Four Ways a Forensic Accountant Can Help in a High-Asset Divorce
Contributors
“To have and to hold from this day forward, for better, for worse, for richer, for poorer, in sickness and in health, to love and to cherish until death do us part.” Many people repeat these vows on their wedding day, in front of large crowds or during intimate ceremonies. However, whether for reasons good or bad, many marriages end before the timestamp stated in these vows.
According to the Center for Disease Control and Prevention’s National Center for Health Statistics, of the 45 reporting states and Washington D.C., there are 2.3 divorces per 1,000 people. In recent years, we have seen high-profile celebrity divorces of actors and actresses, social media influencers, and musicians unfold in the media. Most people think forensic accountants only uncover hidden assets and, sometimes, hidden liabilities. In these high-asset divorces, forensic accountants also play a prominent role in the determination of an equitable distribution of the marital estate, alimony and child support. In one high-profile case many witnessed unravel in early 2022, a forensic accountant even assisted with determining lost earnings for one of the parties.
But let’s assume you’re not a high-profile celebrity, then what? (Don’t feel bad, we haven’t made it to celebrity status yet either). How can a forensic accountant still be of use to you?
Forensic accountants can assist with the valuation of businesses associated with your marital estate, prepare schedules and reports to assist with mediation and settlement negotiations, and testify in hearings and at trial. We’ll get into the details below, and by the end of this quick read, you will know four ways a forensic accountant can help in a high-asset divorce
1. Uncover Hidden Assets and Liabilities
Hiding assets isn’t only for fraudsters. Maybe someone set aside a rainy-day fund and didn’t want their spouse to know about it, or one spouse wants to keep a little extra for themselves after the divorce. Despite the reason for the omission or hiding of assets, the use of a forensic accountant can help to uncover these items.
Forensic accountants use tax returns, bank statements, and other financial records and disclosures to analyze transactions, including transfers and payments to other accounts. “Following the money” can lead forensic accountants to discover unknown accounts and determine additional assets or liabilities of which the other spouse may have been unaware. While additional assets can increase the net worth of the marital estate, additional liabilities can create the opposite effect. The goal of a forensic accountant is to provide you with a complete financial picture.
2. Prepare a Marital Balance Sheet
The marital balance sheet maps out the “complete financial picture” we mentioned earlier. Like a business’s balance sheet, the marital balance sheet displays all assets, liabilities and equity related to the marital estate and their values as of a specific date. The goal of this document is to determine the net worth of the marital estate. In an equitable distribution state, the court can use this document as a tool to assist in dividing the marital estate’s financial accounts and properties in an equitable manner. It also helps to highlight any assets or liabilities one spouse may have owned before the marriage or inherited during the marriage.
Forensic accountants aim to provide you with a better understanding of your marital finances and estimated values of the assets and liabilities in the marital estate. Documents used to discover hidden assets and liabilities are also used to create the marital balance sheet. A forensic accountant can also review stock portfolios, public records and other sources to determine the values of assets and liabilities. As a result, it helps to provide the forensic accountant with information related to businesses in which either party has ownership. If the value of the business is not readily available, a valuation of the business can be prepared by a forensic accountant.
3. Prepare a Valuation of Businesses Owned by the Parties
When one or both parties have ownership in a business, that can add to the complexity of preparing the marital balance sheet. A forensic accountant can prepare a business valuation to ensure the marital balance sheet reflects an up-to-date value for businesses owned by the parties. Additionally, through the investigative work necessary to perform a business valuation, the forensic accountant will have an opportunity to continue to look for hidden assets.
For example, Jim and Jane Doe are married and own a business together. Jim manages the day-to-day operations of the company while Jane manages the finances. Jane knows she is planning to divorce Jim. Before filing for divorce, Jane begins to funnel money from the business she owns with Jim to a secret business that she owns completely. If Jane’s actions are not uncovered, she would unfairly walk away from the divorce with more money than Jim. The investigative and valuation procedures performed by a forensic accountant can assist in determining if Jim and Jane's marital balance sheet appropriately reflects what they own, including Jane’s secret business.
4. Assist with Mediation, Settlement and Trial
Lastly, when going through the divorce process, the parties generally attempt to come to an agreement regarding the separation of the marital estate or seek assistance from the courts. To assist with this process forensic accountants can prepare reports to be used at mediation and testify in court.
Forensic accountants are often called upon to be the financial educators in legal matters. In this role, forensic accountants often inform parties of what they objectively see in the financial data they have analyzed in a way that is easily understood. As a result, using a forensic accountant through any financial-related legal matter can be helpful to the parties involved. If you need assistance with a high-asset divorce, our Consulting Practice can assist in telling the story of what the numbers say. Feel welcome to contact us for more information.
