Financial Discovery in Divorce: What Most People Miss Before Settlement

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Welcome to WeChat Divorce, hosted by Karen Chellew, Legal Liaison and Catherine Shanahan, CDFA.

Each episode we sit down with divorce professionals and industry experts to provide insights and frank discussions about real people, real situations, and real divorce to help you achieve your best life post divorce.

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This episode of We Chat Divorce is brought to you by My Divorce Solution, offering divorce financial planning so clients can secure the divorce settlement they deserve.

Visit azure-emu-499854.hostingersite.com/ to request access.

Welcome back to Divorce Explored at We Chat Divorce.

0:44

I’m Karen Chellew.

I’m here with Catherine Shanahan and we’re Co host of We Chat Divorce.

I want to start today with something that happened with a client recently and it’s something we see all the time.

This client had been through months of back and forth with her spouse about the house, retirement accounts and support.

1:02

And finally she came to us.

And within the first few weeks of building her financial portrait, we found two retirement accounts that had never come up in any of the negotiations with her spouse or her attorney.

Accounts that change the entire picture.

This happened to be a great divorce situation.

1:21

And that’s what today’s episode is all about.

Financial discovery before divorce settlement, what it actually means, why it matters, and what happens when it doesn’t happen.

Catherine Shanahan, who I’m here with, is our CDFA and Co founder and she lives in this work every day.

1:40

But Catherine, before we get into the mechanics, what’s the version of this story you see most often when accounts aren’t disclosed before couples start negotiating?

Well, I have really two perspectives here. 1 is someone intentionally leaves out a retirement account and they’re hoping nobody finds it.

2:04

And the other is they didn’t intentionally leave it out, they forgot about it.

Because when you’re married 30 plus years, often times someone changes their career or move to a different company and they forgot about an old 4-O1K that was existing or they rolled it over and forgot about it.

2:23

So, you know, let’s always give someone the benefit of the doubt, but you have to be aware of, you know, asking for documentation, you know, think about past employers, think about OK, did we roll that over?

2:38

Yes, we did.

And did we spend any of that?

You know, yesterday I was on with a client and her attorney and she found, you know, statements from 2013 two thousand and 22,000 and 15 like way back, and the attorney was like, we’re not going for that.

2:55

You know, we can’t go back that far, but you know, the recent one of the 2020, she really had a valid point because there was, you know, almost $1,000,000 sitting in that account back in 2020.

So the question is where did the money go and why not ask the other side before you have to go through the whole litigation of financial discovery.

3:18

So the attorney is going to ask the other side and see what they came up with.

But so to to this client’s point, she seems irrational at times, but you know, I give her a lot of credit for sticking in there and finding something and then letting us get on a call and ask the attorney to get additional information there.

3:37

And maybe they’ll come up.

Nothing.

Because they did have a history of spending their retirement account or taking withdrawals, I should say, from their retirement account throughout their marriage.

So they could have taken it without her realizing what their cost of living really was during all those years.

3:53

But, you know, I credit her for getting that information and having the courage to bring it up to the attorney.

You know, I did say I would help lean in with her.

And so it’s always helpful when somebody’s with you.

But it was a good, it was a good lesson for her.

4:10

And it was good for the attorney to agree to reach out to the other side.

For sure.

And that is exactly what we’re talking about today, financial discovery before divorce settlement, what it actually is and why it matters.

So let’s start with the basics, and I think you just mentioned the basics.

4:28

A lot of times clients have suspicions or concern about different accounts, but their ability to articulate it to their attorney or mediator in a way that can be heard and processed and not shut down happen so often.

4:46

And so let’s make sure everyone listening understands what we mean when we talk about financial discovery.

It sounds technical, right?

Maybe it is, maybe it isn’t, but it’s really something very practical.

So let’s walk through that.

Yes.

5:01

So you would think it’s common sense financial discovery where everyone is transparent with their information.

But you know, through our process that is our goal that you have that transparency, but it doesn’t happen.

So financial discovery is the process of identifying, organizing, and verifying all financial information in a divorce.

5:19

That includes assets, debts, all income sources and expenses.

The full picture, the keyword is verifying.

For us, though, it’s not just collecting the documents, it’s confirming that what you have is accurate and complete because a lot of information gets lost in the details.

5:39

Many divorces involve complex financial issue issues such as retirement accounts, real estate, business interest, executive compensation, and investment portfolios.

And that’s a big one that I’d like to just share a little story about investment portfolios.

5:54

You know, client last week husband was proposing that he bought her out of the marital home with their investment portfolio and that would be an even trade.

Well, what he didn’t go over is the details of that investment portfolio.

