Most likely, your divorce attorney will request numerous financial documents for divorce settlement negotiations. These documents are important because they will serve as the basis for fairly dividing your property and debts.

Getting your financial paperwork organized as soon as possible is crucial because key documents can disappear or you may not get access to them once the divorce has started. Below are suggestions on what documents you’ll need and where to search for them. 

How Good Records can Help Secure a Fair Divorce Settlement

By Brian D. Joslyn, Esq., Ohio family law attorney   

Divorces are emotional and challenging, all of us know that and have seen them play out at various times throughout our lives. That said, just because you and your soon-to-be ex-spouse have decided to separate and pursue a divorce, doesn’t mean it has to be a long drawn out (and costly) brawl in the legal system. As WomansDivorce.com has mentioned before, controlling the costs of a divorce is in the best interest of both parties and your estate. 

Below I’ll go over all the elements you should try to secure before your filing for the best opportunity at a fair divorce settlement. Also, this isn’t about greed, it’s about being able to establish your next chapter in life with your equity from your former chapter. 

Obtain Financial Records (and Make Sure None Are Concealed) 

Let’s face it, finances are one of the key factors in a divorce and oftentimes they are the most contested element of settlement negotiations, along with child custody.

To ensure you have a fair opportunity for your share of the communal estate, you need to know everything about you and your spouse’s finances. Keep in mind that many couples combine their assets early in a marriage, which often leaves only one person with easy transparency to certain accounts, benefits, and records. 

If you’re uncertain if you have complete insight to your finances, we recommend you review the following checklist and seek to acquire the appropriate account information and details while you’re planning for divorce: 

• Bank statements 
• Tax returns 
• Pay stubs 
• Credit reports 
• Mortgage and loan documents 
• 401(k), IRA, and other investment account statements 
• List of all liabilities (cars, credit cards, loans) 
• Insurance policies 
• List of personal property and any ownership records 

Depending on how long your divorce proceedings take, these figures could change, but probably only slightly, so having a benchmark for you and your legal team’s use is a wise decision. In the same grain, this allows you to confirm the account numbers, login credentials, and any pending notices you two may have. 

Finding Concealed Assets (if They Exist)

If you’ve successfully collected and reviewed the financial records above, you most likely have a good understanding of your financial situation. However, we have seen instances where one partner has been performing odd transactions that don’t add up. If you see any of the patterns below, it could be worth your time to probe your financial institutions further: 

1. ATM Withdrawals 

We’ve had clients whose partner performed ATM withdrawals on a regular basis, which normally didn’t raise any red flags, but under new scrutiny appear more suspect. While smaller withdrawals might not seem like much, they can certainly add up, definitely if performed over years and at regular intervals. If you notice any of these patterns, we’d recommend looking into it further, as it can lead you to question your spouse and their use of shared funds all these years. 

2. Credit Reports

Commonly, one partner might “handle the finances” because they enjoy those kinds of tasks or have business dealings that suggest they can be trusted with such tasks. For most couples, that’s true, but not all. It could be a good idea to review your credit report to check for any activity that might seem abnormal.

There have been countless times where one spouse has opened up a credit card in both parties’ names but they’re the only one who is using that credit card. If you discover something similar, bring this to your legal team’s attention as it can be a sign of fraud or, pending no finding of fraud, you’d be liable for those debts too. 

3. Tax Returns:  

There’s the old saying, “nothing is certain but death and taxes” and there’s a reason for that – don’t mess with the IRS. Most upstanding citizens do whatever they can to stay on the good side of the Federal government and the IRS, since fraudulent filings often lead to jail time. It’s really easy to obtain your tax documents online, which is why we recommend you review those documents.

One example I’ve seen is where a spouse had a bank or investment account that paid interest but their partner was none the wiser. This was the canary in the coal mine to alert them their spouse had assets previously undisclosed and private from the union. 

4. Business Documents: 

If your partner has a business that you’re not overly involved with, you likely don’t know the ins and outs of their balance sheet. Many family businesses such as limited liability companies (LLC) include both a schedule of assets and a schedule of transfers that have been made since the company’s inception. You can discover business assets that could have escaped your path earlier in the relationship, but oftentimes include real estate properties/offices and additional investments or tangible assets. 

Analyzing Your Financial Picture

Pending your spouse hasn’t exposed themselves via one of the fraudulent or perjury examples we noted above, you now have all the information you need to assess your portfolio for your pending divorce proceedings.   

One way to hedge your bets for an amicable divorce is to be really clear and by-the-book with your documentation. I recommend putting all of these figures together in a spreadsheet. For each asset, you indicate the asset type, the current ownership status, and current market valuation. This also applies to your debts, so you’ll need to note who is indebted, what is currently owned, and the terms for that repayment.

By having all of this in one easily accessible document for all parties to reference, paired with the digital and hardcopies you made earlier, you should be able to convey that you’ve done your due diligence. Not only does this show your depth of understanding for the situation, but you likely just saved yourself a lot of money by being able to expedite the process. 

After Your Divorce

Now that the ink has dried and you’re officially single again, our hope is that your experience was as amicable as possible. No matter how it played out with your ex, you were prepared and a big silver lining to your efforts is that you now have a comprehensive understanding of your finances. While your future might be uncertain (and that’s a good thing) at least your finances won’t be! Keep your portfolio up to date and good luck in your next chapter of life. 

Brian D. Joslyn is the founder of the Joslyn Law Firm with offices throughout Ohio. He is a family law and divorce attorney in Columbus, OH who has helped many clients navigate the legal complexities of divorce, child custody, spousal support, and division of property. Brian has seen far too many bitter divorces, so he always encourages amicable and speedy solutions for the sake of all parties involved. 

