The popularity of crime shows makes many people automatically associate the word “forensic” with efforts to solve a murder. While the term can apply to the use of scientific methods to investigate potential crime, forensic also has a second meaning relating to the law and the court system. Forensic accounting in divorce references both meanings of the word.
If you are concerned that a spouse may be attempting to hide assets or dispute whether certain assets should be classified as one spouse’s separate property, a forensic accountant can trace assets and provide the answers you need to protect your interests. Moreover, a forensic accountant will also provide evidence in a form you can use in court. Here are some of the ways forensic accounting is used in divorce in California.
Locating Hidden Assets
A forensic accountant can analyze tax returns, financial statements, loan applications,and a host of other financial records to detect signs of hidden income or assets moved off the record. If a spouse owns a business, that provides additional opportunities to conceal money and property, so it is particularly helpful to have an experienced professional who knows where to look and how to identify discrepancies.
Forensic accountants use a variety of methods to locate and identify assets to detect different types of fraud in divorce.
Characterizing Property as Marital or Separate
In divorce, couples divide assets considered to be marital property, but each spouse keeps the assets that are determined to be their separate property. Property that a spouse owned before marriage or received by inheritance is usually their separate property initially, but it can be commingled with marital property and become at least partially marital property.
Using forensic accounting techniques to trace property can help a spouse show what percentage of property value should be treated as separate property and not divided in divorce.
Assistance During Financial Discovery
Because forensic accountants understand legal proceedings and focus their skills on the analysis of financial documents, they can provide valuable assistance during the discovery process in divorce. Discovery is the fact-finding stage of a legal case, and skilled attorneys know that they can essentially win their case through the strategic use of discovery processes. Through financial discovery, your legal team can gain the information that puts you at an advantage in negotiation and in arguments presented in court.
Business Valuation
When one or both spouses own an interest in a closely-held business, many financial factors associated with the business will have an impact on the divorce. For instance, some or all of the value of the business may be marital property that must be divided. Forensic accounting methods can help establish an accurate value.
In addition, forensic accounting can be used to assess the value of a spouse’s contributions to the business. These determinations can allow the process of dividing marital property to proceed with more confidence all around.
Calculating Cash Flow
When determining how much income a business owner can reasonably be expected to contribute to the support of a spouse or child, it is essential to understand several elements of cash flow connected with the business. Forensic accounting can be used to calculate cash flow that can in turn be used to help establish a fair division of property, ability to provide or need for alimony, and child support obligations.
Expert Testimony in Court
Knowing information is one thing, but proving it in court is often another matter. Forensic accounting uses scientific methods to locate information and calculate conclusions, but it also uses logical chain reasoning to prepare evidence that can stand up to scrutiny in court.
A forensic accountant can prepare specific evidence to be used to demonstrate particular financial facts, but a forensic accountant can also serve as a qualified expert witness to testify to certain truths in accounting. They can explain their analysis of financial information and show why it supports legal arguments made on behalf of a client in divorce.
Holstrom, Block & Parke Understands How to Take Full Advantages of the Benefits of Forensic Accounting in Divorce
As in marriage itself, many of the most ardent arguments in divorce concern financial issues and lack of trust. Forensic accounting techniques can uncover fraud, but they can also be used to confirm the absence of fraud. In either case, use of forensic accounting protects both parties and ensures that divorce terms are fair and reasonable because they are based on accurate financial knowledge.
At Holstrom, Block & Parke, APLC, our team makes excellent use of forensic accounting methods to put our clients in the best position, whether we are negotiating divorce terms out of court or presenting our case to the judge. If you’d like to discuss the ways forensic accounting could be used in your specific situation, just schedule a confidential consultation.
