What to Do If You Did Not Handle the Family Finances

The financial details involved in the dissolution of a marriage can be very complicated and often overwhelming to persons making their way through the divorce process. To assist clients in becoming more educated as to their family’s financial history, holdings, and habits, attorneys often suggest the retention of a forensic accountant. A forensic accountant is often a CPA who has experience investigating the financial reporting and bookkeeping of families and businesses. When interviewing accountants, one way to determine whether the forensic accountant is sufficiently experienced is to inquire whether that accountant has a “CFE” designation, or certified fraud examiner. A forensic accountant may not have valuation capabilities, so you need to discuss with your attorney the tasks required in your case. A forensic accountant examines financial data relative to assets, liabilities, businesses, and lifestyle spending in order to support or refute representations made by one or both spouses during the course of litigation. The information generated by a forensic accountant may be used to develop reasonable bases upon which to propose terms of settlement or, in the event the matter is tried before a court, bases upon which to support arguments presented to the judge deciding the case. In either scenario, the expertise of a forensic accountant is a valuable tool which, when used appropriately, can be of great assistance to many people.
 
Even in today’s age, it is rare for both spouses to have an equal understanding and foothold on the family’s cash flow and spending habits; the accumulation of assets and liabilities; and the income, liquidity, and market value of businesses owned and/or operated by one or both spouses. As insight into each of these areas is invaluable when determining issues related to support (i.e., alimony) and equitable distribution (i.e., the reasonable and fair division of marital assets), it is crucial that the financial information relied upon is the product of thorough research conducted by a highly trained professional. Discussed below are several distinct areas in which the detail-oriented perspective offered by a forensic accountant may assist a litigant in his/her case.
 
Lifestyle Analysis: In the State of New Jersey, the lifestyle led during marriage provides a foundation upon which to base decisions related to the support of a spouse or children after a divorce. It is also relevant for child support, but unlike spousal support considerations, children are not limited to the marital standard of living. To arm a client or the court with specific information pertaining to the marital lifestyle, a forensic accountant may be called upon to create a detailed picture of a family’s financial lifestyle by investigating and accounting for the flow of cash through the marriage. To account for how and at what rate funds were spent during the marriage, the accountant will be required to examine years of relevant financial data, such as bank account, credit card, and brokerage account statements. At the conclusion of the accountant’s investigation, he/she should be able to identify to the parties and/or the court exactly how much money will be required on a monthly basis after divorce to sustain the marital lifestyle.
 
Business Valuation: In many cases, equitable distribution of property requires that parties take a close look at the business(es) owned by one or both spouses. To properly value a business and determine such things as the true income generated by the business, the flow of cash through the business, and the value of the business on the open market, the expertise of a valuation accountant is often required. Once retained, a valuation accountant will visit the business, interview the owner(s), examine the business’ books, tax returns, and other financial statements, and conduct research related to the unique characteristics associated with the particular business in question. Following the accountant’s investigation, he/she will render a report identifying to the court and the parties the value of the business, the value of the spouse’s share in the business, and the cash flow of the business both in the past and predicted for the future. In the event the matter is tried before a judge, the accountant may testify as to the steps taken in his/her investigation, the results obtained from the same, and his/her opinion as to the various issues identified herein.

Hidden Assets: Often after a Complaint for Divorce is filed, the active and/or passive income which previously existed to support the family is mysteriously missing or cannot otherwise be identified. (An example of active income is that generated by employment, such as salary and/or bonus. An example of passive income includes that generated by the investment of funds not managed by one of the spouses.) By examining and comparing financial documents, a forensic accountant may be able to locate and identify assets which may have been transferred, dissolved, or otherwise redistributed by one spouse as he/she planned to file for divorce. For example, when one spouse takes the position that the lifestyle lived during the marriage is no longer possible in divorce, locating hidden assets which could be used to support the family following divorce may be very valuable. Moreover, it may be important to locate hidden assets in cases where a family has been supported by funds generated from a closely-held business and, in anticipation of divorce, certain assets relative to that business have seemingly been transferred to other partners or sold to pay off debts.