Pasternak & Fidis Reporter

May 26, 2021

Lifestyle Analysis in Divorce

In some divorces, the family law attorney may have concerns about an opposing spouse who is not forthcoming about income or the existence and value of assets.  In some cases, the attorney may need to use cash flow to establish the couple’s marital standard of living.  This article addresses these issues, highlighting a book by Tracy Coenen, Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets, Second Edition (American Bar Association 2020).

What is a Lifestyle Analysis?

Coenen defines lifestyle analysis as the “process of tabulating and analyzing the income and expenses of the parties.”  This analysis includes tracking missing documents, identifying regular and one-time family expenses, tracing cash flow, calculating gross and after-tax income and projecting future income and expenses.  A lifestyle analysis may also uncover credit card debt, loans, refinancing and assets liquidated during the marriage.

A lifestyle analysis may be useful to establish the standard of living when the divorcing couple has a high income and a lavish lifestyle.  It may be helpful for the stay-at-home spouse when the other spouse managed the family’s finances, when spending appears to exceed family income, when a spouse has, or may have, overseas assets, or when a spouse is a business owner.  The lifestyle analysis can assist counsel in developing legal strategies when alimony, child support, and division of property are at issue.

What Type of Financial Expert Conducts a Lifestyle Analysis?

In complex financial cases, it is not unusual for parties to hire a financial professional for litigation or settlement negotiations.  A financial expert may be a certified public accountant, a forensic accountant, a certified divorce financial analyst, or a financial planner.  Prior to hiring a financial professional, counsel must determine whether the expert will serve as a consulting or a testifying expert.  A consulting expert is hired in anticipation of litigation or in preparation for trial but is not expected to testify.  The consulting expert assists counsel to understand the technical financial aspects in a case, reviews and analyzes information to inform the legal strategy, and identifies red flags.  Such an expert may communicate ideas about strategy with counsel; these communications with counsel are not discoverable by the opposing party.

By contrast, a testifying expert may perform the same tasks as the consulting expert but is expected to testify in a deposition or trial.  The testifying expert’s notes, opinions, and communications are discoverable.  Counsel should proceed with caution and consider early on whether the expert’s testimony will be needed to avoid unplanned disclosure of materials and analysis.

What Documents Are Needed?

To conduct a lifestyle analysis, the lawyer will need complete disclosure of the divorcing couple’s earned and unearned income, assets, and liabilities.  Counsel may initially get information from the client-spouse to evaluate the marital estate and resources, such as: income tax returns and schedules; W-2s, K-1s, and 1099s; current pay statements; statements for checking and savings accounts, credit cards, non-retirement investments and retirement assets; house deed, current mortgage statement and recent appraisals.  Sometimes the client-spouse may not be in control of the finances and may have limited access to necessary documents.

In any event, counsel may need to seek an informal exchange of documents prior to a party filing for divorce.  In the event a lawsuit is filed, each side may require a formal document exchange (“discovery”).  A financial expert can help the attorney in formulating formal and informal discovery requests.  Cooperative counsel can reduce the time spent on discovery and thereby reduce the cost of this phase of the case.

What are the Protocols in Conducting a Lifestyle Analysis?

With the financial information in hand, the expert reviews the documents, prepares spreadsheets of the parties’ historical family expenses, current and future gross income and after-tax projections, future expenses, and a spouse’s post-divorce needs.  The financial expert then uses the data from the lifestyle analysis to determine the parties’ standard of living.

Historical and Projected Future Expenses.  The preparation of a detailed budget is at the core of an alimony or high-income child support case.  The budget forms the basis of the spouse’s support need and the payor-spouse’s ability to pay.  Generally, the budget includes customary expenses averaged over a 12-month period, if possible, with a portion allocated to the payee-spouse and a portion allocated separately to the minor children.  It includes current gross and after-tax income, and current balances for assets and liabilities.  The expert reviews the parties’ bank and credit card statements, usually over a 3-year period to capture regular and routine expenses and non-recurring expenses.  The expenses are identified, categorized by expense for the spouse and for the child, and then summarized.  The expert makes adjustments to exclude one-time or non-recurring expenses.  The historical and projected future expense analysis is useful for comparing and revising budgets and identifying questionable items in the opposing spouse’s budget.

