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The Role Of A Forensic Accountant In A High Net Worth Divorce

When a divorce involves valuable assets, one or both parties might consider hiring a professional with forensic accounting expertise to assist with this procedure. According to the American Institute of Certified Public Accountants (AICPA), this form of accounting entails applying investigative skills and specialist knowledge to gather and analyze financial evidence. Typically, the forensic accountant then presents the findings in an administrative or legal setting. To learn more about what a forensic accountant does during a high net worth divorce and discover how a Colorado family law attorney can help soon-to-be divorcees, call the Colorado Divorce Law Group today at (720) 593-6442.

What Is a High Net Worth Divorce?

A high net worth divorce may occur when one or both spouses has a substantial amount of wealth and high-value assets. Usually, the structure of these assets is complex, particularly if the assets have existed for a long time for tax efficiency and succession purposes. The location of the assets might also span multiple jurisdictions, or an offshore trust could hold the assets, making it challenging to determine each party’s entitlement during the divorce proceedings.

Examples of types of high-value assets often concerned in high net worth divorces include::

  • Pensions
  • Offshore and onshore assets
  • Inherited wealth
  • Business interests
  • Investment portfolios
  • Personal assets, including funds in savings and checking accounts
  • Trusts
  • Property

Forensic Accounting Explained

Per the American Bar Association (ABA), forensic accounting refers to applying scientific techniques and methods to data to systematically investigate a legal or criminal issue. Companies, high net worth individuals, government entities, and nonprofit organizations typically hire accountants in this field to help determine whether certain financial activities are fraudulent or underhanded.

These professionals work on the following legal issues:

  • Bankruptcies
  • Fraud
  • Contract and shareholder disputes
  • Damage calculations
  • Asset misappropriations
  • Divorces

Why Would Someone Hire a Forensic Accountant?

Concerning divorce, someone might hire a forensic accounting professional to help with the following:

  • Unraveling the couple’s complex financial affairs, including discovering the true value and location of all their assets, to calculate how to fairly distribute them
  • Assigning a value to any businesses owned by the couple by looking at the company’s future earnings, researching the sales price of similar businesses operating in that industry, valuating the company’s assets, and determining the business’s debt history, current income, and cash flow
  • Identifying whether one party attempted to hide money overseas, conceal assets from the other spouse, or participate in other unethical or illegal accounting practices
  • Conducting follow-up investigations in specific scenarios, such as when one party argues that a change in the other’s financial situation affects certain elements of the divorce, like child support or alimony payments
  • Scrutinizing a business’s financial statements, if one or both parties have a stake in one, to determine fraudulent activities, potentially benefiting the company by preventing corporate wrongdoing

What Does a Forensic Accountant Do in a Divorce Case?

Forensic accountants can do many things, including ensuring compliance with accounting procedures, tracing discrepancies, and investigating the finances of complex business cases. A forensic accountant may also carry out the following duties during a divorce case:

Helping the Court Determine Child Support

When a divorce involves children, the court determines the necessary level of child support payments. Sometimes, one parent might understate their income to minimize these installments. Forensic accounting helps to identify the actual income of each party, ensuring these payments are accurate. Learn more about a forensic accountant’s role in a high net worth divorce and understand how a seasoned Colorado family law attorney can assist individuals wanting a divorce by getting in touch with the Colorado Divorce Law Group.

Advising on Tax Implications

Dividing assets during a divorce often entails tax implications for the couple. High net worth individuals may ask the professional they initially hired to perform forensic accounting duties to help them reduce the effect taxes can have when transferring assets at the end of the divorce proceedings.

Providing Expert Testimony

If a divorce goes to trial, one or both parties might ask these professionals to be their expert witnesses. Thanks to their excellent communication and analytical skills, these individuals commonly perform this role.

How Does a Forensic Accountant Find Hidden Assets?

Sometimes, one party in a divorce might try to conceal their assets by transferring them temporarily to family members or friends, exaggerating their liabilities, establishing offshore shell companies, or moving funds to secret accounts. The following forensic accounting methods help uncover these hidden assets:

  • Analyze deposits: A common forensic accounting method for locating hidden assets involves looking at a person’s net deposits and adding all the payments made by this person to this figure. The accountant then subtracts all the known transactions from this amount. Then, if anything remains, they investigate this further to determine what happened to the money.
  • Understand each party’s funds: An alternative technique entails thoroughly investigating the funds of each spouse to identify whether anyone spent any money they did not previously declare, achieved by checking through bank statements and analyzing other financial information. This helps the accountant identify whether one spouse is acting suspiciously. If the accountant finds evidence of suspicious activity, they may look at the spouse’s spending patterns, tax returns, and correspondence to further determine the discrepancy between their reported and actual income.

What Is Net Worth in Forensic Accounting?

Another well-established forensic accounting practice used during a divorce is the net worth technique, which involves analyzing the contrast between an individual’s net worth, or total assets minus total liabilities, within a certain period. Here, the accountant looks at gathered financial data to determine whether that person’s net worth prior to the initiation of divorce proceedings matches its current value. If the accountant correctly applies this method and identifies a disparity, it can be strong circumstantial evidence demonstrating that the individual is hiding their assets.

Contact a Colorado Family Law Attorney Today

If a divorce involves considerable assets, dividing them can often be a complex process, especially if the couple had convoluted financial arrangements in place. In this scenario, some individuals may consider forensic accounting to help investigate the other party’s financial affairs and boost the chances of equitable asset division. Find out more about the role of a forensic accountant in a high net worth divorce and explore the legal options available to those going through a divorce by contacting a Colorado family law attorney from the Colorado Divorce Law Group at (720) 593-6442.