6:10

It’s that portfolio is invested in one stock that carries a cost basis that will, if she goes to liquidate that money, she will be paying a large percentage of that in taxes.

So it really wasn’t comparing apples to apples, but you just look at a brokerage statement and most people do, even her own attorney, because I got on the call with the attorney and said my concern here is if she takes this asset, she’s also taking the tax ramification of this asset.

6:37

And so the attorney was thankful for the information and she was also thankful.

So it was OK if you want to keep it, but you need maybe 30% more than what the actual value is.

And you know, Catherine, we find out or we discover these things with the client in, in just part of our process.

6:58

We, you know, we start with the income and expenses.

We, we look at the details of income.

We look at the details of your expenses and not just how you interpret your expenses or translate them.

It’s how the courts look at them because sometimes you’re disclosing your need and sometimes you’re, you know, it’s your ability to pay and that’s so important and you can get stuck.

7:24

And if that’s part of the financial discovery, another part is going through your account statement to identify exactly what you said.

What type of account is this?

What type of tax impacts do you need to consider?

How is your real estate owned?

What liens are against the property?

7:41

How is your business owned?

Where’s the documents?

Let’s look at the tax returns.

How often do we find accounts on tax returns that no one’s ever disclosed before?

So financial discovery is really about making sure everyone understands the full financial landscape before decisions are made.

7:59

Because once negotiations begin, people are making decisions about things like the house, retirement accounts, support and their long term financial security.

And if the financial information is incomplete, as we see every single day, or unverified, those decisions may not reflect what’s actually true.

8:20

So let’s move into why financial discovery matters before settlement.

One of the things we talk about is that divorce is ultimately a series of financial decisions.

But many people don’t realize how risky it can be to negotiate before the financial information is fully organized again, how often do we hear, Well, we’re fairly simple.

8:42

We hear that over and over and over again.

And one weekend to our relationship with them, all of a sudden you have nuances and complexities that no one ever considered.

So, Catherine, why is it so important to complete the financial discovery before settlement negotiations begin?

9:00

Well, knowing that I’m the one that goes in there and helps with division scenarios, it is really frustrating for me when somebody wants to go through division scenarios and we do not have all the information because how do you negotiate something without knowing what else needs to be considered?

9:16

Many people are just not fully aware of all the accounts of the assets.

And although something’s identified, they’re assuming there’s nothing in there just because we don’t have a statement.

Well, you have to get the statements, you know.

So I’m thinking of someone right now, and I’m a little bit lost.

9:32

My train of thought.

Oh, my gosh, this just happened the other day.

And I was thinking when you were speaking, Karen.

That happens a lot.

Oh my gosh.

Well anyway, it prevents missing ass.

We want to prevent missing assets, right?

We want to prevent negotiating with incorrect numbers.

9:51

That’s another big one, especially with homes.

Now, it’s not so easy to unravel your marital home.

And oftentimes it’s the largest asset that you own.

So it’s it’s, you know, you’re going to pay rent somewhere, but it’s higher than what your mortgage payment was.

10:06

So you’re assuming you should just keep the house.

But then when you look at the spreadsheet or our financial portrait, you see that you just gave away all your retirement money and you’re and you’re close to retirement.

So it’s really hard to replace your retirement money growing tax deferred and be house poor.

10:24

How do you plan for your retirement with that?

So we want to prevent negotiating with those incorrect numbers.

We also want to identify complex financial issues.

You know, I talked a little bit about it before with knowing that you’re taking a stock based account that probably has the cost basis that you need to consider.

10:43

Same thing with executive compensation.

A lot of people look at it differently.

Is it the grant date that makes it marital?

Is it the best date that makes it marital?

You know, these things need to be confirmed before you just say, oh, you can keep that to your spouse or I want that to your spouse.

10:59

You know, that’s why I like when we get on with the attorney so we get the legal perspective before we figure out the financial impact supports more efficient negotiations.

You know, there’s nothing more powerful than being financially clear and having the transparency of your information that gives you the confidence, confidence to negotiate.

11:21

Otherwise, you’re in there negotiating off of emotions and the judge, the mediator, your attorneys really at the when they get to negotiating, they don’t want to know about your emotions.

They want you to be clear and know that you could be confident in the decision you make because you will be compromising at some point in the negotiation.

11:39

That’s so true.

When, you know, I, I want to talk about a couple I spoke with just this week where, you know, they really felt that their financial portfolio was fairly straight up and they had, however they did, they did have 4 real estate holdings.

11:57

And you know, I said, well, how confident are you on the valuations here that they weren’t that confident?

And then one of them mentioned, and we also invest in real estate.

