A divorce can be an incredibly trying time in one’s life. Stress is often at a peak. In addition to having your life turned upside down, both you and your soon-to-be-ex need to come to an arrangement about a financial path for the future. This process is often complicated when assets and debts are accumulated throughout marriage and can be even more complicated depending upon the state laws regarding how they treat property (community property vs. common law). A forensic accountant can be a strong ally in determining a fair path forward.
While forensic accountants are more commonly used for divorces with high asset values or when one spouse is suspected of trying to misrepresent financial details, they can be beneficial for individuals with many types of complicated financial situations. Forensic accountants can play a key role in the entire divorce process by assisting with the preparatory documents, submitting information and/or testifying, and frequently even helping with the settlement process.
An overview of the types of tasks that a skilled forensic accountant provides and commonly works on during divorces includes the following activities:
Verifying Assets
Forensic accountants may look at all assets, including bank accounts, investment accounts, real estate, and business assets, and ensure they are valued accurately. This process often involves a detailed review of years of historical financial documents, including but not limited to tax returns, bank statements, credit card statements, mortgage applications, contracts, and any other pertinent financial documents. In instances where one spouse is suspected of hiding assets, the forensic accountant may dig into things like utility payment records and digital transactions that may be related to cryptocurrency or involve offshore accounts. Any material inconsistencies (whether intentional or not) that are identified would be reported to the appropriate attorney to ensure the record of assets is truly representative of the assets that should be addressed.
Determining Child Support or Alimony
Forensic accountants can impact the legal determination for spousal support and/or child support. They are skilled at identifying and quantifying personal expenses and calculating the income streams that should be considered in calculating support payments.
Appraising Assets
Some assets may be harder to quantify than others. In divorce proceedings, spouses might disagree on the actual values of certain possessions, such as pieces of art, antiques, family heirlooms, or collectibles. A forensic accountant can serve as a third-party that consults on the value objectively.
Determine Ownership
Depending upon where you live, parties to a divorce may be able to legally argue that if their name is the only one on the title of an asset, that they should be deemed the sole owner. This is not a valid legal argument in states that recognize community property during a marriage. However, if it is an issue that could arise, forensic accountants with the assistance of the attorney can analyze and trace records to determine whether the property in question should be treated as separate or as marital property.
Directly Assist in Proceedings
Forensic accountants can also assist directly with the legal proceedings by assisting the attorney in the preparing for depositions and subpoenas and testifying directly. They may also review work completed by the other party’s forensic accountant and prepare questions for the other party’s forensic accountant or any other individual who may be testifying regarding financial information that is pertinent to the divorce.
Advise on Long-Term Impacts
The structure of any asset distribution may have long-term financial consequences, especially as it relates to tax laws. Ensuring that the party you represent understands the long-term impacts is crucial before any settlement is finalized.
A skilled and knowledgeable divorce attorney is essential when going through the dissolution of a marriage. In many instances, it is beneficial for one or both parties to have someone with greater financial expertise working on the legal team. Even divorces that seem straightforward can be complicated by the presence of a shared business, or the presence of different types of investments, retirement funds, insurance policies, or stock options. These issues become even more critical when the divorce is contentious or when there is suspicion that one spouse is trying to keep more than their fair share of assets.
Divorces are extremely emotionally exhausting and physically draining, and often, neither party is a financial expert (although one party may be much better at finances than the other). Inviting a forensic accountant to your legal team is one way to minimize your stress level and increase the possibility that you receive a fair settlement during your divorce. The presence of a forensic accountant won’t make the situation pleasant, but they can make sure that your experience goes much more smoothly than it might otherwise.
Shuster & Company, PC offers an extensive range of services, with emphasis in forensic accounting, divorce consulting, business valuation, and litigation support. As a full-service Certified Public Accounting Firm located in Denver, we provide quality, personalized financial advice and guidance to individuals, businesses and the legal community.