On this screen, you enter the assets and liabilities (debts) of the parties.
Financial Affidavit vs Financial Plan
Note at the top of the screen several checkboxes.
These control what fields appear at the top level, and they can make a big difference in the ease of use of the software.
In some states, you will see three checkboxes. In some states, you will see two checkboxes.
Three checkboxes
If you see three checkboxes, they are as described below:
The first check box asks if you want to show the fields for both the financial affidavit and for financial planning.
This will give you fields both for completing the financial affidavit, and for preparing to negotiate budgets, taxes, and net worth projections.
The second checkbox asks if you want to see only the Affidavit fields. Check this box if you are only preparing the financial affidavit and will not be preparing to negotiate anything else.
The third box asks if you want to see only the financial planning fields. This will omit fields that are used on the financial affidavit but are not helpful in preparing to negotiate budgets, taxes, and net worth projections.
All fields always appear at the “more info” level (green 3-dots button in the Cloud).
Two checkboxes
If you see two checkboxes, the options will be the same as the second and third checkboxes described above.
Typically, attorneys and paralegals will click the checkbox for “Financial Affidavit,” and financial planners will click the checkbox for “Financial Plan.”
Separate Property and Valuation Date
The second line of checkboxes at the top of the screen gives you the option to show or hide fields for separate property and the valuation date.
The fields are available at the “more info” level, so the only question here is whether you want to see those fields at the top level.
Asset Allocation Defaults
The third line relates to property division.
When you first enter an asset, by default, it is not allocated to either party for property division purposes.
However, this row of checkboxes allows you to automatically allocate a new asset that you create 50/50 between the parties, or to allocate the asset to match the title of the asset.
This allocation is just a default. You can change it for each asset that you enter simply by changing it.
Entering Assets and Debts
You can open and close a group of assets or debts by clicking the triangle to the left of the asset category (Real Estate, Investments, Debts, etc.).
Then click the “Add [asset name]” button to add an asset or debt.
The software allows you to prepare financial affidavits for both parties in the case. This is useful, for example, in a collaborative situation, where the same case file is being used for both parties.
Unless you specify to the contrary, the full value of each asset will carry to each party’s financial affidavit.
For each asset or debt, there will be a field to specify that you want the asset to carry only to one party’s financial affidavit. (The heading of that column will typically be “Affdvt” or similar abbreviation.)
On the “more info” (green 3-dots button in the Cloud software) screen for each asset or debt, there is a checkbox to specify that you do not want the item to carry to either party’s financial affidavit.
Sequence of Assets
After you have entered more than one asset in a particular category, you will see a little button with up and down arrows.
If you click that button, a dialog box will pop up which will allow you to change the sequence of assets within a category.
This will then change the order in which the assets in the category are listed on the Marital Property Division report or on the financial affidavit.
Real Estate and Mortgages
Click the button to add a real estate property.
At the top level, you are asked about the value, percent ownership, mortgage, and other fields.
You may enter these in any order, and leave blank the ones you do not know.
To enter more information about the asset, click “more info” (green 3-dots button in the Cloud).
To show separate property or valuation date, click the relevant checkboxes at the top of the page.
Investments, Checking Accounts, Etc.
When you identify an asset, you may use the last four digits of the account number. For the client’s security, do not enter any more than that.
Be sure to enter the “% to [party]” entry. This is how the software figures out the amount of the asset’s income to carry to the financial affidavit.
If you see an “Investment type” column, be sure to select it. That entry determines where on the financial affidavit the asset carries.
Click “more info” to enter information like the rates of return and appreciation on the asset.
Also on the “more info” screen, you can specify that an asset is a child’s asset.
A child’s asset will carry to the financial affidavit, but it will not appear on the Marital Property Division report, or any property reports in the software.
If the asset is a restricted stock option or unvested stock option, you can enter information about those options on the “more info” level.
Debts
When you identify a debt (bank debt, credit card, etc.), you may use the last four digits of the account number. For the client’s security, do not enter any more than that.
Do not enter mortgages as debts. Enter mortgages with the associated real estate property. This is so that we can correctly handle the tax impact of the mortgage interest.
In general, it is better to enter car loans as liens on the “more info” screen for the Personal Property item where you list the vehicle. Then the net value of the vehicle will flow to the financial affidavit.
Be sure to enter the “% paid by [party]” entry. This is how the software figures out the amount of the debt payment to carry to the financial affidavit.
For example, if the monthly payment on the debt is $1000, and the percent paid by Party A is 50%, then $500 will flow to the financial affidavit of Party A.
If this field is blank, then nothing will flow to the financial affidavit of Party A.
You enter the total payment and the % paid by party. That way, you can enter the monthly payment at the outset. As you negotiate who will pay the debt, you can easily change the cash flows by just entering a different “% paid by [party].”