And I said, how confident do you feel about those valuations?

Do you get annual reports from the, you know, the company that’s managing these real estate investments?

12:18

He said, well, we get AK 1.

And I said, well, isn’t your K1 typically just for tax purposes, paying your income tax?

He said, yeah, I think so.

I said, so let’s just put you in a scenario where you’re in front of an attorney tomorrow with the same discussion.

12:35

The attorney will immediately say go hire a forensic and $50,000 later you’re no for, you know, you’re no further down the road.

Let’s take the time and unpack these assets, determine what we know, what we don’t know, ask the good questions and then move forward if you need valuations or not or if we can get them from your own resources that you both have internally.

12:58

So that is what we’re describing, financial clarity before settlement.

Well, Karen, let me just bring up that K1 again that you mentioned.

We’ve seen multiple times in the last six months how an an attorney or a client values the business based on the what’s said on the K1.

13:20

Or the bank account balance.

Let’s not forget about that.

That is not the value to your company, so you need additional information before you can negotiate that asset.

Exactly that space between gathering documents and sitting down to negotiate exists exactly where NDS works.

13:38

Most people don’t realize it exists as a distinct step and honestly, that is why we built my divorce solution the way we did.

So Catherine, a question we get often is when people are trying to put together their professional team and they’re trying to determine who does what.

14:01

So a question we get is where does NDS fit into all that?

But, and that’s a really great question, Catherine, let’s walk through that, how the team works together.

Well, it’s really important to know that you do need a team, right?

14:16

You do need financial experts.

You do need attorneys.

You do need to have this clarity that you need.

You need your accountant.

Probably at some point you may even need your coach throughout the process.

But it’s what capacity, what is the scope of all of those professionals?

14:34

For example, with the attorneys, they provide legal advice and legal strategy.

But how do you know the right attorney if you’re not organized, if you’re not prepared?

All attorneys have specialties.

You know, you’ll say this is a great attorney who’s great with child custody.

This is a great attorney who’s great with complex issues.

14:52

You know, this is a great litigating attorney.

You know, this is a great meet collaborative attorney.

This is a great attorney who’s a mediator, you know, But what is, if you don’t have your portrait together, which is what we do, which is preparing you for all your other professionals, then how do you know what attorney to actually hire?

15:11

Accountants, the same thing.

You know, the accountants we hear a lot, Oh, the accountant won’t talk to me.

They’re only talking to my spouse now, which is always.

Interesting comment, Karen.

How many times do we hear that?

Every week.

Yeah, every week, yeah.

You’re filing your tax return jointly, You’ve signed the last 10 years jointly, and now all of a sudden your accountant doesn’t want to talk to you or provide you with the data.

15:33

That’s a problem.

So when you’re financially clear, for example, again with our portrait, you’re confident because you have knowledge there and you’re going to ask that accountant smart questions.

We always know what questions to ask.

And when you ask them a smart question and not an emotionally driven question, they will respond to you very differently.

15:52

Same thing with financial planners.

I mean, we just got this from an assessment.

They, their financial planner made sure they’re financially clear.

So my question was, OK, why did they call us in the 1st place?

And second of all, I love financial planners.

16:07

I used to be one, right?

But a financial planner, first of all, they’re, they’re making money off of you already.

So even though you’re think you’re meeting with them for free, I’m sure there’s a percentage that you’re paying.

It’s usually the basis point, which is usually like 1%.

So they have that, their eyes on that, but their role is to help you move forward with your life.

16:30

And yes, they can make sure that you’re clear on the investments that your portfolio holds currently.

Of course, that’s what they do and they’re great at that, but they’re not negotiating for you.

They don’t know the overall structure.

So when you come in and go come through our process, we’re collecting all the data, the documents it’s housed here that that you can share with anyone, any of the professionals that we’re talking about.

16:53

Most importantly, your attorney, you do your income and expenses.

Your financial planner typically isn’t doing that.

I know when I was a financial planner and actually still now as a CDFAI, don’t, I don’t like doing income, expenses, income and expenses.

In our firm, there’s another role that does that, but they’re not going through an overall negotiation with you.

17:15

They’re usually hired to do 1 task that the attorney hires them to do or two tasks and they’re there to help you with questions about cost basis and all of that, but they’re not your negotiators.

So I just want to mention something there because I think a lot of people do confuse accountants, financial planners with financial clarity.

17:36

And while they do provide financial clarity in their area of expertise, it’s not in the midst of determining what is marital, what is separate, what’s the financial impact of that portion of the pie, as we say that you’re dividing.

