Things Fall Apart

breaking-up-laurie-lipton-15

Divorce. Just about nobody wants to deal with that. However, just about everybody knows that, in order to best navigate what can be a rather complicated process, if they are getting divorced, they should get a lawyer. How many think – I should probably get an accountant too? That’s right – an accountant. During a marriage, couples will acquire property, share incomes and perhaps even have children. Should they split, it is almost never a simple matter of just walking away. There may be a home (or homes) to consider, issues of child and spousal support and other financial assets that will be taken by one or the other spouse. These many financial aspects to divorce  can be very challenging to resolve, and this is where the services of a forensic accountant can be well utilized.

The services can be as straightforward as preparing a spouse’s statement of net worth.  The forensic CPA’s understanding of and experience with financial statements and tax return documents will help make this process more efficient, and less likely to contain errors, than trying to prepare the statement yourself. Trying to correct net worth numbers after a divorce is finalized is a huge headache that most would probably want to do without. The need for the specialized skills and qualifications of a forensic CPA  come into play when a divorce involves more substantial and complicated assets. During a marriage couples may accumulate property, own and operate businesses, or incur debts. Forensic accountants will investigate the locations, value and character of the assets and income of the divorcing couple and present this financial information and testimony in court.

The location of assets and income is simple enough concept. Sometimes a divorcing spouse who wishes to minimize alimony or child support payments may try to hide their true income. Especially when the spouse is self-employed or has various sources of income, a forensic accountant may need to use various methods to trace and recalculate hidden income. In addition to tracing hidden income, a forensic account will assess the current value of property and other non-cash assets. What also comes into play in a divorce proceeding is the character of the property and debts. Where a divorcing couple resides decides to a large extent whether property will be viewed as community, equitable or separate. A state’s marital, financial and tax laws determine how the marital estate will be divided, how spousal and child support will be calculated and it is, therefore, very important that a divorcing party engages experienced divorce attorneys and forensic accountants who are experienced in family law.

For instance, when a couple has been married for many years, trying to determine the character of an asset can be a challenge. A forensic accountant may be needed to trace that asset back many years, and possibly through various investments, to figure out the source of the original funds used to purchase the assets. Sometimes separate property has been mixed with community property (which is completely understandable as most believe their marriage will be permanent). In these cases, it is important to have a professional who can use acceptable methods to identify the different types of property to a level that is acceptable in a court of law. Things can get really complicated. For example:

  • What if one spouse comes to the marriage with separate property which carries debt. During the marriage payments on this property. Are those payments made with separate or community funds? Will that change the character of the property as a whole, or in part or not at all?
  • What about if one spouse comes to the marriage with a business that she or he works in during the marriage. At the time of the divorce, can the other spouse claim a part of the increase in value of the business? How could their contribution be assessed if at all?

Using presiding laws and their expertise, forensic accountants work to provide the evidence and calculations that the judge will use to come to conclusions about the apportionment of assets and income.

Another way in which the skills of a forensic accountant are used are during the discovery phase. This is the part of the divorce process where the lawyers gather information, documents and other evidence that they will then use to resolve the case. Discovery involves requesting and collecting documents, asking questions of various parties that must be answered, under oath, in either written form or in the presence of a court stenographer, issuing subpoenas, and asking the opposing party to admit that items on a list of statements are true. Credentialed forensic accountants are very important during discovery as they can help the attorneys draft documents, analyze and assess whether or not documents received are reliable and useful. They can help the lawyers put together the lists of the documents that they should request from the opposing parties.

The stress of dealing with a divorce can be better managed by engaging the services of a qualified professional who has an understanding of

  • tax issues,
  • financial statements,
  • tracing financial transactions,
  • analyzing the value and character of assets and liabilities, and
  • understanding the machinations of the local legal system.

Together with your lawyer, should you have to go through a divorce, a certified and experienced forensic accountant can help make the process less of a drama.

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