It can be stressful to go through a divorce, especially when there are complicated financial issues to settle. Divorce lawyers and people seeking divorce often hire forensic accountants to help locate hidden assets and make the divorce process run as smoothly as possible.
In a divorce, a forensic accountant can reveal important information that can assist the divorce process. Finding hidden assets is one of the ways forensic accountants help achieve complete financial transparency. Furthermore, an accountant can help you determine the correct child support income, as well as determine the value of your assets and income.
Learn when and why you need a forensic accountant during a divorce below.
What is forensic accounting?
In forensic accounting, accounting work is related to issues that may be brought before a court or likely to be brought before a court. Using forensic accountants can ensure all numbers provided are true and accurate. Accounting, auditing, and investigative skills are used to reach accurate conclusions in their roles.
When a couple separated, forensic accountants were often brought in to help with valuation issues. Forensic accountants are commonly appointed as experts in family law cases to value businesses, trusts, or companies. Additionally, they can be used to identify "hidden assets" or determine whether expenditures are appropriate.
What can a forensic accountant do?
At a court trial, a forensic accountant provides expert testimony regarding finances. Their job is to trace the origins of money-related matters and figure out where the money went using accounting, auditing, and investigative skills.
In civil disputes, they often provide valuations of businesses, calculate and quantify economic damages, and resolve disagreements within companies. In divorce cases, they may be dealing with crimes such as money laundering and fraud.
Investigating and supporting litigation are the primary functions of forensic accounting. Forensic accountants may investigate fraud and theft cases. They use their accounting knowledge to resolve legal issues. In addition to performing fraud investigations, writing reports, and testifying as expert witnesses, they are often requested to assist in various investigations as well.
In litigation support, forensic accountants can resolve disputes before going to court. If a trial is required, they will quantify the damages the victims of legal disputes have suffered. Unlike most accountants, forensic accountants have a good understanding of the courtroom.
The Role of Forensic Accountants in Divorce Cases
A forensic accountant plays a crucial role in determining the extent and value of assets when couples have marital problems or want to divorce.
Some of their responsibilities include:
- Providing professional valuations of matrimonial assets, including pensions, property, and businesses, either jointly or solely
- Explaining the tax implications of disposing of these assets
- Identifying hidden assets and achieving full financial disclosure when either party believes that the other may be hiding assets in order to avoid their inclusion in a divorce settlement
- Serving as an expert witness in court
Taking advantage of a forensic accountant's expertise and technical knowledge, even if a couple hasn't sought legal advice about separation or divorce, can ensure a smoother legal process in the future.
When Is A Forensic Accountant Needed In A Divorce?
When a divorce involves a particularly complicated or troublesome financial situation, divorce lawyers often seek the advice of forensic accountants.
A forensic accountant can reveal important financial data that may affect:
- Spousal support
- Child support
- Asset division
- Hidden assets
- Business holdings
In spite of the fact that forensic accountants are more commonly used in high-asset divorces, anyone facing a complex financial situation can benefit from their services. A forensic accountant can help you if, for example, you and your spouse own a business, have multiple investments, have stock options, or otherwise have complex finances.
An experienced forensic accountant can also review more common financial investments such as retirement funds and insurance policies.
Do you need a forensic accountant for your divorce?
It is a common misconception that forensic accountants are only necessary if there are hidden assets, but this is not the case. As well as helping you uncover any bad financial behavior on your spouse's part.
They can also play a crucial role when:
- There are a lot of assets or high assets involved
- The case is financially complex
- Either spouse is an independent contractor or other 1099 worker
- You have a conflict over property division
- You or your spouse own a business, or both of you own a business
- Your premarital assets or liabilities were significant
A forensic accountant may be considered a joint expert or may work in conjunction with a legal team and represent only one of the divorcing spouses. A mediator may use an accountant, however, in certain situations when couples need assistance sorting out assets and liabilities when their divorce is especially complex.
My spouse already hired a forensic accountant, do I need one too?
There are several reasons why you should hire your own forensic accountant. However, the facts of your case will determine your decision. Keep in mind that your spouse's forensic accountant works for your spouse and their interests. However, your forensic accountant will work for you and your interests.
Your divorce judge will also consider the credibility of the testimony when deciding an issue or assigning a value to an asset if you hire a forensic accountant. The judge may find the forensic accountant's testimony more credible than yours if the accountant's testimony is supported by documents, charts, graphs, studies, and other evidence. Furthermore, if only your spouse owns the asset in question, you may not be able to testify as to its value.
How can a forensic accountant help during a divorce?
