Family Law Litigation

How Forensic Accounting Can Help Your Orange County Family Law Case?

At the financial level, a divorce involves the Division of the Marital Assets and debt between the spouses.

In some cases, the assets and debt to be divided may be fairly simple, such as cars, bank accounts, house, and credit card bills.

Other belongings (like furniture) may go to either one of the spouse depending upon who owned it before the marriage, or who cares more about it afterward.

The division of debts and assets in a divorce becomes more complex for couples with complicated and distinguished financial portfolios. It is possible to face difficulties in such a division even in the event of an amicable divorce.

There could be restricted stocks (vested and otherwise) and other stock options in addition to the basic assets.

There could also be the issue of complicated partnerships, closely-held professional practices or businesses, trust assets of varying types and terms, retirement plans, insurance plans, properties across the country in various states or different countries, and multiple accounts.

Dividing tangible assets of exceptional value, such as rare collectibles, art, and antiques require current appraisals which can become contentious. All this (and more) in the mix of an already challenging divorce settlement relies on can have major financial implications for either or both spouses.

That’s not something you can leave to chance, and with all due respect to the professional expertise of divorce attorneys, determining a fair division of assets and debts, and calculating or projecting the tax and financial impact in various divorce settlement options is something that may require the involvement of a forensic accounting expert.

A forensic accountant with proven skills and experience in divorce financial settlements may have to be hired to work through all the financial intricacies of your particular settlement scenario.

In fact, certain divorce settlements can be so complicated that it gives rise to the possibility of fraud and hidden assets on part of one spouse who may have been planning the divorce for some time.

Experienced forensic accountants and financial appraisers could prove to be invaluable in such cases. The same holds true if intangible assets of significant value, such as stocks and bonds require precise assessment.

Forensic accountants are particularly helpful if your divorce lawsuit goes to court. They can testify on your behalf regarding particular financial issues if you are up against complex income determination, assets, and financial liabilities.

In a family law setting, forensic accountants can provide litigation support to clients who are in the middle of a divorce dealing with paternity or custody issues.

Typically, your divorce attorney would advise you whether it is necessary to hire a forensic accountant. They may also help you find the right forensic accounting expert that best serves your divorce settlement interests.

While some forensic accountants may work with both parties in a divorce jointly as a ‘neutral’ financial professional, others may work with just one party and their divorce attorney.

The Role of a Forensic Accountant in an Orange County Divorce

The multi-faceted role that a forensic accountant plays is invaluable in dividing and calculating the value of assets and property in a complex divorce.

It is the financial accountant’s responsibility to scrutinize and analyze all financial documents in order to help the court decide how community property should be divided, and what should be the amount of alimony and child support payments.

Forensic accounting specialists make use of standard accounting practices while working with a client’s divorce lawyer. Contracts, bank records, tax returns, and similar financial documents are reviewed by forensic accountants in a divorce case to reveal the true financial standing of the other party.

This ensures that property valuation is assessed correctly and that the division of assets and debts in the case is fair and accurate.

It is a forensic accountant’s responsibility to dig deep and look for hidden assets and identify any inconsistencies between financial records and claims made by the other party. Your forensic accountant’s work and role ultimately depends on the direction and parameters that you set forth in consultation with your divorce attorney.

Finding Hidden Assets and Identifying Inconsistencies

The forensic accountant will peruse all documents minutely to determine that they are in corroboration with the financial claims made by the other party in a divorce. The accountant will also verify all the assets and income listed on record.

It is possible for a spouse to deny or forget about certain assets in certain situations, such as with the discovery of an extra-marital affair.

Forensic accountants have the necessary skills and resources at their disposal to search for hidden properties and off-shore accounts, regardless of whether the spouse was forgetful or trying to hide the records willfully.

Assisting the Discovery Process

Discovery refers to the legal process of gathering all the relevant information in a divorce. It is a crucial phase in your divorce case when the services of a forensic accountant can be vital.

The accountant with the help of your family law attorney will make sure that all the necessary documents and information are made available through subpoenas and motions.

In addition, the forensic accountant may also provide valuable professional input which may help your attorney prepare exhaustive interrogatories. (Written questions aimed at revealing information and aiding in the preparation for a deposition and trial are referred to as interrogatories.)

Valuing all the Assets

Forensic accountants, backed by various investigative tools and methods can:

  • Value professional practices and businesses for clients, such as lawyers, doctors, and accountants, among other professionals
  • Trace the property back to its roots to recognize whether it is separate or community
  • Value a business accurately by separating personal expenses from business expenses
  • Determine the monthly cash flow

The forensic accountant hired for your divorce case could also be available for testifying in a court deposition. The accountant may provide helpful inputs on tax implications arising out of marital property division, which are highly useful even if the case does not go to trial.

How Are Forensic Accountants Helpful During Divorce?

Forensic accountants go a long way to make sure their clients understand their true financial position at every step of the divorce process – before, during, and after. They are strictly here to help you sort through the financial dilemmas or disputes that may arise in a family law setting.

They do not carry out business management, bookkeeping, taxes, or other typical CPA roles. However, there are many accountants that are members of firms providing these services.

Here are some of the common tasks performed by forensic accountants:

  • Determining the available income of both parties for paying support
  • Calculating alimony and child support owed from one party to the other
  • Identifying and assigning a value to the assets and liabilities held by the couple
  • Preparing an efficient plan for dividing up the assets and liabilities between the two
  • Assessing the business value of one or both the spouse (ex: dental practice, car wash)
  • Accounting for the manner in which joint funds have been spent since separation
  • Tracing pre-marital properties to its current value and location

Both spouses may engage their own individual forensic accountants to carry out these functions separately. In such situations, the two accountants can meet with the attorneys from each side in the context of divorce settlement negotiations.

During settlement negotiations, the accountants typically discuss their assessments made for the valuation of individual assets, calculation of spousal and child support payments, and other financial issues with the other forensics.

Based on the size of the assets and debts, the income of individual parties, the number of sources of income, and the complexities of legal issues involved, the negotiations can take anywhere from months to even years.

The process could slow down significantly and in rare cases may even be thwarted completely, if the divorce is contentious and one or both the spouses are uncooperative.

Forensic accountants can aid a divorce case in moving ahead to trial if a settlement is not reached.

They are usually called upon as expert witnesses at trials to testify their opinions in support of their client’s case about disputed financial issues. (But hopefully, it does not have to come to that because experienced divorce attorneys will aim to arrive at a settlement that is fair and in the best interests of their client.)

Who May Need a Forensic Accountant?


Forensic accountants are not required for every divorce settlement. If you and your soon-to-be-ex-spouse are mutually agreeable over the division of property, support amount, and other financial issues, then you might not require the services of a forensic accountant to assess what you have already agreed upon.

However, you may require a forensic accountant in the following situations:

  • If one or both the spouses have more income sources than those disclosed in W-2
  • If one of the spouses has more custody time with children
  • If the assets and property are of significant value, comprise of more than just a house or retirement fund, and/or the spouses cannot agree on the division
  • If one or both the spouses have their own business or are self-employed
  • If the spouses entered matrimony with separate assets and liabilities of significant value

Even if the circumstances surrounding your marriage and divorce turn out to warrant the need for a forensic accountant, the entire divorce process can still be smooth and get over in a few months.

In situations where the process does not seem easy, it can still be simplified and made less painful for both sides with the backing of a team of experienced professionals.

Facts about Divorce and Working with Forensic Accountants


Change is inevitable

Many clients are taken by surprise when they find out that their lifestyle in is for a change. It is very rare for a couple to have enough money to fund equally lavish post-divorce lifestyles and enjoy the same conveniences as they did when they together shared the monetary burden of their lifestyle.

It is possible that you may not be able to afford the same house, keep your country club membership, or plan the same annual trip to Europe or another exotic destination any longer. It is wise to be realistic and accept the new financial situation that would arise following a division of assets and debts in a divorce.

Avoid getting emotionally entangled in a bitter fight

You should consider the costs of an extreme and prolonged fight for the assets and property for you and your children. There are many people who make the mistake of getting emotionally involved in the fight and do not let go of assets, even when the fight costs them more money than what the asset is worth.

The role of a divorce attorney and a financial expert will be to counsel you in such situations where an amicable settlement is worth more than pursuing a bitter fight to a futile end.

Understand the stages of divorce

You should keep in mind that a divorce is not everlasting. There is a beginning, middle and an end to the process and even the most complicated cases are not going to last forever.

One of the most difficult aspects of a divorce is planning your financial life because of all the uncertainties and unknowns. However, sooner or later the divorce shall be over and hopefully, your divorce lawyer and forensic accountant will be able to make the process swift and smooth for you.

When is it Necessary to Hire a Forensic Accountant in a Family Law Case?

