When there are suspicions of hidden income or secret investments or bank accounts, an analysis of known bank accounts can reveal helpful details. Tracy Coenen explains how bank statements and credit card statements can be used by a forensic accountant in a divorce case.
Tracy talks with Miles Mason, JD, CPA about some of the common financial lies told by spouses during divorce.
Below is a clip of a portion of a video I did on accounting services in divorce and family law cases. I discuss the work that a CPA can do in divorce cases.
Written by Tracy L. Coenen, CPA, CFF
ABA Section of Family Law eNewsletter
When a divorce or a child support issue is looming, it’s amazing how a quickly a closely held business starts “losing money.” I use quotes because such a situation is so predictable. One party wants to protect her or his assets, and when there is a business involved, the motivation to hide money can be stronger than usual.
The types of businesses that can be prone to manipulation of the books include restaurants, retail stores, doctor or dentist offices, construction companies, auto dealerships, and law practices. This list isn’t exhaustive by any means, but it provides good examples of businesses at risk of financial maneuvering.
Any business that is closely held and has finances that are easily manipulated by the owner is at risk. A lawyer filing for divorce from his wife may suddenly stop taking a paycheck and then claim he has no earnings from the practice. A restaurant owner could stop reporting cash receipts from customers, thereby claiming much lower revenue for the business while secretly pocketing the cash. A carpenter may offer customers a discount if they pay with cash and don’t request a receipt, never reporting that money as income.
It is sometimes difficult to determine the income of individuals who will be paying child support or spousal support. This can often be the case when dealing with self-employed individuals. If the reports of income made by the spouse or parent don’t seem to make sense, it may be necessary to look at his or her lifestyle to determine income. In this situation, we look at the expenditures made by the person and calculate the level of income necessary to fund those expenditures. Tracy Coenen explains the process in this video.
What documents must be obtained in a divorce proceeding when your forensic accountant needs to evaluate and investigate the income of the parties? In the below video, Tracy Coenen lists some of the basic documents that are needed to analyze wages, self-employment income, and investment income.
Bank statements can be incredibly useful when searching for hidden income during a divorce financial analysis. Both deposits and expenditures should be evaluated, and the process is explained in this video.
Tracy Coenen talks about the taxability of alimony versus child support, including a brief discussion of the IRS rules.
Many of the cases I work currently focus on the tracing of funds through multiple bank, brokerage, and credit card accounts. I am typically working with tens of thousands of transactions at a time, so the sheer volume of the data could be overwhelming.
I have put together a proprietary software system that enables me to capture manage, and analyze the data. The system eliminates the need for staff assistance (and the dangers that go along with having multiple people touch the database and possibly corrupt the data). How does the system work? Read on.
Getting the Data
The process of discovery can be long and agonizing for everyone. There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data. It often takes several rounds of requests to get the information we seek.
One of the chief concerns in a divorce or child custody case is identifying the true income of one or both of the parties. It is not unusual for such a case to include allegations of hidden income or assets. It is common for a closely held business to suspiciously encounter declining sales and profits following the filing of a family law case.In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have the correct numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.