Written by Tracy L. Coenen, CPA, CFF

Family Lawyer Magazine
2013 Print Edition

A thorough lifestyle analysis can help discover undisclosed income and assets.

In an ordinary lifestyle analysis, the divorce financial analyst extracts all of the transactions from bank, brokerage and credit card statements, categorizes them and calculates totals for each category for the period under analysis. This is an important exercise to assess what the parties to a divorce have historically spent and determining an appropriate level of support. It can also be used to determine whether a spouse was wasting or dissipating marital assets.

More importantly, the lifestyle analysis can also be used to uncover hidden income and assets, or help prove that one spouse is living a lifestyle that exceeds the reported sources of income. The typical lifestyle analysis may only scratch the surface of the financial facts of the case, leaving behind important clues about the finances of the parties. Diving deeper can uncover hidden finances that may have otherwise been overlooked.

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 in explained in this video.

In divorce cases, forensic accountants can use the “net worth method of proof” to calculate income. This is used to search for hidden or unreported income. Rather than simply taking a spouse’s word for it that his or her income is X, we can do an analysis like this to try to verify the claimed income.  This method of proof is one part of a lifestyle analysis, in which we are analyzing the party’s lifestyle and determining if that lifestyle matches the income that is being reported. This video explains the process of completing a net worth analysis.

I talk frequently about how almost everyone loses money in multi-level marketing schemes. Companies like Mary Kay, Herbalife, Amway, and Avon want you to believe that money is being made from retailing the products. They say they are not pyramid schemes because they have legitimate products that can be sold for a profit.

Unfortunately, almost no one profits from MLMs, and certainly not from the sale of MLM products. Why? Because there is only a tiny market for bona fide retail sales. Very little actual retailing of products occurs. The vast majority of the “product sales” are from the MLMs to their distributors, rather than third-party consumers.

But the companies have a vested interest in getting consumers to believe their lies. If consumers didn’t believe the products were being retailed, they’d never sign up as distributors. Oh sure, some retailing goes on. But it is a very small amount, and is usually not at full retail price. Mary Kay says it’s simple: Buy a product for $1 and sell it for $2. You’ve doubled your money! But it’s nearly impossible to sell at full retail pricing, especially when tens of thousands of products are being dumped on eBay at or below wholesale pricing.

Damages experts are a routine part of litigation, as the issue of financial losses is often complicated. A variety of subject matter experts and financial experts are a standard feature in litigation to sort out the issues and help judges and juries understand the numbers. But what if there is no damages expert? Can a proper award of damages be made?

In an opinion issued this spring, a judge in federal court in the District of New Jersey granted defendant’s motion for summary judgment on plaintiff’s claim for damages.

Unicom Monitoring, LLC was granted summary judgment its patent infringement claims against Cencom, Inc.  The plaintiff alleged that it could prove the revenue and profits earned by Cencom related to the infringement, and the reasonable royalty that Unicom was entitled to because of the infringement.

When a divorce involves a business, we often ask for a copy of the general ledger. This includes the detailed accounting records for a specified period of time. What can we find in the general ledger? Watch the video to find out!

How does a forensic accountant use bank statements in a divorce or family law case? Tracy Coenen explains why bank statements and credit card statements are requested in these cases.

Yesterday Financial Executives International (FEI) ran a guest post by me on their Financial Reporting Blog. The introduction is below, and you can read the entire article about the expectation gap between auditors and the users of financial statements here.

One of the greatest problems with the process of traditional financial statement audits is the expectation gap, which is commonly defined as the difference between what auditors do and what the clients, investors or the public expects.  There are also gaps in understanding as to the role of other parties in the financial reporting supply chain, including financial executives, internal auditors, and audit committee members, and how those parties interact with auditors and each other, and the public’s expectations thereof.

[snip]

Let’s look at the first part of the Expectation Gap,  that between auditors and their clients. The audit engagement letter and other pieces of correspondence from the auditors to the client state that the company is responsible for preventing and detecting fraud. In spite of this, management often points the finger at the auditors for failing to uncover a fraud scheme.

This article was originally printed in the ABA Section of Family Law eNewsletter, July 2013.

While consumers generally hate income tax returns because of their complexity, they can be invaluable sources of information in divorce proceedings. Not only do they provide insight into prior years’ earnings, they can also point to assets and sources of income. They may be used to unearth financial information that a spouse omitted from the financial disclosures, and can hold subtle clues to otherwise unknown financial details.

For example, assets are sometimes sold by the spouses to generate cash. Many times this may be a taxable transaction reported by the purchaser to the taxing authorities. Therefore, such a transaction will be required to be reported on the income tax return, and this may help unearth a hidden asset or provide clues to concealed cash.

Xyngular Corporation recently sued Innutra LLC, a company that appears to be founded by a number of former Xyngers. You may recognize Xyngular as the company for which serial scammer Jennifer McKinney shills. Both companies are multi-level marketing companies that use “nutritional supplements” as the front for their recruiting schemes.

Xyngular is upset because the people who started Innutra (James Ayres, Cindy Hansen, Glen Oliver, Cecily Karst, and Chris Hummell) allegedly used distributor lists and other proprietary information to get people to join Innutra (in violation of agreements made with Xyngular).