It is a sad but true fact that countless marriages end up in divorce each year. Another fact is that most marriages that end up in divorce are in trouble months and years before the divorce petition is filed.

This indicates that either or both spouses have ample opportunity to hide their income and assets. Chances of hidden income and assets are greater in marriages that end in animosity.

Many spouses have extensive experience in disguising their non-deductible expenses as deductible for tax purposes and hiding income. It’s simple for them to apply these skills to hiding their income and assets for the benefit of pending divorce issues.

Typically, there is little direct evidence about the existence of the income, which makes it important for you to hire a forensic accountant to provide supporting evidence of disguised income at the first whiff of suspicion.

There are many valuable skills brought to the divorce table by a capable forensic accountant:

  • Industry experience
  • Analytical skill to help investigate various financial documentation
  • Classic CPA skills coupled with extensive financial investigation tools
  • Testifying capabilities as an expert witness
  • Finance and tax advisor to the divorce attorney

Closely-Held Business

Generally, forensic investigations are considered when either one of the spouses is actively involved in the running of a single-owner or closely-held business. In such cases, the sky and the business owner’s creativity is the limit in terms of manipulating income and hiding assets.

Many spouses erroneously believe that they know the exact amount their opposing spouse is earning as compensation.

However, there are many spouses who hide cash and other assets from their spouse under the veil of their closely-held business. It would be a rare case that would not warrant a level of financial investigation into the business dealings.

A business is often used to purchase personal assets which are hidden from the spouse. The costs of such assets are usually written off as operating expenses, cost of goods sold or buried under fixed assets.

In many occasion, family and personal expenses are paid through business accounts. Mostly, these expenses are tax frauds which give the spouse another reason to bury them. Here are some of the typical non-business expenses that are unraveled during a forensic examination:

  • Payroll including ‘ghost’ employees
  • Social club, health club, and other personal membership expenses
  • Automobile or boat expenses
  • Non-business entertainment and travel
  • Rent paid on non-business equipment and property

Generally, financial statements are manipulated by the business owner to hide true income with an impending divorce. ‘Cooking’ the books is a common trick employed where the expenses and revenue are spread around over a period to artificially report lower profits.

Another common trick in the book is to record asset purchases as expenses or revenue as liabilities. Some spouses knowingly delay profitable contracts to lower business value.

Sometimes, a controlled or secretly-owned vendor may also be used to disguise the true profitability of a business. They would be used to mark-up the cost of sales and report lower profits by inflating the cost of critical supplies. Paying wages to ‘ghost’ employees, who is often a friend is also a popular trick.

Attorneys should discuss the following factors with their clients while deciding to call for a forensic accountant to investigate the dealings of a closely-held business:

  • Whether family expenses are paid by company funds
  • Whether family assets have been paid by the business
  • Whether the opposing spouse is known to have kept income from the IRS
  • Whether cash transactions account for a significant portion of business revenue
  • Whether audited financial statements are prepared by a CPA
  • Whether the business has ever been subjected to an IRS inquiry
  • Whether there is more than one business owner
  • Whether the business has any subsidiaries

Financial Complexities

Individuals who have significant income often have discretionary cash. These include highly paid executives, doctors, accountants, attorneys, and other similar professions.

There will be plenty of cash available for diverting and investing, even if wages form the major part of the opposing spouse’s income.

Forensic accountants may help in revealing previously unknown investments, bank accounts, and other assets. Often, the client spouse has an inclination or suspicion which warrants forensic accounting. It is important for divorce attorneys to take these suspicions seriously and ask the client spouse if:

  • they have been privy to paycheck stubs of their spouse
  • the couple maintains separate credit cards and bank accounts
  • the opposing spouse frequently travels for business to the same location
  • they have ever seen an out-of-state bank statement or any other financial correspondence

Claims against Separate Property

Division of property is often a complex matter and a forensic accounting investigation can go a long way in disclosing hidden or transferred assets. The investigation may also help identify transmuted assets and validate separate property claims.

Prenuptial Agreement

Forensic accounting investigation is usually required when the assets are listed in a premarital agreement which may have become commingled or transmuted with marital assets. The investigation can help determine compliance with the agreement terms.

Often, forensic accounting investigations help trace assets listed in the agreement to determine whether the assets were transmuted, commingled with marital property, or kept as separate property.

The investigation also establishes whether any incremental appreciation needs to be part of the divorce or not.

