One of the most common and complicated issues in divorce is determining a spouse’s true income and the value of a business.

In marriages where the matrimonial pool of assets is comprised of only real estate and personal items, there is little difficulty in determining a value. However, valuation becomes an important issue where one or both of the parties of the marriage are involved in the ownership of a business or have an entitlement to an income stream. Income determinations, classification issues and discount factors require expertise. This is where a forensic accountant can be beneficial and even necessary.

A forensic accountant is trained to examine personal and business financial records with an eye not only for what they show, but for what is being withheld. Their objective is to ensure there is no understatement of assets or income as sometimes there can be motivation for a spouse to hide assets.

During and following a separation, a party can feel overwhelmed and unable to cope but, in the long term, self-protection is required. Having someone on your side – who is not intimidated or emotionally involved and who has the knowledge to assist – can help the party to get through a very painful time.

There may be times during Family Law matters that a client who was not the main income earner and/or had no control over any family finances can use information which has been retrieved from the family, personal or business computers. Other sources of income, alternative banking or investment accounts, overseas money transfers, assets which are held but not stored at the business or family home, communication between parties referring to a business partnership, loan details and so on; these are all the types of information that can be uncovered.

Forensic accounting is much different than traditional auditing in a number of ways. First, forensic accountants integrate investigative, auditing, and accounting skills. Second, a forensic accountant reviews data in a critical manner in order to identify patterns of suspicious behaviour. Finally, a forensic accountant does not merely rely on statistical probabilities but instead relies upon experience in similar situations, instinct, and finding a workable solution to the problem, not to mention a more detailed and thorough review of all relevant support including documents and electronic data.

Forensic accounting can serve any number of distinct goals during a dispute. Understanding what a forensic accountant can do, however, is the best place to start. There are three general roles/deliverables where forensic accountants provide assistance during a dispute: 1) discovery assistance (i.e., knowing what specific information to request, and identifying the appropriate individuals to interview or depose); 2) developing a detailed, yet simplified, analysis and report that communicates the appropriate findings and conclusions; and 3) delivering effective testimony whether it be in deposition, trial, arbitration, or other dispute resolution forums.

Indicators that a person has more assets than declared can be determined from a review of their lifestyle and from financial analysis. Lifestyle indicators may show that the spouse’s reported income cannot support their current lifestyle. It involves identifying expenditures (on items such as designer clothes, jewellery, entertainment, art collections, expensive house and furnishings, luxury cars, expensive vacations, etc.) and comparing to current reported income. A financial profile can be developed on the spouse to illustrate that reported earnings from a business are being understated and

therefore the actual value of that business is higher than reported by the spouse and it is generating greater income than disclosed.

Hiring a forensic accountant to assist you in determining the true value of your family’s effects may seem excessive at first but in the long run may prove immensely helpful for resolving a family law dispute by protecting your settlement from unscrupulous practice or by improper valuation of significant assets and giving you peace of mind forever.

Let’s Resolve!