The Forensic CPA — Your Ally in Divorce

Let’s first dispel a popular misconception: Forensic does not mean dealing with the dead, as in Forensic Pathology’s well known Dr. Quincy. Black’s Law Dictionary defines Forensic as “Belonging to courts of justice”. Breathe a sigh of relief-Divorce and Death are not joined at the hip!!

Often, a participant in a divorce is forced to address a significant amount of financial detail for the first time. This, of course, is in addition to all of the other practical and emotional considerations affecting their lives. Spouses generally understand the basics of the family finances, but it is often the husband who assumes the role as the head of the family financial affairs. It is not uncommon in the divorce process that investments, bank and brokerage accounts and other assets are “discovered” that were unknown to a participant. In addition, if a business is involved, the non-participant often understands little about the affairs of the business.

An experienced Forensic CPA has training and experience in understanding and locating financial information and knowledge of the Divorce process. Consequently, he or she is an invaluable member of your professional team when you are in the process of a dissolution. Let’s look at several areas where this experienced professional will serve you well:

1) REVIEW OF PERSONAL TAX RETURNS

The filing of the family’s individual tax return is a time when financial information can be studied and shared by both spouses. However, depending on the complexity of the tax return, it may be a document which neither party has a high degree of familiarity with. This provides an opportunity to “gloss over” items not thoroughly disclosed to one of the signers.

Although sounding simplistic on its face, the review of the personal tax returns provides a wealth of information that will feed other aspects of the Forensic CPA’s assistance. Items that may be discovered are:

• Security investments
• Partnership and/or Corporate (Business) investments
• Real Estate ownership
• Investment property
• Vacation/Second homes
• Beneficial interests in Trusts and Estates
• Overpayment of taxes applicable to future years
• Refunds due from overpayments
• Loss carry forwards to future years

As can be seen, this reporting form provides a framework for the historical family financial affairs. It is a source of significant information and should be studied in detail by a professional who understands the wealth of information that it contains.

2) BUSINESS VALUATION

If a family-owned business is a part of the Marital Estate, an experienced Business Valuation Expert is critical to the determination of the company’s value. In most instances where a business is part of the family’s assets, it is by far the most valuable asset owned.

There is no marketplace, listing or database that will provide a value for a private business. The performance of a Business Valuation requires the skills of an experienced professional. It requires an in-depth study and analysis of the business, its industry, its history and future, the financial markets and many other considerations. Additionally, knowledge of transactions, the marketplace and seasoned judgement on value is required. Do not make the mistake of believing that any accountant is capable of this undertaking!

3) FINANCIAL INVESTIGATIONS

There are instances coincidental to a divorce when the wage earning spouse claims that the marital cash flow has decreased. A detailed review of documents, expenditures or other records becomes necessary. The Forensic CPA is trained to perform these reviews, and knows what to look for. Additionally, when there is concern that assets may be hidden, this professional has access to databases, public records and other means of ferreting out undisclosed assets.

4) RETIREMENT PLAN REVIEWS

Both individual and company sponsored retirement plans need to be reviewed and understood in reaching an equitable conclusion to the dissolution process. A Forensic CPA participates in the establishment and review of many such plans in his or her career. This area of increasing complexity needs careful scrutiny. Over the past five years, the stock market has increased dramatically. As a result, retirement plans have increased in value proportionately. These plans are an important part of one’s future and must be understood by both parties.

5) Tax and Financial Advice in the Settlement Process

The great majority of divorces end in a negotiated settlement. When considering the myriad of tax and financial possibilities, sound advice is required. Future cash flow analyses, income tax ramifications, retirement fund considerations and related asset transfers, and other such areas of decision making must be understood and considered for not only today, but also for the rest of your life! These decisions should be made with the best advisors available.

One can begin to see the complexity of the dissolution process when considering the few highlighted items above. Each case is different and has its own complexities and involvement. A participant in this process requires a good deal of assistance and counsel. The Forensic CPA will be an invaluable advisor during this process.

Lee Gould and Fred Lieber are practicing Forensic CPAs. They have in-depth Forensic and Business Valuation experience in divorce proceedings. They are partners in the Chicago-based CPA firm of Russell Novak & Company, LLP.