Prior to Divorce, Savings Is a Lifestyle Choice for Many

The issue of “savings component” as part of a lifestyle (i.e., Crews) analysis continues to befuddle attorneys, experts and the courts, and is especially controversial in pendente lite and limited duration alimony contexts.  Notwithstanding that our case information statements have for years contained a separate line item for “Savings,” judges sometimes provide for continued savings components in pendente lite support court orders, and notwithstanding the lack of authority supporting a more constrained application of the savings component concept, some posture that a savings component does not apply in limited duration cases or in a pendente lite context.  On the other hand, the concept of maintaining the status quo lifestyle choices (i.e., to spend more or save more) in conjunction with a very limited amount of guidance is cited by those favoring an expansive view of savings in a lifestyle/pendente lite/alimony context.  The reality is that some judges do recognize a savings component for purposes of pendente lite support and in limited duration cases, and until clear authority to the contrary emerges, the trend is for a more expansive view.

After it is established that a savings component should be considered, there are a number of financial factors that the courts will consider in quantifying the extent to which a savings component applies since no bright-line list exists:  1) spending and financial needs of both spouses post-complaint (excluding savings); 2) available after-tax earned income of both spouses; and 3) the expected after-tax available investment income of the parties.  Moreover, while some posture that the supported spouse’s earnings potential and investment returns should be considered dollar-for-dollar in the analysis, the reality is that the relative post-complaint earnings potential and investment returns of both spouses will likely be considered, so, for example, where the supporting spouse has an annual earnings potential of $2 million and the supported spouse’s earnings potential is only $50,000, it cannot be assumed that the court will blindly apply a $50,000 reduction in support.

Cipolla is frequently a court-appointed neutral, acting, in effect, as a consultant to the court, which sometimes leads to an expert report and related testimony when the non-neutral financial forensic experts are far apart in terms of their opinions and conclusions.  We perform this forensic accounting function in business divorce, matrimonial, commercial litigation, fraud investigations (including white-collar and tax investigations) and personal injury claims, as well as in Bankruptcy Court and insolvency proceedings.  With respect to matrimonial litigation, we frequently value businesses and perform income and lifestyle analysis, including a savings component, to help determine alimony (including changed circumstances) and pendente lite support.  We also frequently conduct net worth analysis and asset tracing to determine exempt or immune assets for purposes of equitable distribution.

Cipolla has been involved with tax and white-collar criminal defense, forensic accounting, valuation and damages assessment for over three decades and, according to the New Jersey Law Journal readership survey, was recognized as the best matrimonial financial expert, the best economic damages accounting firm, and one of the top forensic accounting firms in the New York Metropolitan area.  At Cipolla & Co., “we peel the onion” to provide thoughtful, comprehensive and thoroughly researched opinions and conclusions.

 For more information contact: Joseph P. Cipolla, Jr. CPA/ABV/CFF/PFS, CFE