“Will My Lifestyle be the Same Once I Get Divorced?”

Divorce is complicated. At the very heart of a divorce, it becomes a financial game for the spouses involved of “how will I be supported once the divorce is finalized?” Other questions such as “will my standard of living be the same as before?” constantly may run through the parties’ minds. It’s never an easy path determining an individual’s standard of living after spouses separate. It is a difficult process that involves the skills of financial experts, some of who are known as forensic accountants. These accountants are experts that discover and process the multiple steps in analyzing one’s lifestyle in divorce cases.

What exactly does a standard of living calculation involve? There are five critical items that comprise this “formula.” Those of which include earned and unearned income, existence of unusual expenses, actual historical expenditures, funding sources for the lifestyle, and reasonable needs in the future. To truly comprehend the calculation, it is best to break down each component and delve into each one deeper.

Earned income is income that is generated by working or providing personal services. This income includes wages, salaries, tips, commissions, bonuses, as well as net earnings from self. On the other hand, unearned income is income that does not originate from a spouse’s job or active business venture. Examples of such an income include inheritances, real estate ventures, estates, trusts, settlements and awards, prizes or lottery winnings, and investments. This earned and unearned income is crucial in order to determine one’s lifestyle and standard of living in any sort of divorce case.

Over the top spending following a divorce should not be an action sought out by a spouse. Instead, spouses should be spending what they did previously. Historical expenditures should be occurring, not any over the top spending.

Once a couple decides to get a divorce, certain expenses are no longer part of the lifestyle that must be funded. Such instances of unusual, nonrecurring expenses include large spousal gifts such as jewelry, anniversary trips or parties, or funding for extended family. These sort of items require much money to produce and a spouse no longer has the responsibility of funding this once a divorce has occurred.

Funding of sources of a lifestyle is critical because sources may be exhausted at some point in the future, may be not be guaranteed in the future, and may not even be reasonable to require the use of the sources to fund the lifestyle. It is necessary for the forensic accountant to determine where exactly the sources of the funds are coming from. This step requires deep investigating.

The data being analyzed includes one to five years’ worth of information in order for a forensic accountant to establish a budget. Questions such as “What is really needed?” are asked when attempting to determine the budget of the spouse for needs in the future. This is a very significant step in the analysis of an individual’s lifestyle post-divorce.

In order for a forensic accountant to properly investigate an individual’s standard of living, certain documents are required. Those include personal income tax returns, loan applications, documentation of debts, credit card statements, bank statements, brokerage account statements, pay statements, real estate documents, business documents, insurance documents, and all other documents showing forms of income.

Many times spouses hide assets in ways which becomes a basis for forensic accountants to investigate. Some people will hide wealth by transferring assets, undervaluing assets, overpaying creditors, using cash to purchase assets, establishing accounts in the name of others, and by simply hiding cash. These actions are important because an accurate lifestyle analysis cannot be completed with actions such as these occurring.

It is never an easy process to figure out the lifestyle and standard of living for an individual after a divorce occurs. Forensic accountants are skilled with the knowledge and tools to aid a couple going through this complicated process. These accountants are able to dig deep into the financials to determine the best solution. The formula isn’t simple, but following certain steps always leads to a better resolution.