Grant Webb of Bisk Education has many insights into the use of Forensic Accountants in divorce actions. Here is Grant’s blog. Thanks, Grant.
No one goes into a marriage expecting to end up in divorce, but sadly almost half of all U.S. marriages end that way. Some people are able to end their marriages relatively peacefully, but for others, a collapsing marriage can quickly lead to hostility and anger. Resentments and dissatisfactions that have built up over time may explode into outbursts of temper and fierce arguments. Spouses may engage in deception or even drugs and alcohol as a form of retaliation or in order to escape or relieve the pain of their dissolving relationship, which in turn creates more animosity. In general, the more hard feelings and enmity there are in the relationship prior to the divorce, the more there will be during litigation, especially when there are substantial assets at stake.
In almost every case, at least one spouse knows that divorce is likely and sometimes they will proactively plan for the end of the marriage. For some people, those plans include hiding marital assets in an effort to retain full ownership of those assets after the divorce. Whether driven by greed, reprisal, or both, the bottom line is that spouses who hide assets will go to great lengths to prevent the other spouse from receiving any portion of those assets.
Depending on how long the person has to plan and how sophisticated they are, hidden assets can be difficult to find. Spouses who own a business or are principal stakeholders in a business often have the easiest time shielding assets from the court. Putting friends and family on the payroll, reporting large business losses or expenses, and accelerating depreciation schedules are all tricks that opportunistic spouses may use. Spouses in a marriage with a high net worth and complex investment portfolios also have ample opportunities to conceal assets. They can shift funds to overseas accounts or new, unreported personal accounts. They may also create false paper trails of investment losses to hide income or invest in property or other assets in other states or countries. As concealment techniques get more complex, it becomes much more difficult to locate the hidden assets and to prove that they were generated with marital funds or other assets that should rightfully be included in divorce settlement hearings.
Family law and divorce attorneys are skilled professionals, but they are not trained or licensed to conduct the type of financial investigation that difficult divorce cases require. Although they have the best intentions of helping their clients achieve the most favourable financial end result, their skill set is not equal to or as effective as that of a forensic accountant. Forensic accountants are highly specialized licensed financial and accounting experts who are often able to reconstruct historical financial transactions and analyze bank statements, tax returns, and other documents to arrive at a true picture of a couple’s net worth and total assets. A forensic accountant is extremely adept at ferreting out financial misbehaviour and is likely the last person that a deceitful spouse trying to conceal assets would want to deal with.
Attorneys will often examine public documents, tax returns, and bank statements to look for any irregularities. Forensic accountants will examine these same things but at a much greater level of detail. Forensic accountants function like financial crime scene investigators. Many of them are also CPAs as a result of passing the uniform CPA exam. They gather every piece of evidence available at the smallest level of detail and then painstakingly reconstruct transactions and trace assets to identify anything that was originated using marital assets, and therefore subject to distribution to both spouses.
People are often surprised to find that forensic accountants also examine a spouse’s lifestyle, spending habits, and other personal habits. They may interview known associates, friends, and relatives and even past romantic interests to further their investigation. When it comes to bank and credit card accounts, forensic accountants don’t just look at current or recently closed accounts. They may go back years and examine every account a spouse has ever held, looking for clues that may indicate the spouse has transferred funds or opened new, unreported accounts.
Forensic accountants possess expertise in financial and accounting matters and a dogged determination to thoroughly examine every aspect of a person’s past and current financial and personal life. For this reason, spouses who are trying to hide assets from the eyes of the other spouse and the court system usually find that a forensic accountant is their worst nightmare.
For those that find themselves in situations that require the expertise of forensic accountants or CPAs, it is a best practice to research the qualifications of any given forensic accountant. This also helps in hiring the right CPA as well.