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A New Way to Look at Lifestyle Analysis
Lifestyle analysis is primarily used to establish the historical pre-divorce standard of living for determining spousal support. Additionally, the courts consider the future needs of the supported spouse and the ability of the supporting spouse to provide for those needs. The courts also know that two households cannot live as cheaply as one and often there are not enough assets or cash flow from the supporting spouse to provide a pre-divorce lifestyle for either party. Historical lifestyle is certainly a consideration, but the reality is that the supported spouse has to convince the court they have a need for support, and those needs are reasonable.
When the supported spouse completes their Affidavit of Financial Information (AFI) they are projecting what they think they are going to need to live the way they want to live or lived during the marriage. If the separation has been a long period of time, the supported spouse may have actual expenses upon which to base their AFI spending needs. However, most supported spouses are "shooting from the hip" with less actual spending experience and simply projecting what they want to spend or had spent in the past.
In the past, CDFAs would be hired to analyze AFI cash flows and give their professional opinion on the reasonableness of the expenses and needs. Certainly, using historical lifestyle spending as a guide to future needs was considered. But is the marital lifestyle replicable post-divorce?
Assuming the Husband is the supporting spouse and the wife is the supported spouse, the wife might project higher than reasonable expenses, based on their previous and expected lifestyle, and expect to negotiate down to an acceptable spousal support. The husband's expert would argue that the wife's "budget" was too high. Technical arguments would revolve around the historical spending allocation of expenses, such as allocating housing expenses between the Husband, Wife and 3 kids. Should those expenses be split 5 ways, so that the housing expenses were attributed 20% to the wife to establish her pre-divorce housing cost, and therefore need? Or, 50% to the wife, since it took 2 parents, living is the same house to raise the kids.
You could easily see that the Husband's expert chose 20% and the wife's expert chose 50%, and the judge has to decide which is more reasonable? Could anybody decide that? I was involved in a case where the opposing expert divided the house by square foot, for what they suggested was parental space, children's space, and family space in order to allocate housing costs for spousal and child support!
In order to determine if projected future expenses are reasonable, I suggest that we compare the projected living expenses to the Department of Labor Consumer Expenditure Survey (CE). It consists of two surveys, the Quarterly Interview Survey and the Diary Survey, that provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics. The survey data are collected for the Bureau of Labor Statistics by the U.S. Census Bureau.
The CE is important because it is the only Federal survey to provide information on the complete range of consumers' expenditures and incomes, as well as the characteristics of those consumers. The most recent data tables are for July 2013 through June 2014, and were made available on April 2, 2015.
By comparing the supported spouse's projected spending to an objective standard, the CDFA can show the reasonableness of projected expenses. I show the projected expenses by category compared to the CE survey, and show deviations, higher or lower. If there are known expenses, I use them, such as if the supported spouse is living in the marital home or keeping the marital car and historical data is known, I would use actual data. But how much is reasonable for future clothing, entertainment, dining, etc.? The CE survey can tell you the mean amount spent and share of total expenditures a person in their demographic is spending. Econometric analysis of the raw data can dive deeper into the numbers and give more specific analysis to closely compare the specific demographic to the supported spouse's claims.
For example, a single woman, age 43, college educated, 3 children ages 7 to 14, attending private school, living in the southwest, urban environment, income of $8,000 per month with average health spends $213 per month on food away from home or 5.6% of her total spending, according to the CE survey. If wife claims $354 per month, she would deviate from the norm and potentially need to defend her claim. If she claims less than the "norm", she might not have considered those expenses correctly. We now have a standard to determine reasonableness.
If her marital lifestyle allocation for her share of food away from home had been $436 per month, what relevance is that to her future needs? She was living in a different world with different income and expenses. The historical lifestyle standard is certainly considered, but her future needs are more relevant to what she can expect to receive and negotiate for support, and possibly, his ability to pay.
One of the problems with this approach is matching the categories of the CE survey to the projected spending correctly. The CE survey reports are packaged through tables which attempts to segment the data in ways that are not necessarily useful. For instance, there are tables for education level, race, family composition, income and age, to name a few. Each table lists the spending for that definition. I need data combining those tables, meaning, a single woman, age 43, 3 kids.. This is where hiring an Econometric expert that can take the raw data and build a specific statistical profile by controlling for personalized background data, to project an expected, future expenditure model for that individual to compare their projected needs.
Using this technique allows the CDFA, in conjunction with a competent Econometric expert, access to all kinds of other data, including an analysis of the Health & Retirement Survey from the University of Michigan and the American Community Survey by the US Census, both of which are useful for analyzing expenditure patterns. Collectively, we can better create concrete statistical relationships between past and future, married and divorced, expenditures and lifestyle projections and needs.
The goal of this process is to give the courts an objective perspective to base a spousal support award.
When it comes to dividing property during a divorce, Arizona follows the community property guidelines.
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