When To Retain The Services Of A Forensic Accountant

Marital dissolution is a complex process involving emotional, legal, and financial dimensions. While some cases are straightforward, others, especially those involving businesses, large estates, or hidden income, require specialized financial expertise. This is where a forensic accountant becomes essential.

In this comprehensive guide, we delve into when and why to retain a forensic accountant in divorce, what their role entails, and how their findings can directly impact outcomes related to spousal support, asset division, and legal strategy.

What is a Forensic Accountant?

A forensic accountant is a highly trained financial investigator who uncovers, reconstructs, and explains complex financial issues in legal settings. They are distinct from regular accountants because their work involves detailed audits, analysis, fraud detection, and expert witness testimony.

In divorce litigation, forensic accountants help attorneys and the court reach fair conclusions on financial matters such as hidden income, business valuation, and asset apportionment.

Why Forensic Accounting Matters in Divorce

Financial clarity is essential to ensure fairness in divorce settlements. In situations where financial documentation is incomplete, manipulated, or disputed, the forensic accountant plays a critical role by analyzing financial data and drawing factual conclusions that hold up in court.

Unlike standard CPAs, forensic accountants test assumptions, reconstruct transaction histories, and trace asset origins, providing both high-level analysis and granular financial insights.

Common Divorce Scenarios Requiring Forensic Accounting

Below are the scenarios where forensic accounting becomes indispensable. Each is explained to demonstrate its legal and financial relevance:

Unreported or Underreported Income

This is common when one spouse is self-employed or works in a cash-heavy business. Forensic accountants assess actual income by reviewing bank deposits, tax returns, business expenses, and lifestyle expenditures to uncover discrepancies. Their goal is to estimate real income versus reported earnings, crucial for fair support calculations.

Business Ownership or Self-Employment

Businesses can be used to mask true income, hide assets, or inflate expenses. A forensic accountant:

• Reviews financial statements
• Identifies inconsistencies
• Analyzes shareholder distributions
• Examines accounts receivable and payable patterns

They ensure the business is not used as a financial shield and provide valuation and income assessment that courts rely on.

Separate Property and Commingling

When a spouse claims certain assets were owned before marriage or were inherited, these assets are considered separate property. However, when mixed with marital funds or improved using community resources, the lines blur.

Forensic accountants use tracing techniques to:

• Identify the source of funds
• Calculate any appreciation due to community effort
• Determine the proportion of community interest

Notably, See v. See is often cited in cases involving commingled assets.

Determining Spousal and Child Support

To establish or challenge support orders, forensic accountants:

• Examine lifestyle expenditures
• Compare spending patterns before and after separation
• Estimate the marital standard of living

This evaluation influences both temporary and permanent spousal and child support awards.

Business Valuation and Goodwill Calculation

Businesses, especially professional practices, carry value beyond just assets; they may also have goodwill. This could be:

• Enterprise goodwill (linked to the business itself)
• Personal goodwill (linked to the owner’s reputation)

Forensic accountants use methods like:

• Discounted Cash Flow (DCF)
• Market Multiples
• Capitalized Earnings

They also distinguish between tangible assets and intangible goodwill, ensuring equitable distribution.

Asset Reimbursement and Apportionment

Some of the most intricate divorce issues involve post-separation contributions or community interest in separate property. These include:

• Epstein Credits: Reimbursement for separate funds used to pay community obligations
• Moore/Marsden Calculations: Community interest in a home purchased before marriage but paid down using marital funds
• Pereira/Van Camp Allocations: Apportioning business value increases between separate effort and community contributions

Each calculation requires precise documentation and judgment, a task best suited for forensic accountants.

Frequently Asked Questions

What role does a forensic accountant play in child custody cases?

Although primarily focused on financial matters, forensic accountants can provide data on income, lifestyle, and asset availability that indirectly influence child custody and support rulings.

How do courts view forensic accounting reports?

Courts generally view forensic reports as expert evidence. When properly documented and presented, they carry significant weight and can shape the court’s decision on asset division and support.

Is forensic accounting confidential?

Yes. Engagements are often structured through legal counsel, invoking attorney-client privilege, which offers additional confidentiality until findings are presented in court.

Can a forensic accountant help if my spouse owns cryptocurrency?

Absolutely. Forensic accountants are increasingly skilled in tracing crypto wallets, exchanges, and transaction ledgers to uncover unreported digital assets.

How does forensic accounting affect divorce negotiations?

When used early in the divorce process, forensic accounting provides leverage for settlement. A spouse with concrete financial data is better positioned to negotiate a fair outcome.

Reape Rickett: Your Legal Partner in Complex Divorces

Reape Rickett understands the financial intricacies of divorce. We collaborate with experienced forensic accountants to strengthen your legal position and protect your financial future. Our team ensures that no asset is overlooked and every financial issue is addressed with precision.

We proudly recommend and collaborate with:

Ron J. Anfuso, CPA/ABV, An Accountancy Corporation

A Los Angeles-area firm specializing in forensic accounting, litigation support, and business valuation.

Contact Information:

Phone: (310) 378-6606

Email: rja@anfusocpa.com

Secure Your Financial Future with Confidence

If your divorce involves businesses, unreported income, or complex property claims, don’t leave financial fairness to chance. Contact Reape Rickett today for legal support backed by forensic insight.
Visit Reape Rickett’s official website or call us now to schedule your confidential consultation.