Is a Forensic Accountant Necessary in My Divorce Action?
Forensic Accountant and Divorce Attorney in Brick and Sea Girt NJ
A forensic accountant specializes in reviewing a spouse’s business and personal financial records.
The sad fact is that almost 50% of all marriages end in divorce. It’s also a fact that most marriages that end in divorce are in trouble long before the divorce petition is filed. This fact provides ample opportunity for either spouse to hide assets and income. The more animosity there is between the couple, the greater the chance that one or both is hiding income and assets.
Many spouses have significant experience hiding income or disguising nondeductible expenses for income tax purposes. It is a simple matter for them to apply these skills to their pending divorce problems. Typically, there will be little direct evidence that the income ever existed. If the client’s spouse suspects or knows that the other is engaging in these practices, a forensic accounting investigation is often necessary to provide supporting evidence of the hidden income.
What Skills Does a Forensic Accountant Possess?
- Analytical skills and industry experience necessary to investigate a wide variety of financial documentation.
- Classic skills of a CPA coupled with financial investigation tools.
- Ability to testify as an expert witness.
- Advisor to the attorney in finance, tax, and business practices
A forensic accountant specializes in reviewing a spouse’s business and personal financial records. Armed with this information, they detect the existence of hidden assets, the undervaluation of assets, or the underreported and/or understatement of income, and the overstatement/validity of liabilities. Some of the documents these financial experts analyze include bank accounts, credit card statements, and tax returns to determine the existence of marital assets and liabilities and their true fair market value. Based on the findings, the financial expert makes recommendations on how to best buy out the spouse, split any retirement assets, and, going forward, analyzes the cash flow for maintaining defined comparable lifestyles.
What Does a Forensic Account Do?
Here are some of the most common things that forensic accountants do:
- Determine each of the party’s income available for paying support;
- Calculate child and spousal support owed from one person to the other;
- Identify and assign a value to the couple’s assets and liabilities;
- Prepare a plan of how to divide the assets and liabilities between the couple;
- Assess the value of one (or both) of the spouse’s businesses (ex: car wash, dental practice);
- Account for how joint funds have been spent by each party since separation;
- Trace any pre-marital property to its current location and value.
- Identify any hidden accounts or cryptocurrency.
- Identify major hidden expenditures.
Often, both spouses will have his/her own forensic accountant, and the two can meet in the context of settlement negotiations with attorneys from each side. In the settlement process, calculations of the value of the parties’ assets, the child and spousal support payments that should be due from one party to the other (if any), and other financial issues are typically discussed. This process can take anywhere from months to years, depending (in part) on the size of the estate, the income of the parties, and the complexity of the legal issues involved. If the divorce is very contentious, and one or both of the spouses are very quarrelsome, the process slows down considerably and is sometimes completely unmoved.
When a spouse owns his or her own business, the other party may need investigative accounting to understand the value since it is not something that can be determined from reviewing tax returns. This business owner’s cash flow can be computed by a forensic accountant who will determine what should be included in the entrepreneur’s income. The complexities of this warrant a level of sophistication a forensic accountant can provide. The components to determine who gets what and how much are abysmally more complicated than a divorce with few assets. When was the business acquired? How much effort did the opposing spouse put into the business? Were there any individual investments made by a spouse into the business? These and a plethora more questions need to be answered to ensure a fair and equitable settlement.
Are There Other Situations in which a Forensic Accountant Is Needed?
Individuals with significant income such as highly paid executives and professionals such as doctors, attorneys, and accountants often have significant discretionary cash. Even if the opposing spouse’s primary income is from salary and wages, there will be plenty of cash available for investing and diverting from the marital unit.
A forensic accounting investigation may reveal previously unknown bank accounts, investments, and other assets. Often the client spouse has observed activity by the opposing spouse that indicates a forensic accounting investigation is appropriate.
A forensic accounting investigation is warranted when the assets listed in the prenuptial agreement may have been transmuted or commingled with the marital assets. If the agreement called for specific income allocation of the premarital assets, a forensic accounting investigation is usually called for to determine compliance with the terms of the agreement. Often, a forensic accounting investigation is needed to trace the assets listed in the premarital agreement to establish whether the assets remained as separate property, whether they were transmuted or commingled with marital property, and whether any incremental appreciation was created during the marriage that must be considered in the divorce.
Do You Want To Learn More? Contact a Monmouth and Ocean County Divorce Attorney
Matters of divorce and family law require the attention and skill of an experienced attorney who will fight for your future. Not only is your financial well-being at stake, but in a divorce, your emotional well-being is at risk as well. If you need a divorce attorney in Ocean County, New Jersey, please do not hesitate to contact Bronzino Law Firm at 732-812-3102 or fill out our online contact form.