Related:

By Attorney Steven A. Harris 

Many times when couples get divorced, one or both of them are running a small business and have no clue what the value of it is or if it even has any value whatsoever. People don’t think of their business as an asset when they go to get divorced, but tend to think of it in terms of how much money they bring home from it each month. The value of the business and the amount the owner actually brings home each month are two completely different things and it is important to realize this when beginning the divorce process.

So how much is my business worth? Well, determining how much a small business is worth requires several considerations including clarity on how the business was formed, whose money went into it, and what the spouses (and any other owners) want to do with the business going forward.

If the business is just owned by one or both of the spouses then determining who will ‘keep it’ after the divorce can sometimes be an easy decision for the parties. However, when other people beyond the former spouses have an ownership interest in the business it can make the situation much more complex.

The potential for conflict increases in this situation and staff or employees may get confused about who will ultimately lead the company. It is a good idea for the former spouses to address their divorce by working out an agreement between themselves first. This will allow them to be a unified front in communicating their plans to the staff and other owners.

Avoid confrontations and giving up too much by making emotional decisions

A small business is a legal entity into which former spouses have contributed money, time, and effort. There is a very high likelihood that the two parties will not agree on the next steps for the business, even if no outside party has any ownership. 

A person who is getting a divorce should tell their attorney about their plans for the business from the beginning. They should get their attorney’s advice before entering into any agreement with their former spouse. A party’s attorney can work with them to negotiate effectively. It is important to avoid heated discussions and giving up too much as a result. 

Different approaches to small business valuation

The value of a business is what a buyer would pay to purchase it. The three primary methods of finding the amount are: 

1. The income approach, which looks at what the buyer might be able to earn by purchasing the business; 
2. The market approach, which looks at the sale price of companies that are similarly situated; and 
3. The asset approach, which looks at the value of the assets used to operate the business. 

Typically, the asset approach is the most appropriate for businesses that the parties want to wind down while the others are more appropriate if one or both spouses intend to keep running the business. 

Business valuation during the COVID-19 pandemic

The uncertainty that the COVID-19 pandemic presents makes it difficult to estimate multiple figures. These include the future earnings of the business, the rate of return for investing in the business, and how much money the owner will need to deal with unexpected expenses. 

For example, the owners may not be able to purchase new equipment necessary to run the business with a loan open to them, like a Payroll Protection Plan loan. Business owners who want to wind down a company may be frustrated because certain assets decreased in value during the pandemic while labor and supply shortages increased the costs of operating the business. 

Former spouses who are struggling to make sense of what to do should hire a consultant who specializes in their type of business. The consultant can give them an idea of what similarly situated businesses are experiencing and the options available to them. This impartial advice is meant for both parties and will help the divorcing couple be on the same page in their decision-making as it pertains to the business. 

How to consider goodwill in the valuation

Determining the value of certain aspects of a business such as goodwill is tricky during the pandemic. Goodwill relates to factors like location, customer loyalty, longevity, revenue, number and types of clients, and the reputation of the business and it’s owner. In 2020, many businesses saw the approximate value of their goodwill plummet. Businesses saw interruptions in service, had difficulty obtaining the labor and supplies necessary to continue operations, and dealt with significant changes in customer patterns.

Former spouses who want to continue the business should pick a point when the business is operating in a stable fashion to determine the goodwill value. That lets them see where the company is in terms of its reputation, revenue, customer base, and other factors. 

The spouses should work through their differences and do everything possible to maintain a good reputation for themselves and the business during the divorce process. This means following state and local COVID-19 safety protocols, developing responsible social media policies, being sensitive to issues relating to diversity & inclusion, not fighting in front of customers, and welcoming customers back to the business.

Ownership options following divorce

The traditional three options relating to business ownership are for:

1. one party to buy out the other;
2. the parties to sell the business; or
3. the parties to continue to co-own the business.

The first option has a big tax advantage. The sale of a business interest between spouses as part of a buyout is not considered a sale for tax purposes. Such a transfer is not taxed if it occurs within one year after the marriage ends. The transfer also is not taxed if it is related to the end of the marriage. To meet this criteria, the divorce or separation agreement must mandate the sale of the business interest and the transfer must occur within six years after the marriage ends. 

The second option of selling the business and splitting the proceeds is extremely popular. However, economic circumstances have changed so much that former spouses should expect some surprises. A business consultant can help the parties understand what has changed due to the pandemic and why. 

Continuing the business as co-owners is usually a good possibility if the former spouses have an amicable relationship. A former spouse should not consider this option if the other party has been verbally, financially, emotionally, or physically abusive. This is also not a good option if the primary managing party has a substance abuse issue.

There is also the option of winding down the business. If there is unmanageable debt resulting from the winding down of the business, then the spouses will need to have an honest discussion with a financial advisor and/or a local bankruptcy attorney to determine what options are available.

Consult with your business attorney during the process

Often, former spouses have previously retained an attorney for a small business before seeking a divorce. Whenever possible, they should involve that particular attorney in group discussions about the future of the business. The primary role of the attorney who previously advised the business is to explain arrangements and obligations relating to the business to all of the parties. This attorney can share the history of the company’s decisions and new information that will benefit both former spouses when the divorce is over. 

Bringing in this attorney in a consultant type of capacity can only help the parties in their valuation process since valuing a small business can be tricky under normal circumstances and are especially due to the ongoing pandemic and the economic climate both nationally and locally at the moment. 

Steven A. Harris is a divorce attorney in Huntsville, Alabama. He is also the owner of The Harris Firm LLC, a family law and bankruptcy firm with offices across the State of Alabama. He regularly writes informative articles about bankruptcy, family law and other topics and lives with his lovely wife of fifteen years.

Related: