Marriage and divorce have become increasingly complex endeavors, with financial matters often proving to be a major challenge. Even in cases of amicable divorces, sorting out the intricacies of finances can be difficult.
However, when divorces turn acrimonious, emotions tend to run high, particularly when it comes to property and finances. In such situations, family law attorneys often call on the expertise of forensic accountants to establish a fair settlement.
Forensic accountants at work
Accountants experienced in divorce forensic accounting are adept at investigating the financial records and reporting of families and closely held businesses. These specialized skills are crucial because in divorce cases, forensic accountants provide various valuable services.
These services include reviewing financial data from both parties, assessing the fairness of proposed settlements, uncovering hidden assets that one spouse may be trying to shield from the other, determining the value of properties, businesses, and professional practices, evaluating the marital standard of living, assessing the tax implications of potential divorce settlements, and even testifying in court to support or refute financial claims made by either spouse.
The role of forensic accountants becomes even more critical in deeply emotional divorce cases where the financial aspect is highly charged. In some instances, one spouse may have greater control over marital assets, while the other may have limited knowledge about the financial details.
In cases where one spouse is suspected of understating assets, income, or property values, forensic accountants act as detectives, diligently tracking down financial records from a variety of sources like banks, brokerages, and mortgage companies. As part of their investigation, they compare reported income on tax returns with verifiable personal expenditures and even assess the net worth of the spouse in question at the beginning and end of each year to determine if any assets are being hidden.
Transfers or redistributions of assets are common tactics employed by spouses anticipating a divorce, especially if they are business owners or sole practitioners. In such cases, a forensic accountant meticulously examines the business records to ensure that income is accurately represented.
A thorough investigation may also uncover instances where income has been underreported to the IRS. In certain circumstances, court orders are required to examine financial documents at the premises of the business in question.
Even in cases where the assets of a business or practice are accurately represented, forensic accountants and other accounting professionals may conduct a business valuation to ensure equitable division of assets. This valuation involves analyzing cash flow, tax returns, and other financial statements to determine the market value of the business. Once the valuation is complete, an evaluation can be made regarding the fair share of the spouse.
A similar assessment is conducted to ascertain if other assets are marital property or separate property. Prenuptial agreements often specify the ownership of separately owned premarital assets and property, which simplifies the division in the event of divorce. However, for assets and property not covered in a prenuptial agreement, a meticulous analysis is necessary before reaching a settlement.
In many states, the standard of living during the marriage plays a significant role in divorce settlements. While each state has varying viewpoints on the impact of a lifestyle analysis, most agree that it is an essential factor.
Sustaining a lifestyle
Therefore, even in amicable divorces, forensic accountants are often consulted to provide a detailed overview of the couple’s finances. This is achieved by examining cash flows during the marriage and evaluating the income required to sustain that lifestyle after the divorce.
The expertise of an accountant experienced in divorce forensic accounting can prove invaluable when determining a fair distribution of marital assets in a divorce. Through careful analysis of financial documents and transactions, accounting professionals can greatly impact the final settlement, resulting in a potentially more substantial outcome for either spouse.
The Sol Schwartz & Associates forensic accounting team, led by Cesar J. Mejia, CPA and Certified Fraud Examiner (CFE), is deeply experienced in divorce litigation support. If you would like to discuss your situation with us confidentially, just leave your contact information below and we will get back to you promptly. Or call us at 210.384.8000.