Avoiding Costly Mistakes: Common Financial Document Errors in Divorce Proceedings
Divorce can be one of the most financially vulnerable times in a person’s life. Unfortunately, financial documents are often riddled with errors, misinterpretations, or incomplete information that can have long-term consequences on settlements and financial stability.
Certified Divorce Financial Analysts (CDFAs) are uniquely positioned to catch and correct these oversights before they become costly mistakes. Below are some of the most common financial errors in divorce cases and how a CDFA can help resolve them.
1. Double Counting of Expenses and Debts
A frequent issue is the duplication of expenses or liabilities across financial disclosures. This often includes:
Joint expenses appearing in both parties’ monthly budgets
Credit card debts or loan obligations listed more than once
Items incorrectly listed as both a liability and a recurring expense
This type of error inflates financial need and can result in inaccurate support calculations or unequal asset division. A CDFA reviews each line item to ensure every figure is accounted for correctly and only once.
2. Misinterpretation of Tax Returns
Tax returns can be misread without a trained eye. Common errors include:
Misreporting business income, losses, or deductions
Treating tax refunds as new income without considering overpayments
Overlooking capital gains, passive income, or carryovers from prior years
A CDFA can decode tax filings to identify actual income, track patterns, and distinguish between one-time events and ongoing financial trends.
3. Inaccurate Valuation of Retirement Accounts
Retirement assets are complex and often misunderstood. Errors include:
Using the gross value of 401(k), IRA, or pensions without adjusting for taxes
Ignoring vesting schedules, matching contributions, or post-separation accruals
Valuing defined benefit pensions using outdated or overly simplistic methods
CDFAs use specialized tools and work with actuaries when necessary to provide accurate present values and ensure proper division using QDROs or other legal mechanisms.
4. Failure to Consider Cost Basis and Tax Implications
Assets such as real estate, brokerage accounts, or business interests may appear equal in value but differ significantly once tax consequences are factored in. For instance:
Appreciated stocks may carry substantial capital gains taxes
A home with high equity may have limited liquidity or tax advantages
CDFAs help assess the after-tax value of each asset to support fair and informed negotiation.
5. Overlooking Deferred Compensation or Executive Benefits
High-income earners may receive compensation packages that extend beyond regular W-2 wages. These often include:
Restricted stock units (RSUs)
Stock options or performance-based bonuses
Deferred compensation plans or supplemental retirement benefits
CDFAs review pay stubs, benefit summaries, and employment agreements to uncover hidden assets and determine how and when they should be divided.
6. Confusion Between Separate and Marital Property
Dividing property requires clarity around what is considered marital versus separate. Common challenges include:
Contributions to retirement accounts made before the marriage
Inheritances or gifts that were commingled with joint assets
Properties with changing title designations
CDFAs conduct tracing analyses to determine the source of funds, apportion growth accurately, and separate what belongs to each party.
How a CDFA Can Help
Reviews and corrects financial disclosures for accuracy and completeness
Clarifies tax implications and long-term impacts of asset division
Ensures retirement accounts and pensions are properly valued and divided
Provides expert insight to support equitable negotiations and informed decisions
Conclusion
Financial documents play a critical role in divorce outcomes. Inaccuracies can lead to unequal settlements, long-term financial imbalance, and unnecessary litigation. Working with a CDFA brings a layer of expertise that protects clients from common missteps and supports a smoother, more informed divorce process.