Forensic Accounting In A Divorce Case

Some Colorado divorce cases turn attorneys into detectives. When a spouse owns a business, commits fraud, or hides family assets, forensic accounting may be needed to track down the assets in the case, set values for the parties’ property, and help the courts come to a fair distribution of property and assets. Here is how and when to use forensic accounting in a divorce case, and what other financial experts you may rely on along the way.

Proving Property Issues Sometimes Requires Forensic Accounting for Divorce

The more complicated your family’s financial situation, the more likely you are to need some form of forensic accounting for divorce. In a divorce action, forensic accounting is the process of investigating the financial history and circumstances around a couple’s marital estate to help set the value of specific assets, track funds between accounts, and reveal hidden assets hidden by one spouse along the way.

A forensic accountant will review the parties’ bank statements, credit histories, payment histories, and business interests to give the court a clear picture of what money the parties had, and where it has gone. Once the review is complete, the accountant generally prepares a written report and can also be called to testify as an expert witness in the case.

When Might You Need a Divorce Forensic Accountant?

The most common reason to hire a divorce forensic accountant is to determine the value of a closely held business. If one spouse owns and operates a business (alone or with partners), the value of that business is part of the marital estate to be divided by the court. The non-owners spouse will generally be entitled to a share of its value. However, they are not usually awarded shares of stock (in fact some companies’ partnership agreements don’t allow that). Instead, they may receive an offset or financial buyout for their equitable share of the value of the business. This requires a forensic accountant to review the company’s books and establish a business valuation for use by the court.

In other cases, the question is whether certain property is separate or marital. Separate property is:

  • Owned prior to the marriage
  • Obtained by gift or inheritance
  • Received in exchange for other separate property
  • Acquired after a legal separation
  • Excluded by a prenuptial agreement or other valid agreement

It is set apart for the owner spouse prior to the division of marital property assets. In those cases, a forensic accountant may be hired to establish the value on the date of the marriage, trace the funds through the parties’ accounts during the marriage, and establish its present value.

Finally, you may need a forensic accountant to track down assets that your spouse has sold, given away, or hidden to keep them out of the marital estate. A forensic accountant can review the parties’ financial statements to track down where those assets went. This could also include demonstrating that a dishonest spouse is underreporting their assets or income for purposes of child support and spousal maintenance. If your family’s lifestyle exceeds the amount the wage earning spouse says they make, you may need to hire a forensic accountant to show where the difference is coming from.

Other Types of Financial Experts Used in Divorce Cases

Not every case requires hiring a forensic certified public accountant. In fact, most don’t. However, even when your spouse is not behaving badly, you may still want to work with certain financial experts along with your divorce attorney to help guide you to a fair, and feasible, property distribution.

A divorce financial planner can help you identify and quantify your post-separation needs and sources of income. They can help you form a budget, which in turn can be used to justify requests for child support and spousal maintenance (formerly known as alimony) based on your needs and both parties’ ability to pay. While these values are sometimes set according to a formula, judges can still adjust the amounts based on the circumstances of the parties.

In addition, it is a good idea to discuss any potential settlement offer with a tax preparer or CPA before entering into a settlement agreement. Sometimes the financial aspects of a divorce can trigger unexpected tax consequences or penalties (such as when funds are withdrawn prematurely from a pre-tax retirement account). Family law attorneys are not necessarily experts in tax law, so getting the advice of your tax preparer ahead of time can avoid uncomfortable surprises later on.

Who Pays for a Forensic Accountant in Divorce

A forensic accountant is usually an expert witness for one party, who is generally required to pay their expert witness fees. However, Colorado law does allow the court to order one spouse to pay some or all of the other spouse’s attorney fees and litigation costs based on both parties’ financial resources and abilities to pay, or when a claim is entirely without merit. You should not count on these laws covering your expert witness fees in every case. However, if your spouse has many more resources than you do, your attorney may be able to make the argument that he or she should be required to cover the cost of hiring a forensic expert.

In some cases, both parties can agree to work with the same expert witness. This is especially true in business valuation cases. When this happens, the parties generally divide the expert witness costs, but they also agree to be bound by that forensic accountant’s valuation determination. Be sure you discuss the consequences of that choice with your attorney before you try to cut costs by stipulating to share the same expert witness.

Contact an Experience Divorce Attorney Who Can Work Alongside a Forensic Accountant

At Aviso Law, our divorce attorneys know how to work with forensic accountants and other financial experts to get a fair and equitable property division for our clients. While most of our cases settle, attorneys Cory Tuck and Elizabeth Thomas know how to make use of expert reports to prove your case and get you the best financial outcome for your future. We are here to serve you and your family. Contact us today to schedule a consultation.

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