husbands would prefer not to write a check every month for the next several years, but there are a few main reasons he would prefer monthly payments: 

1.  He cannot afford it. (See funding the alimony buyout below)

2.  He thinks there is a chance you could cohabitate or remarry. If you do, his alimony payments would end when that occurs. Paying you a lump-sum now would cost him a lot of money unnecessarily.

3.  If his income legitimately decreases in the future, he could file for a change of circumstance and have his alimony payments reduced. Paying you a lump-sum now would cost him a lot of money unnecessarily.

Calculation - The calculation for an alimony buyout is complex. A lump-sum paid today is lower than the total of the monthly payments made over several years due to what is called the time value of money. Future payments will be discounted back to the present day. Additional considerations are how to determine the discount rate that will be used to calculate your alimony buyout and how to account for tax differences. If your husband pays you monthly alimony payments, he will be able to deduct those payments on his New Jersey tax return and you will include it as income on yours. On the other hand, if he pays you a lump-sum for alimony, he will not get a deduction on his New Jersey tax return and you will not include it as income on your tax return. 

Buyout - An alimony buyout can be funded with cash or other assets. He could use his own pre-marital/excluded assets or assets that are due to him in the equitable distribution of marital assets. 

For example: Your alimony buyout is $400,000. Your husband has a $100,000 inheritance he received from his mother’s estate. Your marital home is appraised for $1,000,000 and your mortgage balance is $400,000. Your husband could fund the alimony buyout by giving you his inheritance cash of $100,000 and $300,000 from his share of the net value of the marital home due him ($1,000,000 appraised value - $400,000 mortgage = $600,000 net asset value to be split ($300,000 to you and $300,000 to him). On the other hand, if your husband did not have the inheritance and there were no other marital assets due him besides the house, he could not afford to buy you out of your alimony. 

I can help you calculate a potential alimony buyout, help you decide if it is the right choice for you, and determine the best options for funding it.

Your husband may be required to obtain life insurance to guarantee that you receive most of your payments in case he dies prematurely. I say “most” of your payments because there are tax consequences that need to be considered.

As previously discussed, alimony is still taxable to the receiver in New Jersey. As a result, you would not keep all of the alimony your husband pays you (Uncle Sam would keep a piece). This means that the amount of life insurance he would be required to maintain could be less than the monthly alimony payments times the number of months.

Child support is not taxable; therefore, the amount of life insurance required would equal the total of payments due to your children. The life insurance policy guaranteeing child support will end when your children are emancipated (usually either age 18 or when they graduate college). 

A Cash Flow Analysis is prepared to analyze the couples’ inflow of funds that were used to support the marital lifestyle. Cash flow is often compared to expenses per the Case Information Statements to ensure they are in-line. If they are not in-line, then a Marital Lifestyle Analysis could be necessary. The difference between cash flow and expenses could also be evidence of unreported cash (see the next bullet point for information on unreported income).  

Unreported cash brings multiple issues to divorce negotiations. 

First, you will have to reach a divorce settlement with your husband on your own, in mediation, or in arbitration. Your case cannot go to trial because judges are legally obligated to report unreported income, tax evasion, and/or tax fraud to the IRS. 

Second, as an experienced forensic accountant, I will analyze the financial aspects of his business to estimate the amount of income that was unreported. I will also analyze your marital lifestyle to estimate the amount of unreported cash flow/income. Comparing the income of the parties to their expenses paid often reveals a shortage of income (the unreported piece) and also reveals which expenses are missing that would normally be paid via check or credit card. Common examples of cash uses include food, restaurants, gas, landscapers, babysitters, home repairmen/contractors, etc. The wives in these cases are often critical because they have first-hand knowledge of how the cash was used during the marriage. Some wives were even given a set amount of cash each week during their marriage to use for shopping, spas, hair/nail salons, and family expenses. 

Cash Bonus

Not Current Income - Cash bonuses are income in the year they are received by the employee. A cash bonus received in January of next year will be included in next year’s income. His current year income includes the cash bonus he received this past January for his prior year’s performance. 

Equitable Distribution - A cash bonus received in January of next year for this year’s performance is an asset that is partially subject to equitable distribution. The piece of the cash bonus subject to equitable distribution is calculated as the proportion of the time period you were together this year (usually through the Date of Complaint), then split in half, then reduced for federal and state taxes. 

For example, if your date of complaint is July 31, 2022 and the cash bonus to be paid in January 2023 is $50,000: The marital piece of the cash bonus subject to equitable distribution would be $50,000 * 7 / 12 = $29,167. Each of you would be due half of that amount, $14,583, less taxes.

Unvested Restricted Stock Units (RSUs)

Not Current Income - RSUs are not included in income when they are granted. They are included in income when they vest. Vesting usually takes a few years and is designed to incentivize the employee to continue working for the company. Income is calculated as the share price on the vesting date times the number of shares that vest. 

Equitable Distribution - RSUs are marital property subject to equitable distribution in New Jersey if they were granted for performances completed during the marriage. RSUs granted for future performances are not subject to equitable distribution. 

The RSUs cannot be transferred to your name, but I can calculate the amount due you that can be funded with other assets during the division of assets. Similar to the cash bonus calculation, the unvested RSUs would be divided based on the months of the year you were married (date of complaint). You won’t know what their value will be when they eventually vest, but their value for equitable distribution can be calculated using the share price on the date of complaint. That value would also have to be split in half (half for each of you) and then reduced for taxes. 

