Financial modeling in divorce

Financial modeling in divorce is a tool that was enhanced with the advent of Collaborative Law in the early 2000’s. Financial modeling reports quantify the cash flow and net worth of both parties under a variety of property settlement scenarios. For example, you are a family with two children, married 15 years, husband earns $250,000 per year and the wife is a homemaker. The community estate is valued at $1.5 million. Financial modeling helps determine how the assets should be split and how much maintenance should be paid to the wife.

Financial modeling helps quantify the financial position of the parties under different property settlement options

Financial modeling takes into account the post-divorce budget for both parties, the types of assets held by the community (cash, real estate, retirement plans, etc.) and the earning abilities of the parties. The financial modeling process helps educate both sides as to the financial results (cash flows and net worth) of various divorce settlement ideas.

When people first contemplate divorce, they may have no idea how they can financially sustain two households. Using cash flow and net worth reports, a plan can be formulated that benefits both parties. The use of these reports can greatly reduce the stress associated with divorce.

Financial education is another benefit to financial modeling

Generally, either the husband or wife is the main financial operator in the marriage. In other words, one party is familiar with all the financial issues and the other is usually unaware of the financial issues. Financial modeling helps the unknowing spouse better understand the financial doings of the marriage. In addition, working through the financial modeling process will help empower that spouse. Knowledge of the marriage finances helps the unknowing spouse make a better-informed decision regarding the property settlement options.