Divorce can be complex, time-consuming, costly and emotionally draining. That's especially true if you don't have the right team on your side. While most people have legal representation in divorce, it could be very likely that you'll need more than just a divorce attorney. If there are disputes about assets, income, expenses and taxes, you'll also probably need a knowledgeable, experienced forensic accounting team.
An accounting firm that has experience in forensic accounting in marital dissolution cases is a valuable asset in the divorce process. They can dig into financial records to provide clarity and transparency on the marriage's financial history. They can also validate each spouse's assets, income and standard of living to help determine spousal and child support amounts.
Here are five of the most common areas where forensic accountants can provide support during matrimonial dissolution:
If one spouse handled all of the financial affairs, it could be difficult for the other spouse to identify all of the marital assets available. There could be investment accounts, properties and even business assets that one spouse doesn't know about.
Further, a spouse could even take certain action to try and hide marital assets. They could make "gifts” to family and friends. They could contribute marital funds into a business and buy unnecessary equipment for their business. They could even re-title assets to make them look like they're owned by someone else.
A forensic accountant can examine financial records to identify any transactions that may signal attempts to hide assets. The accountant can identify all accounts and property so that both sides can have complete transparency as they head into negotiations or litigation.
Determining disposable income is an important step in determining whether or not spousal or child support is necessary and, if so, at what levels. In some cases, the income of both spouses is not very clear.
One spouse may own businesses that pay irregular income levels based on profitability or available cash flow. A spouse may work for commission in a volatile field. A spouse may not work at all, in which case it may be necessary to determine what they would earn if they did work.
These calculations are too important to leave to guesswork. A forensic accountant can analyze a person's income history to come up with a reliable income estimate. They can also review equivalent incomes earned by people with similar qualifications. That allows a person to enter into negotiations or litigation with income information supported by facts and not estimates.
Retirement accounts are often a large asset in dispute during divorce. If all of the assets in the accounts were accumulated during the marriage, they may be easy to split.
Things can get much more complicated, though, if some of the assets were accumulated before the marriage. There can often be complex and intense disputes about how much of the account each spouse is entitled to.
For example, if one spouse contributed money prior to the marriage, it may be easy to split off those contributions and not consider them as marital assets. But what about the investment growth of those contributions? How do you clearly determine what is and is not a marital asset when it's all been mixed together in one account?
Forensic accountants break down all contributions to the account and clearly determine what is due to premarital contributions and what amount was accumulated during the marriage from marital contributions.
A closely held business can make a divorce exponentially more complex. Both spouses may feel that they have a rightful claim to some form of ownership in the business. Even if one spouse didn't contribute directly to the business, he or she probably indirectly helped the other spouse focus on the business.
Unfortunately, closely held businesses aren't easy to value. They're not traded publicly, so it's not as simple as looking at the company's stock price. There are numerous valuation methods available that are acceptable in the Family Court. However, choosing the right method and applying it correctly is often more of an art than a science.
A forensic accountant can review the business's books to come up with a range of possible values. The accountant will likely look at the business's revenue, earnings, cash flow and assets and then provide possible high and low value estimates. A spouse could then use those numbers to negotiate from an informed position.
In many instances, a couple has actually been separated or in marital distress for some time before they start divorce proceedings. Even though they may have been living separate lives, they may still have joint tax obligations. There could be questions about who owes what taxes and why.
A forensic accountant can reconstruct any tax filings, review all deductions and credits and analyze all income that was earned to determine whether one spouse should be more responsible for any tax liability.
In some divorces, the main issue isn't how assets are split, but rather how debt is divided. Between credit cards, student loans, mortgages and car financing, it's easy to rack up substantial levels of debt. If the debt is tied to an asset, then division may be very obvious.
However, there could be other types of debt that may be in dispute. Credit card debt can be ambiguous in terms of who is actually responsible for the charges. Some business loans or personal lines of credit may have been used by each spouse. An accountant can go through the debt statements and transactions to formulate an argument for why the debt should go to a specific spouse.
An accountant isn't just for digging through paperwork. They can also provide expert testimony in court, mediation or negotiations. It's always easier to advance an argument when you have exact numbers, analysis and proof to back it up.
That's what a forensic accountant provides - expert, authoritative research on your financial history. A forensic accounting team can be a valuable asset to have in your corner during divorce proceedings.