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 the net worth analysis.
In many divorces, women are at a significant disadvantage, especially when it comes to money. In many marriages, the husband has been the main breadwinner. He often controls the purse strings, and often knows much more about where money has been spent and what assets are owned.
In contrast, the wife has often had lower earnings, and has had little to no control over the money. She may have been free to spend money as she saw fit, but she did not see the bills, pay the bills, or maintain control over bank and brokerage accounts. At divorce time, she has no idea where the money is, where is may have (improperly) gone, and may have no access to it. Read More
In the early stages of divorce, clients are required to complete financial affidavits, financial declarations, or other similarly titled disclosures. The importance of an accurate disclosure of assets, liabilities, and income is obvious. Yet many clients are unable to accurately prepare this financial information.
Particularly in high net worth divorces, it may be difficult for the husband or wife to report these financial details because of a large volume of data and/or an inability to compute the numbers. The financial declaration will be a primary piece of information used to divide assets, calculate alimony, and calculate child support. Errors can therefore be very costly.
A lifestyle analysis completed by a forensic accountant can solve this problem, and can add other value to the divorce process. The lifestyle analysis is typically done to demonstrate the spending (or the lifestyle) of the family prior to the separation. Read More
When a spouse owns a business, it can create some of the most complicated financial issues in a divorce. It is extremely important to dive into the financial records of the business in order to value it and to determine where the money is REALLY going. Tracy Coenen and Miles Mason discuss what documents a forensic accountant needs to evaluate the business.
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.
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.
Both civil and criminal cases often involve an element of proving or disproving income of an individual or business. It is not unusual for a divorce case to include allegations of hidden income or assets. In contract disputes alleging the loss of sales or profits, an accurate determination of income is critical.
In criminal cases, the issues surrounding the income of an individual or business have even higher stakes. These cases are quite often tax-related matters, but cases involving white collar crimes and drug trafficking usually include questions about income too. Read More
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. Read More