Chapter 11 – Special Items in Lifestyle Analysis

Standard

As with most of the work done by forensic accountants, the results of the lifestyle analysis can be skewed if “special” items are not treated correctly. Various cash receipts and expenditures of money by the family can have an impact on the calculations. Statutes, their interpretations, and case law may provide little to no guidance on the special items, since it is rare that the family lawyer encounters them.

In this chapter, we will address some of the special situations that can occur in a divorce and will impact the lifestyle analysis. As with all of the material in this book, your local rules must be considered and will take precedence over any guidance offered here.

Nonstandard Forms of Compensation
There may be a tendency to exclude nonstandard forms of compensation from consideration in the lifestyle analysis simply because they are unusual and potentially difficult to understand. However, these items all have value, so it is imperative that they be considered in the lifestyle analysis. They must be included in support calculations, and may factor into the asset division as well.

Commissions and Bonuses
Employees whose compensation is heavily weighted toward unpredictable forms, such as commissions and bonuses, create special issues in family law cases. The spouse paying support will often suggest that high earnings were unusual and will not be replicated. Thus, the spouse contends that support should be calculated based on a lower number. Earnings can be impacted by general economic conditions, changes in an industry, changes in the operations of the employer, and more. The unpredictability should not deter the financial expert from attempting to calculate the reasonable level of earnings that should be used to calculate support.

Also included in this chapter:

Nonstandard Forms of Compensation

Stock Options
Deferred Compensation
Life Insurance
Annuities
Other Fringe Benefits
Nontaxable Income

Business Income Issues

Ordinary and Necessary Business Expenses
Depreciation
Pass-Through Entities

Division of Liabilities
Income Tax Issues
Refuting the Lifestyle Analysis