If income disposition during the marriage period and divorce is specified in the premarital agreement, then the forensic accountant shall trace all disbursements and receipts to determine if the terms of the agreement were adhered to.

If the terms were not adhered to then the influence of variance on support obligations and distribution shall be calculated.

Interviewing Relevant Persons

Information gathering interviews is one of the first logical steps to be undertaken by a forensic accountant. This includes both the spouses and all other relevant persons. The purpose of this interview is to grasp a fiscal understanding of the marriage.

This interview also aids forensic accountants to gauge the underlying personality of each spouse and their regular activities within their home, office and the outside environment.

Such interviews are best conducted by forensic accountants who are experienced, fraud examiners. Certified fraud examiners are trained to identify deception through verbal and non-verbal cues.

These professionals are skilled and expert in identifying financial irregularities in the information gathered prior to and during the interview.

Ideally, the forensic accountant should get a better understanding of the couple’s prior and current income sources and their non-recurring unique situations, such as inheritances and insurance settlements.

The forensic accountant should also get an idea of their regular living expenses, personal, and business relationships.

It is best to interview the opposing spouse when the documents are being produced for examination, since it may present an opportunity to conduct a follow-up interview.

The forensic accountants may also be inclined to interview other relevant parties, such as business partners, financial planners, and personal CPA.

How to Choose a Family Law Forensic Accountant For Your Case?

You should think of family law forensic accountants as financial detectives that spend their day sifting through reams of financial data and accounting records to discover any illegal activity or manipulation, in relation to property division and income determination.

They also help to identify any potential financial fraud in divorce cases.

Many people feel that it is quite a simple process to choose a forensic accountant. However, this line of thinking is far from reality.

Forensic accountants are specialists who can substantially influence the financial outcome of your divorce.

This makes it important for you to conduct a thorough and objective selection in consultation with your divorce lawyer. This becomes even more important if you feel you would require the accountant to testify on your behalf in court.

Here are the five primary factors you should consider while searching for the right forensic accountant for your family law case:

Relevant Experience

The forensic accountant you choose should be experienced in handling family law cases and have the appropriate skill sets to handle your particular divorce investigation.

Let’s assume you are looking for an expert to prepare various financial statements for the divorce trial. Ideally, you would hire a person who has considerable experience and has undertaken similar tasks before.

However, you would not consider an accountant who is unfamiliar with preparing financial statements to be submitted to the court or someone who is not familiar with family law.

Remember, that there are numerous areas where the services of a forensic accountant prove to be crucial. For instance, you may need an accountant with significant experience in a very specific area like the division of marital assets of high net worth individuals or division of corporate/business assets.

Right Credentials

A forensic accountant needs to establish professional credibility in order to be successfully presented as an expert witness.

The opinion of a professional witness with no past experience in the particular litigated aspect shall have less weight as compared to the one given by an expert practitioner with considerable years of experience in that field.

Credibility is also determined by the right professional credentials, training, and qualification of the forensic expert. It may be a prudent idea to choose a forensic accountant who is a member of a leading professional body and is certified to carry out forensic investigations.

Oral Evidence in Court

It is important for a forensic accountant to be able to make a court appearance and deliver oral evidence. They should be competent, which can only happen if they have considerable experience in the witness box.

There are certain accountants who are not accustomed to or comfortable with giving evidence in court. For instance, these forensic accountants may have experience of working on criminal cases in which the financial findings are never argued in court.

Personal Characteristics

Personal skills also play an important role in choosing a forensic accountant. Simply put, personal characteristics refer to how communicative, tactful, and approachable the forensic accountant is.

You should only hire someone you are comfortable with and can work closely with. Airing personal issues in front of an understanding ally is easier than with a person who seems rigid and with little compassion for your situation.

Price

Finally, the cost is an important determining factor. Forensic accountants may charge differently for each case and it is important for you to take their professional fee into consideration. A smaller accounting firm is likely to charge less than a large accounting practice.

Remember that in forensic accounting you get what you pay for, which is why deciding solely on ‘cost’ is not recommended.

You should focus on retaining an experienced professional, regardless of whether they are a part of a large or small firm, or operating independently. This will give you the right quality assurance and optimal attention.

What Traits Should You Look for in a Forensic Accountant?


Analytical Mind

Having an analytical mind essentially means that a person is good at breaking down massive problems into smaller and doable chunks to find solutions effectively. It should be of no surprise that an analytical mind should be one of the first personality traits you should look for.