17:53

And so the particular client that you were talking about or that we were talking about earlier, you know, stated, well, my financial planner who I have known and work for for many years has given me a clear understanding of where I stand in the event we divorce.

18:10

That’s a lot of presumption because you are basing that on what you think you would walk away with and what your financial planner thinks you would walk away with.

And that skips everything in the middle.

That can change drastically if you don’t understand how the courts look at the division of your marital property.

18:33

It’s true.

And some of my favorite conversations are with our clients, financial planners.

We we don’t exclude them from the process.

We get a lot of valuable information from them that will help you in your overall negotiation.

But their role is not to sit in the middle of your negotiation in most cases, right?

18:50

So yes, where, where we sit is right in the middle of that process.

You know, we focus on organizing, verifying and analyzing the financial information that supports your divorce negotiations.

We turn stacks of financial documents into really clear financial picture for you because it’s confusing for most people that allows your attorneys and your accountants and your financial planners to do their work more efficiently.

19:16

Again, it’s it’s transparency of all the information is what you really.

Need and that transparency allows for very effective negotiations.

So, Catherine, that’s a really helpful way to look at it.

Divorce often involves several professionals, sometimes many professionals, but each one focuses on a different part of the puzzle.

19:37

Financial discovery is really about organizing and understanding the financial landscape before settlement negotiations begin.

And when that work is done well, it helps everyone involved, including the attorneys and financial professionals, focus on the decisions that actually need to be made.

19:57

So we’ve talked about some of the challenges people actually encounter.

Do we want to go over any more of the common issues we see people?

Kind of.

Experiencing hiccups during financial discovery.

I mean there are a couple that come to mind.

20:13

For example, incomplete documentation, meaning incomplete statements.

You know, someone will give page 2 of 10, page 5 and 6 of 30 pages.

So or they’ll white out information, you know, So you you need to know to ask for the complete statement.

20:31

Even if some of the information on those pages are useless information like this, they’re disclaimers or what have you, it’s still important to know that you have the entire document and not all assets are obvious.

So a lot of times I see a pay statement.

Yes, they gave their pay statement, but they gave March’s pay statement or they gave February’s pay statement, you know, or they say, oh, we got all the W twos.

20:55

So a, a one month pay statement does not give you all the information.

AW2 does not give you all the information.

There could be stock options, partnership interests, forgotten accounts, you know it, there’s a lot of information that you need year end statements, you need additional maybe employment packages.

21:17

So you don’t just settle on thinking, OK, I got this information.

Oh, another one was this week.

You know, attorney just sent over the documents that the other side produced to them.

And I looked and the spouse did a went online, did a drop down, picked his own years 2017 to 2018.

21:37

We’re like what?

Or 2024 to 2025?

Well, what about current, You know, so you could pick what you want.

And it was a stack of papers.

So the attorney was like, well, he responded, well, yeah, he responded with what he wanted to respond with.

21:53

And it looks like he’s cooperating because you got a stack of papers.

Most of the information we could not use.

Oh my gosh, we see that all the time, All the time.

And so that essentially means that they’ve answered discovery in a litigation process, right?

22:10

So the only way to enforce a full answer is to ask again for more complete responses.

And then you have to file motions.

Whereas if you just go through a structured process and have that transparency of this is what we need and we’re all focused on that and not the litigation procedures and mandates, which creates so much confusion, confusion and chaos.

22:39

You’ll get a more clear financial picture.

And then you know what to spend money on in subpoenas and other more formal discovery when you know what you have and you know what you need to make very informed decision.

22:55

Well, you also don’t sound crazy, right?

So client says, OK, I just got this from the attorney.

She didn’t know why she forgot to send it to me.

We’re getting on the call.

I don’t have enough time to fully look at the whole thing except for I noticed the date and I said, OK, let’s pull up the date.

And so I said, when we get on with your attorney, we’re going to point that date out and see if she thinks that’s efficient.

23:16

Well, she never looked at it because she never noticed the date.

So of course, when she saw that the attorney, she said, Oh yeah, I’ll ask for more current information.

But you know the client who is a very emotional and I agree that she is emotional.

And a lot of times attorneys are dealing with emotional clients that are trying to search for things that will never come up.

23:35

I get that.

But she had this statement that he just produced.

But because she pointed it out, by just pointing out the data on that statement, she sounded logical, right?

She sounded like, listen, I just want their complete information, not the state that he just chose to pick.

23:53

Oh my goodness.

And I’m just going to comment on when clients feel like the response they’re getting from their attorneys that they’re crazy, right?

Because as a client, you can say, well, you know, my spouse did this or they moved money from here to there and that you’re speaking from an emotional space because that’s honestly the only space that you have, right?