Earned and Unearned Income.  Earned income is compensation from employment.  Unearned income includes pensions, trust distributions, interest, dividends, and capital gains.  When a spouse is not a W-2 employee, has variable income, or income is not easily ascertainable from income tax returns, the expert may need to review more documents covering a longer period, such as five years.  Income can be complicated to determine if a spouse receives executive compensation in various forms and over different vesting periods, such as employee stock purchase plans and restricted stock units.  The expert must determine whether to treat executive compensation as income or as an asset to avoid double-counting.

According to Coenen, in conducting a lifestyle analysis there are four primary methods to determine income:

  1. “specific items” summarizes and analyzes cash inflow transactions from bank, credit card and investment account statements to locate specific income sources;
  2. “bank deposits” identifies all cash deposits in bank accounts, summarizes and analyzes the total deposits excluding non-income transfers between accounts or other sources that are not income;
  3. “expenditures” traces every expense from bank, credit card, and investment account statements, and summarizes and tabulates them to determine the total income necessary to pay the expenses; and
  4. “net worth” looks at changes in an individual’s net worth and compares to known sources of income and known expenditures.

Depending on the case, the financial expert may use some combination of these methods.  The expert then reviews and determines the cash used to fund the parties’ lifestyle and whether the funds came from earned income or unearned income.  The analysis may confirm that a spouse’s after-tax income is sufficient, or not, to support the same lifestyle enjoyed before the divorce.

Resources to Fund the Lifestyle.  Some couples use only earnings to pay family expenses and fund their lifestyle.  Some may liquidate assets from non-retirement investment accounts to pay expenses.  Some couples fund their lifestyle with credit card debt or a line of credit against the equity of the marital home.  In some instances, one or both spouses have non-marital assets (gifts or inheritances) that they use to enhance their lifestyle.  What happens when a couple divorces?

The financial expert’s detailed lifestyle analysis may identify known and unknown circumstances bearing on the standard of living.  For example, the expert may find assets that are depleted or encumbered with substantial debt.  A spouse may learn for the first time that the parties’ financial situation is not what he or she believed it to be.  Even if one spouse was not fully aware of the facts, a judge could find that the parties’ standard of living is not sustainable going forward.  A court will not necessarily order an amount of support that would force the payor-spouse to liquidate non-marital assets to maintain the prior standard of living.

Where and How the Expert Finds Hidden Income and Assets?

When a spouse is self-employed, works in a family business, or is a member of an entity with real estate holdings, it can be challenging to find all amounts and sources of income and to get complete and accurate information in discovery.  The non-business owner spouse may have suspicions about the other spouse’s business dealings but may not have access to relevant information.  The protocols used in the personal lifestyle analysis may also be used by the expert to find business income and assets.  If the expert suspects understated business income, a detailed review of bank, investment and credit card statements may direct the expert to other income sources.  Specific line items in personal tax returns contain valuable information, such as interest and dividends (Schedule B), retirement plan distributions, rental income, investment income (Schedule D), and itemized deductions that may give clues to understated income, hidden or dissipated assets, and may reveal other red flags.  The expert may find information about overseas income and assets.  In this case, the client-spouse may need a private forensic investigator who specializes in finding offshore accounts.  Of course, the cost of such investigation should be balanced against the potential value of finding any assets.


Divorce is fraught with uncertainty and financial stress.  There may be anxiety over whether there is sufficient income and assets to maintain a customary lifestyle for both spouses and their children after divorce, or whether a spouse has hidden assets or income.  A financial expert to conduct a lifestyle analysis may be appropriate in some cases.  Such an expert can prepare financial reports and schedules, and make the data understandable by clients, attorneys, and judges.  In mediation, the expert can be available to answer questions regarding the parties’ income, cash flow, tax projections, and property division to assist in settlement.  In litigation, the expert can testify about his/her findings about the couple’s lifestyle as it relates to alimony, child support, and property division.