Post Separation Accounting
The goal of this work is to determine how community money available at the date of separation was spent and whether one party owes anything to the other as a result of it.
From an accounting point of view this work often appears not to be worth the time, effort and money spent on it. Nevertheless, there usually is another, intangible, value to it, which is the proof that neither of the divorcing spouses benefited at the expense of the other.
Post separation accounting covers the period of time between the date of separation and the time when various agreements related to bank accounts, support, housing arrangements and payments of various expenses for the children are reached. This period may span between several month and a year or even more. After a long marriage, the separation of a joint household in two separate homes is neither quick, nor easy, especially when children are present. During this time both parties may continue using joint accounts, the bread earner continues to deposit all or part of his/her earnings into the joint account, the parent having the largest time share with the children continues living in the family residence and often there is no support order in place for a while.
To prepare post separation accounting, one needs to start with identifying community bank accounts and credit cards open at the date of separation and used by each party afterwards. Every transaction in these accounts will need to be analyzed and characterized as community(joint) or separate item of one of the parties.
Examples of community items are: income from a jointly owned rental, expenses for mortgage and property tax on a family residence, expenses on children’s education and activities. Employment income earned after the date of separation, utilities and living expenses of each party are examples of separate items.
Once the accounts are analyzed, a summary is prepared to calculate if any of the parties has reimbursement claims for expenses paid for the other’s benefit. It often happens that such reimbursement claims are less in amount than the support that would have been payable, had the support order been in place from the date of separation.
Post separation accounting is one of the very few assignments where a client can substantially reduce the amount of time (and money) needed to accomplish it. Because post separation accounting requires relatively recent documents, if the client can provide downloads of transactions from the bank and credit card accounts together with the statements, the need for manual data entry can be eliminated and thus the work can be expedited. Most banks allow downloads of the latest 6 months of data only, so it is a good idea to think about the possible need for post separation accounting from the beginning of the divorce process and to start accumulating downloads of transaction sooner rather than later.
Copyright: Irina Anissimova, CPA, CFF, 2015