As a family-law attorney, you know that you shouldn’t dispense financial or tax advice; doing so would be a liability.
So if you already know that, why this article?
Surprisingly, lots of reasons. You’d be impressed—or perhaps dismayed—by the number of cases of “fuzzy advice” I see being doled out daily by well-meaning attorneys. I’ll get into the details in a second.
I think the odds of actually getting sued by a client or sanctioned by the Bar for these kinds of transgressions is pretty low. But know what’s likely? You’re apt to provide less than stellar service to your clients. You certainly don’t want that to happen. You don’t want it to come back to bite you, perhaps years after the case has settled. And you certainly want to avoid what is, well, wholly avoidable.
Some assets are more equal than others
I see this so often that, as a CPA (not to mention a Certified Financial Planner™ professional and a Certified Divorce Financial Analyst® professional), it drives me somewhat nuts:
When looking to divide assets equally, attorneys can easily get misled by a number on paper. Let’s say the house is worth $1 million. And the 401(k) is worth $1 million. Voilà: they’re interchangeable, right?
No. No, no, no, and no.
“What’s the value of that pension, for the purposes of a lump-sum buyout?” is a question I’m commonly asked. And it’s a good one. Because that “same-value” house will appreciate at a different rate. It will get taxed at a different rate. Its reasonably-calculated value in the future will not be the same as that “same value” pension fund. (Compare the typical growth curves for real estate vs. a properly diversified portfolio, if you don’t believe me.)
Figuring all this out—so that you have hard numbers to negotiate with—takes a lot of calculations and crunching, often with sophisticated software that would make your eyes glaze over.
Here’s another one that trips up attorneys a lot—and trust me, I can see why. Some of this financial stuff is murky:
“Will we need a QDRO to split this account?”
On the surface, this one’s simple. It pertains to ERISA-based retirement accounts, just like a DRO for a military or other government pension. But there are so many kinds of retirement accounts, that the to-QDRO-or-not-to-QDRO question gets tricky. What about an IRA? What about a “thrift savings plan”? Don’t go there. Not alone. Count on me for nerdy answers like these.
By the way, pension valuations are a specialty unto themselves. Especially if (and this is common) one spouse (usually the husband) started paying into it before the marriage. Add to that the fact that pensions change value over time, with the number of years of service, and it gets real complicated real quick.
A no-win situation
Here’s one last one for you. I’ll see decrees with language something like this, when it pertains to child, education, and dependent-care tax credits: “If the husband doesn’t qualify for a benefit, then the wife can claim it.”
This makes me blow a head gasket. There’s not enough space to get into the details here, but if the husband makes over $300k a year, he won’t get the benefit anyway. And then do you think he’ll automatically notify his ex- of this fact at tax time? Of course not.
So the kids lose out. The wife loses out. The husband gets no benefit. And guess who walks away with extra money, at everyone else’s expense? Uncle Sam.
You’re passionate about the law. As you can see, I’m passionate about all of this number-crunching, and how I can help you help your clients.