Modeling a Settlement Proposal

Case study: Modeling a Settlement Proposal

Client Description:

Matrimonial case involving the modeling of a settlement proposal for the court and testimony as to whether the wife would be able to provide for her needs using the equitable distribution awarded to her persuant to the husband’s proposal.

Key issues:

• We needed to quantify the lifestyle of the wife prior to the separation.
• We needed to identify the assets and the related tax basis of the assets that the husband was proposing to provide to the wife.
• We needed to determine the actuarial remaining life of the wife so that we could determine if her finances would hold out over the balance of her life, as inflation would erode her principal even if she could support herself for one year.
• We needed to determine the cost of alternative housing, assuming that the wife relocated to a smaller residence in the neighborhood where she currently lived.

Methodology/strategy:

• We needed to be objective, as our client was clearly biased against the wife, and we would be testifying so it was critical that we not be the mouthpiece for our client.
• We would need to get independent appraisals for alternative condo, coops and rental apartments.
• We would need to factor in social security benefits and the ability to invade retirement assets at the appropriate age.
• We would need to determine an appropriate yield that a non-income-producing person could yield on the portfolio and retirement assets that she would receive under the husband’s proposal.
• We needed to understand her health and her life expectancy.
• We needed to build in the effects of medical costs escalating as well as the costs of inflation in general.
• We needed to factor in the tax effect of all of approximately 20 years into the equation.

Significant findings:

• We found that the lifestyle was supportable based on a replacement residence in the same neighborhood and based on the husband’s proposal.
• We testified a trial under heavy cross-examination of modeling that covered 20 years with an enormous amount of assumptions.
• We were requested to redo our report at the trial due to an error by our client’s attorney relative to a critical assumption.
• We redid the modeling and continued a few weeks later in testifying.

Results:

The husband’s proposal was found acceptable to the judge, and an appropriate award of equitable distribution was made based on that proposal.

ParenteBeard LLC. is a firm of Certified Public Accountants and Business Consultants in New York City.