Forensic accounting is the sexy version of accounting that takes facts from behind closed doors, brings them into the open, and provides a sense of truth to individuals and businesses of all types. Without a shadow of a doubt, divorce is one of the most frequent altercations requiring the need for a forensic accountant. In many divorce scenarios, the trust component is in question, at best. Whether or not a spouse has formed a business to conceal assets, started a trust in the Cook Islands, holds an ever-so notorious Swiss bank account, has purchased properties in different parts of the world, or simply has controlled the finances for 20 years, a forensic accountant should be your first call.
1. THEY SEARCH FOR HIDDEN ASSETS AND/OR HIDDEN INCOME
Forensic Accountants create a comprehensive financial profile using various financial statements to analyze income and expenses, along with changes to a person’s net worth to detect signs of hidden income.
Additionally, forensic accounts will analyze tax returns, real estate records, loan applications, and various other records representing monetary gain or loss. This type of analysis can show where and when money is coming and going, outside of reported sources. Forensic Accountants apply various techniques to find and prove where and when assets or income exist.
2. THEY SEPARATE MARITAL FROM NON-MARITAL ASSETS
The list of items requiring separation during divorce can truly be never-ending and quite ridiculous at times. Examples can include things such as pets, furniture, and sheets, but it has gone as far as paying an ex-spouse’s ice cream habit for a year or requesting a kidney back, literally.
However, the most contested assets are a combination of property and funds. In situations where one party is not being forthright and honest, Forensic Accountants will work with you to obtain documentation and financial data related to all financial accounts or assets held by their spouse. Further, Forensic Accountants help discover and analyze all sources of income, estate files, asset sales, loans, expense levels for lifestyle choices, and detailed information on a spouse’s personal and business relationships.
With property specifically, the most straightforward and simple analysis involves comparing the date of purchase or date of sale, with the dates of marriage to determine whose property is whose. Funds can be less straightforward than property with certain complexities that may only be resolved in court with the help of an Attorney. In the end, a Forensic Accountant employs a unique set of skills and discipline that can help trace, identify, and value assets that have been lost over time.
3. THEY ASSIST COUNSEL IN DISCOVERY
DOCUMENT REQUESTS, SUBPOENA LANGUAGE, INTERROGATORIES, AND DEPOSITION PREPARATION
Forensic Accountants should be expected to be well-acquainted with the court room process, court proceedings, and navigation of a case from start to finish. They are experts in financial document analysis, financial language as it pertains to the law, questions to be asked of the opposing counsel to further the discovery process, and exactly which documents are relevant, and which are not. Their input and expertise accelerate court proceedings and alleviates certain burdens on counsel, specifically all related financial details.
If assets are being contested, the opposing party will often have a financial expert on their team as well. As such, it is important to have your t’s crossed and i’s dotted. They will work with counsel to prepare for depositions, provide proper questioning of a subject, develop case strategy, and truly ensure that no stone goes unturned.
4. THEY PROVIDE EXPERT COURT TESTIMONY
Once an investigation or forensic analysis has been completed, the possibility of further court proceedings, specifically trial, presents a new set of complexities. For example, identifying and naming experts that can testify in court on your behalf. As far as the financial component of the case, the vast majority of preparation should have already been completed if a Forensic Accountant had been retained. Forensic Accountants may be asked to testify on a wide range of topics, but in the simplest explanation, they testify on their analysis of the financial data and documents required to provide reasoning for financial activity within the divorce. This may be the most crucial component ensuring fair treatment within a divorce. An attorney can argue anything they want, but without financial data supporting their position, the position will hold no merit.
5. THEY CALCULATE CASH FLOW
Forensic Accountants calculate cash flow to aid in financial decisions being made as a result of divorce. Using things such as wages, interest, investments, dividends, and cash outflows from business entities, forensic accountants can develop a true and accurate financial picture. This allows a foundation for decisions such as an appropriate amount of spousal or child support. These statements become more and more complex in situations where business ownership is in play.
Forensic Accountants work with spouses on both sides of the aisle. For a spouse that will likely pay support, forensic accountants can create an accurate financial picture that will ensure fair treatment. They will protect against incorrect income calculations being used by the courts or being presented from the opposing spouse.
For the spouse that will likely receive support, Forensic Accountants will ensure that no stone goes unturned. They will determine to any extent the opposing spouse is hiding cash, investments, hard assets, or business income that will completely change a financial picture.
6. BUSINESS VALUATION
When business ownership is a component and point of on-going conversation, cash flow proceedings can be tricky to determine. Forensic Accountants determine how a business’s income, benefit, or ownership is distributed in a divorce by evaluating the business’s total financial benefit, reasonable value of a person’s contributions to the company, potential growth for the company, the valuation of the income stream, and lifestyle choices for the spouses to establish a standard of living for monetary support. Pulling the trigger on a business valuation may be a hard pill to swallow, but is a complete necessity when patience is dwindling, income is in question, and trust has left the building.