Alternatively, you and your husband could agree to put the RSUs into a constructive trust. You would not receive any assets for the RSUs at the time of divorce. You would wait for the RSUs to vest at which point they would be sold. This is not necessarily any better than valuing the RSUs at the date of complaint. The company’s share price could increase, but it could also decrease. Your husband will have to work for the company for years until the shares vest and you will have to wait all those years for the shares to vest and finally be saleable.

Contact me to find out which documents you will need to provide me in order to obtain an accurate calculation of RSU’s due you.

A Marital Lifestyle Analysis is a detailed accounting of all expenses paid during the marriage. Its purpose is to provide an accurate account of your lifestyle for a certain time period before the date of complaint, or date of separation, usually 3 or 5 years. Although you and your husband will each prepare Case Information Statements that list your expenses during the marriage, they are often very different and very inaccurate. Oftentimes, wives overstate expenses in an attempt to increase the alimony and child support that will be awarded. Conversely, husbands have an incentive to understate expenses to avoid paying accurate alimony and child support. Another common problem is that one spouse does not provide all of their financial statements. Another common problem is that one spouse does not provide all of their financial statements to allow their spouse to accurately calculate the joint lifestyle.

If your Case Information Statements are vastly different, you will need a forensic accountant to prepare a Marital Lifestyle Analysis. The forensic accountant will record every transaction from your financial accounts (bank accounts, credit card accounts, brokerage accounts, etc.) for the period in question to prepare the Marital Lifestyle Analysis. Although the goal of the Marital Lifestyle Analysis is to examine the expenses, in the process of the analysis, income is recorded and assets and liabilities are also reviewed. This can lead to the finding of previously unknown sources of income, unreported cash, hidden assets, hidden accounts, or expenses paid for someone outside of the family. 

New Jersey is an “equitable distribution” state for divorce. The term “equitable” does not mean equal; therefore, you may not get exactly half of the net assets. Equitable is supposed to mean fair. For example, if your husband has his own business, you are not entitled to half of it (assuming you never worked for the company) because it would not be fair to give away half of the value of the company he has spent years building. 

Keep in mind that most couples also have liabilities (debt) which will reduce the value of the couple’s assets. Your net assets are the total assets less the total liabilities. For example, a house worth $1 million with a $300,000 mortgage has a net value of $700,000 ($1,000,000 - $300,000 = $700,000). Net assets is also known as net worth.

Which assets you keep is decided during the negotiation process between you and your husband. As a forensic accountant experienced in divorce proceedings, I can prepare a marital balance sheet to help you analyze your net assets and determine which assets and corresponding liabilities make the most sense for you to keep.

Maybe, but it is not always financially wise to do so. Most women want to keep the marital residence to reduce the amount of change for themselves and their children who will most likely live with them. Even if you do not have a mortgage, the expense of maintaining a marital home, yard, and paying expensive Bergen County property taxes add up quickly. 

As a forensic accountant experienced in divorce proceedings, I can explain your specific financial situation and help you decide if you should keep the marital residence. There are many aspects to consider, a some of which are home expenses, property taxes, the mortgage balance and rates, refinance rates, and value of the home.

If we decide I can afford to keep the house, how does it work?

1.  Quitclaim deed to remove your husband’s name

2.  If there is a mortgage that needs to stay, you will have to refinance it into your own name. This could increase the amount you will pay because current interest rates are increasing.

Yes! Assets owned prior to the marriage are considered pre-marital (excluded) and yours to keep. An exception would be if you commingled an asset. For example, if you bought your home prior to marriage, but your husband started making mortgage payments and paying expenses when he moved in, a portion of the asset could be deemed his.

It is possible. During your divorce proceedings, your net assets (assets - liabilities = net assets) will be divided equitably between you and your husband. If there are not enough other assets to satisfy the distribution amount due to you, you may receive some of your husband’s retirement savings. As a forensic accountant experienced in divorce proceedings, I can prepare a marital balance sheet to help you analyze your net assets and determine which assets and corresponding liabilities make the most sense for you to keep. 

Retirement accounts are more complex than bank accounts, but they are an asset that can be divided with a few additional considerations: 

1.  If your husband’s retirement accounts were started before the marriage, there is a pre-marital piece that needs to be determined. Besides knowing the value of the retirement accounts on the date of marriage, that pre-marital piece has continued to grow as an excluded pre-marital asset during the marriage. I can calculate the growth of the pre-marital portion so that you know the exact amount of his retirement accounts that are excluded from distribution. 

2.  Your attorney will file a Qualified Domestic Relations Order (“QDRO”) in order to move retirement funds from his name to yours. 

Most businesses require a valuation be prepared to determine its worth. As a Certified Public Accountant (“CPA”) who is Accredited in Business Valuation (“ABV”), I can prepare a valuation of the business.

No, you most likely will not be entitled to half of the value of the business. The percentage of the business you will receive depends on several factors. If you were not involved in working for or running the business, you will probably receive 20% to 33% of the value of the business. 

Maybe. First of all, there have to be assets to find. Many times, financial suspicions are born out of other trust issues in the relationship. As an experienced forensic accountant, I am trained to analyze known accounts, assets, and liabilities for signs of other accounts and assets.  

It is possible. In analyzing bank, credit card, business, and other accounts, I have found expenses for jewelry, trips, lingerie, and other gifts that the wife never received. Some credit card statements even list the passengers’ names for flights.