- Protecting Your Client's Maintenance Rights -- The Use of Lifestyle Experts in Divorce Cases
- April 8, 2010 | Author: Eric L. Schulman
- Law Firm: Schiller DuCanto & Fleck LLP - Lake Forest Office
- I. INTRODUCTION
In high net worth divorce cases, the amount of maintenance to be paid to the non-wage earner spouse is often a critical issue for determination with the payor spouse usually wanting to minimize the amount of support to be paid, while the recipient spouse wants to maximize the ongoing support. What results is a battle over the recipient spouse’s reasonable needs, measured against historical expenses, the standard of living enjoyed during the marriage, and anticipated or projected costs. In cases where a recipient spouse’s monthly living expenses reach high levels, sometimes exceeding $20,000 per month, establishing the accuracy of the historical expenses solely through the client’s own testimony is often difficult. In those situations, a family law practitioner should seriously consider using a lifestyle expert to assist the court in establishing lifestyle and reasonable living expenses.
II. LIFESTYLE EXPERT
A lifestyle expert is a person with some specialized training or expertise in accounting or financial analysis, whether from a business or personal perspective. Such an expert can be a certified public accountant or a forensic accountant, but such certifications are not required. Typically, the lifestyle expert without an accounting license will have some financial background, whether by educational training, such as a Masters in Business Administration, or through practical experience in the financial sector.
A fairly recent addition to the types of outside consultants and experts used in divorce cases is the Certified Divorce Finance Analyst. A Certified Divorce Financial Analyst is someone who has obtained certification through education and examination on the financial and tax aspects of the divorce process and has specialized knowledge of the tax ramifications of property division and support as well as the division of retirement assets. A Certified Divorce Finance Analyst, depending on the individual’s experience and qualifications, will usually qualify as a retained lifestyle expert.
III. THE ROLE OF THE LIFESTYLE EXPERT
The lifestyle expert is typically retained to prepare a projected budget or expense report for a maintenance candidate based upon the historical and projected expenses of the spouse seeking the award. Less frequently, the person opposing the award retains the expert, although this is not as common. The conclusions of the expert are presented in a written summary report that will identify the total monthly expenses broken down by category for each particular expense. Attached to the final summary report will be detailed expense reports evidencing how each monthly figure was calculated, together in some instances with corresponding footnotes if necessary to explain each figure.
The first decision to make in connection with preparing such a report is the time frame that the expert is to analyze. Because standard of living is a critical component of any maintenance award, the time period selected should be fairly representative of the parties’ lifestyle while living intact as a family unit. Therefore, a period of time prior to the date of separation should be analyzed to reflect the actual standard of living. Discussions with the client will determine what time frame best represents the parties’ historical spending. Generally, the longer the time period analyzed, the more credible the report, assuming there are not wide deviations in spending from year to year.
Once the attorney and client select the time frame, the client should provide to the expert all records that support the parties’ historical spending. Documents should include bank statements, cancelled checks, credit card statements and other appropriate and similar records that can be relied upon by the expert as the source data upon which to base conclusions. Once all of the documents have been assembled, whether by collection from the client or through appropriate discovery requests, then the information contained in the documents relating to a client’s spending should be put into a database software program such as Quicken or Quickbooks so the data can be grouped and categorized in a concise fashion for easy reference and search capability. Every transaction should then be categorized based upon the expert’s existing knowledge of the payees, any outside research or inquiries made into the nature of the expenses, discussions with the client, and details from available deposition transcripts.
After all of the data has been entered into the software program and then categorized, the expert, based upon discussions with the client and input from counsel, should determine what adjustments, if any, to make to the analysis for expenses that are non-recurring, such as capital expenditures, major improvements, and similar types of payments. Further, it may be appropriate to make certain projections for various known expenses that may be increasing or decreasing in the future, including the cost of necessary replacements. Whether to include or eliminate typical non-recurring categories of expenses such as major repairs and capital improvements will have to be determined on a case by case basis depending upon the particular facts and historical spending.
For example, in some instances it may be appropriate to estimate the replacement of a vehicle every three to five years, if that was the historical lifestyle, and build that into the analysis. On the other hand, a new roof purchased during the time frame analyzed should probably be excluded since that will not require replacement for a twenty to twenty-five year period. An example of an anticipated expense not customarily incurred during the marriage by the recipient spouse is the cost of medical insurance. Typically that is covered through the payor’s employment, but after the divorce the spouse receiving maintenance must pay that expense directly through COBRA. Under any circumstance, the expert should be careful that the assumptions and projections in the report are based on fact, not speculation.
The report should also contain a narrative portion that identifies the scope of the retention, the underlying methodology utilized in completing the assignment, the sources of information and documents relied upon, and a conclusion identifying the final opinion of the expert. This type of narrative report synthesizes the information for the judge reviewing the report, assuming it comes into evidence, and creates a degree of simplicity for the court when analyzing the process undertaken by the expert and determining the credibility of the report.
IV. WHY A LIFESTYLE EXPERT IS NECESSARY
Simply put, for a myriad of reasons, many clients with high expenses do not have a grasp on what they spend on a monthly basis. Sometimes the wage earning spouse pays all the bills and the other spouse pays only for his or her personal expenses through a credit or debit card or with cash doled out by the other spouse. Since the credit card or bank statements are received only by the payor spouse, and because receipts for cash purchases are not retained, the payee spouse has little if any knowledge of the true scope of personal spending. Further, attempts to reconstruct this information after the fact is often difficult because the non-wage earning spouse lacks the proper foundation for any such analysis.
Second, a spouse seeking a high maintenance award who testifies without the benefit of an expert is often susceptible to being attacked, impeached and discredited while on the witness stand through effective cross examination by a skilled family law practitioner. Lay witnesses who testify to complex lifestyle issues can often be led astray on cross examination. However, the retention of an expert can eliminate this potential landmine by simply having the client testify generally to the lifestyle that was led during the course of the marriage—household help, vacations, restaurants, furniture, automobiles, art purchases, and similar information. Allowing the client to testify generally to these matters and letting the specifics be handled by the expert eliminates the risk of a client not testifying credibly to genuine monthly expenses.
Third, most courts will allow experts to testify and rely upon out of court materials, even if they are hearsay statements, so long as the information is of a kind relied upon by experts in the field when performing a professionalevaluation. Thus, the expert can rely upon facts and data that may not otherwise be admissible through the client so long as experts in the field would typically rely upon those materials in arriving at their opinions or reaching inferences. Thus, presenting the information through an expert eliminates any hearsay objections that may otherwise arise based upon such data as out-of-court statements and hearsay documents such as credit card statements, bank statements, invoices, and the like. Eliminating this evidentiary hurdle can be an easy way to get the underlying data before the Court.
Last, using the lifestyle expert can result in a substantial benefit because it adds a degree of credibility to expenses that are offered through an independent witness and not through a biased client. Some judges will be skeptical of lifestyle testimony from a spouse seeking a high maintenance award and may assume the spouse is inflating expenses to try to maximize the maintenance award. Having the testimony come through the expert adds a degree of credibility that may otherwise be lacking, particularly because in most instances the expert will have experience testifying and will be better able to explain his or her opinions during direct testimony and defend those opinions against rigorous cross examination.
Adequately protecting a spouse seeking a high monthly award of maintenance predicated on a substantial lifestyle achieved during the course of the marriage may require employing the outside services of a lifestyle expert to add credibility and persuasiveness to the requested award. The cost associated with the use or retention of an expert will be justified if the judge can be presented with a logical, factually based, cogent argument as to why, given the specific circumstances of the case, the court should order a large monthly award for maintenance.