To get an idea of what you should be looking for, consider Sherlock Holmes or his side-kick Watson. Tremendous focus and brainpower is needed to be analytical. Forensic accountants need a modicum of natural analytical ability, even though they can get by with practice.

Financial problems surrounding your divorce can be large and complicated, making it necessary for you hire an analytical forensic accountant.

Attention to Detail

Being detail-oriented is another important factor to consider. Having an inherent bent to detail is harder than thinking analytically. To learn how to be detail-oriented, a forensic accountant needs to learn how to uncover the causes for obvious effects.

Most people who are detail-oriented are also hyper-organized, efficient, and unwilling to accept anything but perfect and stellar results. Forensic accountants should never be unorganized or clueless since they have to sift through large mountains of financial data.

Ethical

Although being ethical is not one of the more obvious characteristics of a forensic accountant, it is important that you consider this factor while choosing one. An unethical forensic accountant may not sound credible or legitimate.

You need a person with strict moral code and ethics when your sole purpose is to root out the frauds committed by your spouse. Look for an investigator who has developed a reputation in the industry and can be trusted to do the right thing.

Inquisitive

Forensic accountants should be questioning and inquisitive by nature. The field demands them to have the reflective curiosity to ensure they always delve deeper into the financial records.

You would not do well by hiring a person who goes through the day without spending a moment in reflective curiosity. Look for a professional who frequently ponders why a particular thing came to be or one who cannot leave a puzzle unsolved.

Family law cases demand extensive investigation which can only happen with a forensic accountant who is inquisitive.

Intuitive

There is no use of a forensic accountant without a good measure of intuition. Sometimes, you need this skill in combination with the above-mentioned characteristics to be able to unravel hidden income or assets, just by perusing the financial statements.

Intuition is the ability to make instant connections among disparate pieces of information and to take logical leaps without a thought to conscious reasoning. In particular, this is something that cannot be learned.

However, forensic accountants with long years of experience develop a sixth sense. This allows them to point exactly at the anomaly in the financial statements.

Court Appointed Forensic Accountant vs. Private

In certain cases, courts appoint forensic accountants to investigate community assets. In such situations, the accountant does not work for one spouse but works for the court.

The forensic accountant conducts thorough financial investigations, at the end of which they submit their report with the court and provide a copy to each party’s attorney.

However, there are some benefits to hiring your own private forensic accountant if the situation warrants it. These benefits include the following, but are not limited to:

  1. Both spouses are not required to be present for conversations and interviews with the forensic accountant, as is the case when the accountant is court-appointed. The professional shall be answerable only to you when you hire them.
  2. The forensic accountant employed by you shall focus solely on those areas of the estate that concern you. However, make sure you carefully consider the forensic accountant’s suggestions and recommendations about the areas you should be focusing on.
  3. You don’t have to immediately disclose the hiring of a forensic accountant to your spouse. This gives you an opportunity to take your spouse by surprise and not give them enough time to hide their trail. The forensic accountant may complete the work in secret until you decide a suitable time to reveal observations and findings.

While hiring a private forensic accountant has multiple benefits, it is not for everyone because of the costs involved, among other factors.

A good forensic accountant is expensive and could cost anywhere between $250 and $400 an hour (or more). When the court appoints a forensic accountant, the costs are covered by both spouses.

If you share a large community estate with your spouse or have reasons to believe that your spouse may be attempting to conceal assets in a bid to pay less spousal and child support, then it could be worth the cost to hire a capable and experienced forensic accountant.

Consult Your Divorce Attorney While Hiring a Family Law Forensic Accountant

There are many forensic accountants that work for large firms. While there is nothing wrong with hiring an accountant working with a large firm, make sure you are not paying to discuss the issues with a secretary or an intake agent, rather than the accountant.

You may want to research another accountant in such a scenario.

Don’t forget that it is vital to choose a forensic accountant who is experienced in the area of family law specific to the issue faced by you. They should also be familiar and confident with the local family court system.

Your best approach would be to discuss and seek the opinion of your divorce attorney while making a choice. Remember, forensic accountants, are not lawyers, even though they are familiar with the law, and should not be asked to provide legal advice.

Your divorce attorney would be the best person to ask for recommendations while hiring a forensic accountant. They would be able to determine your need to hire a CFE, CPA, or a CVA, based on the complexity of your divorce case.

Finally, you should remember that a suitable divorce attorney would be personally familiar with forensic accountants as the two professions often cross paths in legal offices and courtrooms.