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 or child support case.
The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.
Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated. A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.
Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean that money has disappeared or the finances are being manipulated. But they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts.
Last week I wrote about the billionaire divorce I worked on, as the Bill and Melinda Gates divorce story made headlines. These cases are once-in-a-lifetime cases, although last year I had an opportunity to work on one again. But after failing to reach a settlement for several months, an offer was made that was finally good enough, and the divorce was settled before I was retained to do a lifestyle analysis.
I wanted to give you more insight into how these billionaire or mega-millionaire divorce cases work. It’s rare for one spouse to run to the courthouse and file for divorce. Because there is so much money involved, there is often a very long negotiation process before the general public even knows what is going on.
Typically the parties spend many months (or years?) working on a settlement so they can go to courthouse with a signed agreement in hand when they officially file for divorce. If there is a prenuptial agreement, that may help when trying to sort things out. Unless, of course, one party is contesting the prenup and they want to run to court to get that worked out.
In the Gates divorce, it was reported that Melinda hired attorneys to start working on it two years ago. This does not surprise me. It has also been reported that by the time Bill and Melinda married in 1994, he was was already worth more than $9 billion. So why didn’t they have a prenup?
Who knows. Now they’re dividing assets from their 27 year marriage. They reportedly have a “separation contract” and on the day the divorce became public, $1.8 billion in stock was transferred from Bill to Melinda. That separation contract is exactly the type of thing I’m talking about when I say ultra high net worth parties often like to make agreements before they file for divorce.
It is also being reported that Melinda Gates also had some estate and trust attorneys on her team during the negotiations. Some are saying that is unusual, but when you have literal teams of lawyers from multiple firms representing each party in the mega-rich divorce, this is also not surprising to me.
Depending on who you believe, Melinda and Bill Gates have a net worth of around $128 billion or $130 billion. That much wealth boggles my mind. I can only imagine the amount of real estate owned, the investments through their family office (Cascade Investment LLC), and the work of the Bill & Melinda Gates Foundation.This is like one gigantic business splitting up, and it takes a lot of time to work out the details.
This article in Forbes, For Richer and Richest:Inside The Billion-Dollar Marriages, Open Relationships And Bitter Divorces Of The Forbes 400, delves into a few of the realities. They mention Chicago billionaire Ken Griffin (founder of hedge fund Citadel) who got divorced in 2015. My involvement in the case was revealed by the Chicago Tribune in an article on the various people associated with the high ticket divorce.
Ken’s wife Ann Dias Griffin was asking for $1 million a month in child support payments for their three small children. My job as a financial expert was to comb through the family’s spending for the prior five years to determine the cost of the lifestyle of the children. This got complicated because there were many expenses that were for the whole family (for example, a family vacation to a tropical island), and I had to determine what amount to assign to the children.
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.
Tracy Coenen talks with Miles Mason, Esq. about a divorce case of his in which a forensic accountant was able to find significant financial frau
Last year the American Bar Association published the second edition of my book “Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets.”
Here’s the video that was done for the first edition. It’s a great summary of what you’ll find in the book, which is designed to help attorneys understand the financial analysis process and get a handle on the documents they will need to do a thorough investigation of the family’s finances. The first edition was good, but the second edition is great with even more case examples, expanded explanations, and updates for new developments in the law.
Family Law Attorney Miles Mason discusses the kinds of documents that may be used to verify income in divorce and child support cases. These may include tax returns and related forms, but can also include things like financial statements, loan applications, or evidence of spending.
Divorce and child support cases often are highlighted by disputes over money. One party may be accused of artificially depressing earnings, hiding assets or manipulating the finances to lower the financial obligation to another party. Understanding the complete picture of the finances is necessary before a fair settlement can be reached.
Chicago divorce attorney Jeffrey Knipmeyer, partner at Nottage & Ward, cautions that spouses of individuals hiding income and assets rarely have the financial sophistication to recognize that manipulation is occurring. He adds that during the marriage, they typically have been hands-off, and their only knowledge of the finances depends on what the spouse has communicated.
Bank statements can be a very valuable tool in child support and divorce cases, particularly when one party has not been forthcoming about income and expenses. We can look at deposits to draw conclusions about income, and the level of expenditures may also give us clues about the level of income. Tracy talks about some of the ways she analyzes the bank statement data.