Ensuring A Fair Settlement

April 6, 2007
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GRAND RAPIDS — For many women, one of the most difficult parts of the painstakingly difficult divorce process is the sudden need to understand financial matters that had previously been the domain of their spouse. In many cases, the intertwined assets of a decades-long marriage can produce tax and cash-flow scenarios beyond the grasp of divorce attorneys — possibly setting up dire circumstances for one or both parties in the years to come.

“In many, many cases, regardless of what happens, cash flow can be negative on both sides,” said Dennis DeKok, a certified financial planner with Family Capital Management in Grand Rapids and the region’s only certified financial divorce practitioner. “Or you’ll see a huge disparity between what one person’s net worth will be in five years and what the other’s will be.”

Because most couples don’t make enough money to support two complete households, it is a near certainty that the combined estate of the two spouses will see some significant changes after the divorce — and making sure those changes are felt equally by both spouses is easier said than done.

As an elementary example, DeKok cited a couple in their early 40s, married for 20 years with $200,000 in assets split equally between a house and a 401(k) or IRA retirement fund.

“Some people might be tempted to give her the house and him the IRA,” DeKok said. “But the truth of the matter is much more complicated than that.”

Without substantial penalties, the retirement fund has virtually no liquid value for another 20 years. The house could immediately be put on the market for $100,000, but the local housing market might delay the sale, as homes are taking longer to sell in the Michigan economy. Will the house fall into foreclosure while stuck on the market? If the woman chooses to keep the home, will she be able to afford the mortgage on her salary?

Most of the cases DeKok sees are much more complicated, weaving in concerns and valuation of taxes, spousal support, depreciation, pensions, rental and other property, health care, business ownership, retirement, child support and living expenses.

Working with attorneys, judges and mediators, DeKok creates an independent report showing the complete asset value with long-term cash-flow and net-worth scenarios. This information assists attorneys, judges and mediators in reaching an equitable settlement. DeKok can also serve as an expert witness in court.

DeKok was introduced to divorce planning — today the fastest growing part of his practice — through a client involved in DAWN (Divorce Attorneys for Women), a nationwide network of attorneys, counselors, financial planners and other professionals dedicated to helping women who are going through a divorce.

One of the key aspects of the group, which is headquartered in Grand Rapids, is to provide women with the business relationships they might not have had while married, such as financial planners, car dealers, mortgage brokers and insurance salesmen, among others. Its members are required to donate 10 percent of fees generated from referrals to women’s groups.

Bob Schellenberg, principal of Grand Rapids accounting firm Schellenberg & Evers PC, works with DAWN to provide tax preparation and general accounting services. Divorce represents roughly 30 percent of his practice, only a portion of that from DAWN referrals.

“It’s an interesting area to work in,” he said. “There are a lot of psychological dynamics. A lot of people, especially the person who is not business oriented, can be very vulnerable with the assets they get. Hopefully, they have someone to help them through the process.”

When the divorce involves a closely held business, public accountants such as Schellenberg play a key role in the property settlement process by helping to find a fair value for the company. With smaller companies especially, this can be a difficult task, as the quality of reporting might not meet normal accounting standards.

“They deal with the information in order to run the business, and it’s probably not the way an accountant would want to see it,” he said. “Sometimes they’re hiding assets, but it’s more often just the way things are done.”

One frequent problem is a misconception — sometimes from both sides — of how much the company is worth.

“A lot of times people see a lot of sales and activity going on, and they confuse that with net income,” he said.

DeKok hopes to convince attorneys that divorce planning services are necessary in more than just long-term, high-asset marriages. Financial planning could streamline any divorce process, he said. Also, the hourly rate of a financial planner or accountant is generally less than that of an attorney, providing an opportunity to lower the overall costs of a divorce by turning over such tasks to faster, less expensive specialists, he added.

DeKok earned his certification through The Academy of Financial Divorce Practitioners. There is a competing divorce certification issued by the Institute for Divorce Financial Analysts, held by Ronald Collins of Robert W. Baird in Grand Rapids and Margret DeBruyn of Macatawa Bank in Holland.

Divorce Less Likely For Some

Cited so often that it borders on a cliché, the nearly 50 percent national divorce rate doesn’t actually imply a 50/50 chance of any given marriage ending in divorce. The background characteristics of people entering into a marriage have major implications for divorce risk.

In the first 10 years of marriage, the following factors decrease the risk of divorce by the following percentages:

Annual income of $50,000 (vs. $25,000)                                        30%

Having a baby seven months or more after (vs. before) marriage   24%

Over 25 years of age (vs. under 18)                                                            24%

Family of origin intact (vs. divorced parents)                                 14%

Religious affiliation                                                                         14%

Some college                                                                                   13%

It should also be noted that the “nearly 50 percent” divorce rate refers to the percentage of marriages entered into during a particular year projected to end in divorce or separation before one spouse dies. However, these projections assume that the frequency of divorce and death will remain constant indefinitely, which it almost certainly will not. As such, the divorce rate is best used to represent the success of marriages in the recent past, not the probability of a successful marriage in the future.

Source: The NationalMarriageCenter at Rutgers University 

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