Forensic accountants can be invaluable in divorce proceedings as finances are a common point of contention. A forensic accountant investigates financial discrepancies in both personal and business finances in a divorce. A forensic accountant's input can help avoid a lengthy and stressful divorce.
You or your divorce lawyer may hire a forensic accountant for several reasons. Here are some ways forensic accounting can help your case.
1. Identify Joint Assets and Liabilities
One person tends to handle the financials in most marriages, which can be very disadvantageous if you end up divorcing. When a divorce is imminent, the other side may try to hide assets to achieve a more favorable settlement.
It is possible to hire a forensic accountant to identify and report that all joint assets and liabilities are in order. His or her input increases transparency, which ensures an equitable division of assets.
2. Appraise Assets, Businesses, and Properties
The details behind the numbers are just as important as the numbers themselves in forensic accounting. During an appraisal, forensic accountants analyze and verify financial data presented by the appraiser.
During a divorce, an accountant helps determine the value of assets, businesses, and properties so that they can be split equally between the two parties.
3. Locate Hidden Assets
Spouses sometimes try to conceal assets during a divorce. In the end, assets that are unknown can't be divided up. By hiring a forensic accountant, you can ensure that any hidden assets are accounted for.
A variety of methods are employed, including examining tax returns and the other party's spending patterns. They can use the investigation to find discrepancies between what they report and what they actually own. A forensic accountant can uncover assets held by fake corporations, underreported income, and fictitious debt, among other things.
4. Determine Child and/or Spousal Support
In a divorce, the spouse with a higher income may underreport their income in an attempt to minimize child support and/or alimony obligations.
Forensic accounting services can help uncover hidden assets as well as determine the actual income amount so that spousal support and child support payments can be calculated accurately by the court.
5. Assess Joint Fund Spending Throughout the Divorce Process
A joint bank account is often shared between spouses. However, if you've decided to divorce, neither you nor your spouse should withdraw large amounts of money from your joint account without any record of its use.
To keep a paper trail following a divorce, you should keep your money in the bank. During the divorce process, the forensic accountant can assess how each party spent the joint funds. This will facilitate the division of assets.
6. Strategize the Division of Assets and Liabilities
By using a forensic accountant, you can uncover crucial financial information that could affect your final asset division. Every item named in the marital property will be fairly evaluated and all liabilities will be accounted for by the accountant.
Their goal will be to strategize the best way to divide these assets and liabilities equally between you and your divorce lawyer.
The Benefits of Forensic Accounting in Divorce Cases
As part of the divorce preparation process, a forensic accountant can provide vital divorce documentation and reveal crucial information. A forensic accountant can, for example, figure out how much money is available for child support and alimony payments, as well as uncover hidden assets and income streams
In the event of divorce (which may include child support issues), a forensic accountant may be interested in various types of documentation, both business and personal, that reveals financial information about a spouse. Tax returns, accounting records, financial statements, bank statements, canceled checks, credit card statements, appointment books, sales invoices, business contracts, financial projections, mortgage applications, and other documents can be included.
How much does a forensic accountant cost for divorce?
Most forensic accountants charge between $300 and $500 per hour. It's not uncommon for a divorce to cost well over $3,000, as the process can be very complex and time-consuming. However, basic data entry and admin work can cost as little as $50 to $100 per hour.
Legal fees may be part of the extra costs associated with hiring a forensic accountant. Additional court fees may also apply.
It will cost more if you want more than one forensic accountant to work on your case. Nonetheless, if the amount of money involved is significant, spending the extra money may be well worth it.
A forensic accountant can work on so many different kinds of cases, and just like a civil or criminal case, their hours will vary greatly. Some divorce cases may only require a few hours of their time, while others may involve hundreds. In general, expect to pay an hourly rate for every hour they work on your case.
As your case becomes more complex, your accountant will spend more time on it; therefore, the price will increase.
Why Hiring A Forensic Accountant Is Important for Divorce
When going through a contentious divorce, it is important to make sure your marital property is fairly evaluated before dividing it. It could significantly affect how your assets are divided and how certain divorce settlements are decided if your spouse fails to report certain assets to the court, either intentionally or by mistake.
Consult your divorce attorney about whether you might benefit from the services of a forensic accountant if you have questions about complex financial issues after your divorce.
The best team can make or break a divorce. Although you may have a lawyer, you should also consider hiring a forensic accountant, especially if you have concerns about hidden assets.
When there are complex financial issues to consider, the help of a forensic accountant can help ease the divorce process.
A forensic accountant should be hired as early as possible. In all likelihood, the opposing party has already hired one.
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