Family lawyer Miles Mason explains how he uses a lifestyle analysis prepared by a forensic accountant in a divorce case.
Tracy explains the purpose of a lifestyle analysis in a divorce case, and the process used to analyze the family’s finances. The lifestyle analysis may be used to determine how much money is required to continue living the lifestyle the parties had while married. It may also be used to find hidden income or hidden assets, and Tracy discusses how she may uncover these items.
High net worth divorces often have a high volume of data which must be analyzed when doing a lifestyle analysis. How can this data be managed and evaluated accurately? Tracy Coenen explains.
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.
A question often comes up relative to the lifestyle analysis in divorce cases: Isn’t is just data entry that anyone could do? Why do I need a forensic accounting expert?
As I explain below, the lifestyle analysis is NOT just a data entry exercise. A level of quality control is necessary in order to ensure that all transactions are included in the analysis and no transactions are duplicated. In larger cases, there may be enormous volumes of data to be managed, and the client needs an expert who can effectively handle the data. Also, the numbers must be categorized and analyzed. Sometimes estimates or judgment calls need to be made. That is the work of an expert.
It is not unusual for the “out” spouse (the one who is not the major breadwinner in the family and who does not have control over the family’s finances) to suspect that income and assets are being hidden during a divorce. When one party is accused of hiding income, how can a forensic accountant find it?
Below are a few techniques that I may use to uncover hidden income. A more in-depth discussion of this topic appears in Chapter 9 of my book, Lifestyle Analysis in Divorce, published by the American Bar Association.
Tracy Coenen, author of “Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets,” shares her insight on uncovering financial details to ensure that divorce settlements are fair and equitable. A forensic accountant and fraud investigator, Coenen wrote the book to arm lawyers with a powerful tool when valuing and dividing property in complex divorce cases.
Where does a forensic accountant begin when trying to calculate the income available for support in a divorce or child support case? Tracy Coenen talks about some of the issues encountered in trying to evaluate income.
When a spouse involved in a divorce owns a business, the finances of that business must be analyzed. A Business Lifestyle Analysis can be done to determine the true income of the company and find out where the money is really going. In this video, Tracy Coenen talks about how she analyzes the detailed accounting records of a business.
Closely held businesses present special challenges in the family law setting. Typically, only one spouse is actively involved in the business. Therefore, not only does the spouse control the family’s finances, he or she also controls all of the records of the business. When a spouse is attempting to quantify the income from the business or the value of the business, the spouse who works actively in the business can purposely (and often very effectively) obstruct attempts to get accurate and complete data.
Certain types of businesses, such as restaurants and retail stores, can be prone to manipulation because they have so many cash transactions. Construction companies, real estate ventures, and auto dealerships are notorious for “creative” bookkeeping. Professional service providers, such as doctors, dentists, and attorneys are at risk for financial maneuvering because it is so difficult to verify the amount of professional services actually provided to patients or clients.
Any business that is closely held and has finances that are easily manipulated by the owner is at risk. If this happens, the “out” spouse is left looking for alternatives to get to the bottom of the finances. Techniques used in a personal lifestyle analysis can also be applied to businesses to ferret out the truth about the money.