If you see a “Debt type” column, be sure to select it. That entry determines where on the financial affidavit the asset carries.
Click “more info” to enter information like whether the debt will be paid with a bullet payment, or whether the debt has been in existence since the beginning of the year.
Personal Items & Vehicles
Typically, the % to [party] will be 100% or 0%.
If you see an “Asset Type” selection, be sure to click it. That is the way to specify where on the financial affidavit the value will carry.
If you enter a vehicle, please be sure to enter the car loan associated with the vehicle. This may show up at the top level, or you may need to click “more info” to enter it.
In general, the net value of the vehicle will flow to the financial affidavit. In some states, the total value and the lien will each flow.
IRA / 401k
At the top level, you can enter the value and contribution of each party to the IRA or 401(k).
The contribution typically does not carry to the financial affidavit, because it is not considered as an expense, but rather as a transfer of money from one pocket to another.
(With respect to the Budget Report, if you click the link at the top of the screen for options, you will see an option to include or exclude this contribution as an expense.)
If you are doing financial projections, you will definitely want to explore the “more info” screen for this asset account.
You can specify things like the amount of employer match, annual growth in contributions, current year early distributions, and regular distributions.
You can also specify an annual percentage growth in account contributions, subject to a maximum.
The software is not calculating the maximum allowable contribution either to IRA or 401(k) plan. There are so many possible types of accounts and situations that it is beyond the scope of the software to calculate them all.
We leave it to you to assure that the contributions made by the parties are within the legal limits.
If you want to understand how the IRA is growing, and then having distributions flow from it, click Reports > More Reports > Financial Planning and Budget Reports, and select the report entitled “IRA/401k Assets.”
Life Insurance
Life Insurance policies fall in two general categories: term and whole life.
The difference is that whole life has an investment component. Over time, it builds a value that can be cashed out, independently of the death of the insured individual.
Term life insurance is simply a contract that the life insurer will pay a specified amount upon the death of the insured. It does not have a value.
If the insurance is term life insurance, you may be able simply to enter the premium on the Income & Expenses page as an expense. There is no need to also enter a Life Insurance asset for a term life policy.
Business
The entries for the business are intended to help have the correct tax treatment applied to the income, as well as preparing the financial affidavit.
For this reason, you specify a business type (sole proprietorship, partnership, etc.), as well as value and other factors.
For a business, you enter two allocations: a % ownership (party ownership percentage of marital equity) and a % of income (percent of the business’s net income that is being kept by a party).
This is because often the income of a business is distributed differently than the ownership.
The software is also automatically preparing the pass-thru income tax deduction. You can see that worked out on the “more info” page for the business.
If the business will be sold, you can specify that and the relevant information about the terms of the sale on the “more info” page.
Defined Benefit Pensions
The software can value a defined benefit pension.
Its valuation is actuarially precise. As long as the pension is of a straightforward variety, the software’s valuation is as good as a valuation from an outside appraiser.
By “straightforward,” we mean that the pension is paid starting at a specific date, continuing for the life of the individual, and increasing by a cost of living adjustment (which may be zero).
The valuation can also handle varying discount rates.
Enter the person who owns the plan (the participant) at the top level, then click “more info.”
If you want to use an outside valuation, click the link at the top labeled “Outside Valuation.”
Click all the links and help buttons. They will answer many questions you may have.
There are also many explanatory links at the bottom of the screen.
Here are some tips:
- The “retirement date” is really asking for the date that the pension will start paying.
- The value is completely independent of the coverture fraction (the percent of the pension’s value that was earned during the marriage).
- The value tells you what a pension is worth. The coverture fraction tells you how that value might be divided between the parties.
- If the party has already left the company, but has not yet reached retirement age, there is help in the software that explains what to do, in the section on the Coverture Calculation, on the line for the “cut off date.”
Property Settlement
A property settlement is a result of the parties’ negotiation. One party agrees to pay the other party a sum of money, possibly over a period of time, to settle the property negotiation.
For that reason, it is called a Property Settlement.
A property settlement is not tax-deductible to the payer, and it is not included in income of the recipient.
Typically, property settlements are paid over time, so you specify the number of years and interest rate.
If the payment is all being paid in one year, enter the year as the Start Year, enter the number of years as one, and enter the interest rate as zero.
The amount that you enter as a Property Settlement will appear on the Marital Property Division report, as an asset of the recipient and an obligation of the payer.
If you specify that the Property Settlement is a Reimbursement, everything is the same except for how it appears on the Marital Property Division report. Reimbursements are not counted towards the equalization amount on the marital property division report. They are listed separately at the bottom.
You also have an option to exclude this income from the software’s Budget Reports, and to exclude the income from the software’s Net Worth projections.
Both of these options are checkboxes on the Property Settlement screen.