24:17

Because we are experts for a reason, right?

I call that transaction chasing.

And so your attorney, the only response they can give you is OK, we’ll go ask for it, we’ll go subpoena because that’s that’s what you think is going to resolve the issue.

24:35

However, so many times when we’re able to gather the documents of what you do have access to, we say let’s start with what you know and what you have.

We can lay the groundwork for the additional documents needed or how to frame out the valuation of that particular asset.

24:55

And maybe it’s not by chasing all of the transactions.

Maybe it’s by looking at other reports that will give the same information that you need to make informed decisions.

So there end lies the ability to get to what you need in a way that’s very productive and efficient and effective.

25:20

While we’re talking about this, let’s talk about expenses because this is another thing that came up this week with a client.

They were going to mediation a couple of months ago.

We had her prepared.

She got her reports from the portrait.

Mediation was postponed.

Something happened in between then and now and I got on with her yesterday to go over husband’s proposal for her to give a counter proposal.

25:47

And in all of that attorney says I need your updated expenses now as if you’re moving out to support a support number that they already determined.

So is this just more busy work?

It’s the attorney forgot.

They forgot where they left off.

26:03

That happens all the.

Time.

Frustrating, I know.

It is, and those details can significantly affect the financial outcome of divorce in that particular case.

That case could have pivoted unintentionally just because somebody forgot, right?

26:19

Attorneys are handling hundreds of cases at a time, and so for them to have their eye on those very finite details is very difficult.

So, you know, when assets, income or expenses are misunderstood or forgotten, even unintentionally, settlement proposals may not reflect the real financial situation.

26:41

And that’s what makes this verification piece so important, because it stays in its structured format the entire time.

It’s not all over a law office or in files that no one can find it.

26:57

It really stays in the space that you can refer back and move forward.

Oh my God, how many times are you?

I was telling my friends about this, how many times we’re on the call with an attorney and I happen to be on there as well.

And they asked for the same document that has been given to them by not only us, but by the client.

27:18

Even the client looks at us like, are you kidding me?

And you pull it up from our port, our portal, within seconds.

I I almost have to bite my lips not to laugh out loud, but it happens all the time.

It does.

It’s very routine.

27:34

And then people wonder why they’re so frustrated.

Because your attorneys aren’t your financial help, right?

They’re your legal help.

And for them to have to keep track of all of your financial is is very difficult.

And honestly, if you’re listening, it doesn’t matter the size of your state, the complexity of your state that this is the way it is, which is why you have to be really prepared and informed so that you can navigate your process along with your attorney and or mediator.

28:04

So Catherine, before we wrap up, what is the most important thing someone listening right now should take away from our financial discovery and divorce conversation today?

Oh boy, get prepared.

You know, they say knowledge is power, but in divorce, knowledge is absolutely everything.

28:24

If you don’t have knowledge, you’re going to get taken advantage of to some degree and you will not feel confident.

And if you’re not confident, it’s really hard to be in a negotiation.

Even if you’re not the one speaking you have.

The only way you’re confident is by being informed and then you’re able to navigate to the process and also being prepared at what I love about our process is being prepared.

28:48

You know what other professionals you need you and then we have the data already.

Only given the data one time.

You know, you know how to follow up more efficiently because it’s all right there in front of you.

You can stand behind your numbers, which is so empowering.

29:04

You know your expenses because you do the hard work of actually going through that.

Nobody likes doing their budget or lifestyle analysis with us.

Who who likes doing that, however, except for Cameron.

I love it.

Oh my God, when she had to do mine, I was like, please, no, I can’t do this.

29:23

But but you have to know those numbers because it supports any kind of potential alimony, spousal support that you may get, even even if it’s temporary.

So for me, it’s about being prepared and even knowing what you don’t know, knowing what we don’t have access to will also lead you down the path in a better way.

29:42

Because again, I’m going to say you’re going to compromise somewhere, but if you compromise too soon, too early, you could be leaving a lot of money on the table.

Divorce is often described as a legal process, but the consequences are largely financial, and they can affect decades of your future future stability.

30:03

Taking the time to organize, verify, and understand your financial information before settlement negotiations isn’t just a good idea, it’s the foundation of making good decisions.

Financial discovery is not a bonus step, it is the foundation.

30:21

And that’s why we built my Divorce solution to do that.

Give people financial clarity before settlement so decisions are made on facts, not assumptions.

Thank you for joining us on this episode of Divorce Explored.

If you found this helpful, please subscribe and share it with someone going through divorce who could benefit from understanding the financial side of this process.

30:43

Thank you for joining us and we’ll see you on the next Divorce Explored.

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31:11

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