The majority of divorcing clients do not come to a lawyer just to have divorce process explained or for the paperwork to be completed in an uncontested divorce (although we can certainly help with that on a fixed fee and affordable basis).
These days, due to the internet, most clients are quite well informed about how it works.
The value of instructing a divorce lawyer tends to be where there are difficult issues about child custody or access and http://www.darlingtons.com/site/divorce_finances/. With clear presumptions in favour of children spending time with both parents (subject of course to situations where there has been violence or abusive behaviour), in reality, most divorces which prove contentious surround finances.
Finances are a complicated area – there are a multitude of different scenarios and possibilities and in many cases, limited assets which do not allow an easy resolution or adjudication.
It is also a common scenario, especially where 1 (with the other spouse potentially not working) or both spouses are employees rather than business owners, for 1 or both not to have an accountant. Where 1 party owns a business, that business will probably have an accountant already, which will tend to give him or her an advantage.
Bearing this in mind, it is essential that any lawyer you instruct knows a good accountant and has a good relationship with that accountant. Just like lawyers, specialisms and experience are important. Some accountants tend to specialise in audits, others on tax and so on. It is important that an accountant who is instructed on divorce finances is experienced. They may also need to defend their assessment on your behalf at court where necessary. So, it’s important that you have the right team, not just the right lawyer.
It is essential to have a good accountant where there are business assets which need to be taken into account in a divorce. Such assets, especially in a small, family owned business, are notoriously difficult to value and any valuation is inherently subject to potential dispute and argument.
If you are the spouse who doesn’t own the business assets, areas that should be investigated typically include :-
- Unlikely or unreasonable financial forecasts which will typically undervalue the business prospects going forwards
- Goodwill or other assets being undervalued
- Managing down the trade, delaying or diverting income or overstating costs to depress valuations
- Siphoning off profitable parts of the business to different entities
- Booking personal expenses to the business to reduce profits
- Potential issues relating to directors loans and dividends
- The true value of a business will seldom be reflected in it’s balance sheet. If you are the non-owning spouse, you will need to be realistic and to accept, potentially, that cash flow difficulties and need for working capital can cripple the ability to pay maintenance from net earnings for tax purposes.
- Tax implications – capital assets figures should be qualified by costs of sale and potential tax due. The court values matrimonial assets as if sold on the day of the hearing or agreed order, so the costs of sale and the tax payable need to be taken into account.
Issues and complications with the matrimonial home
In many divorces, the main financial asset is the matrimonial home, and there are a number of options for negotiating or for the court to decide what should happen to it. A feature of many cases is that, especially with property prices so high, there is insufficient money for the divorcing parties to both have a home of similar size and value or in fact often for both parties to own any kind of property each. Here, again, good advice and financial modelling is important.
Options can include sale of then property, a deferred charge, where one party has the property transferred to him or her and the other party has a charge in their favour which is only realised when certain ‘trigger’ events occur, such as, for example, the youngest child of the family reaching 18 years of age. There are also other alternatives, which are not the subject of this post.
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