Some divorces have complex financial issues. In such cases, a forensic accountant can be called in to analyze financial documents to help divorcing couples in the collaborative process, or in court when litigation is involved, to determine the value of assets and how those assets should be divided. They also assist in decision-making on child and spousal support.
Not every divorcing couple needs a forensic accountant. Even though finances are often a point of contention in a divorce. A forensic accountant is called in to help in only about 10-15 percent of cases.
How to Know if You Need a Forensic Accountant
Cases that generally need a forensic account include:
- When there is a business that needs to be valued. The accountant will look at documents about cash flow, determine how much the owner contributes to the business, and what his or her compensation would be if employed in that capacity in the business. These are just a few factors to consider in the valuation process.
- There is real estate that needs to be valued.
- There are significant assets to divide.
- There has been a commingling of separate property with community property.
- There are retirement accounts that need to be divided.
What Does the Forensic Accountant Do?
When a forensic accountant is retained, the first thing the accountant does is request all relevant documents. Who gets the request depends on whether it is a collaborative or contested divorce.
In addition to using a standard document request template, the couple is also asked for documents relevant to the specific case. When the documents are received, the accountant:
- Values the business and the real estate.
- Analyzes the cash flow for purposes of determining child support and spousal support.
- Prepares a spreadsheet with assets that should go to the husband on one side of the spreadsheet with assets that should go to the wife on the other side.
- At the bottom of the spreadsheet is a single equalization payment to make it so the community property assets are divided 50/50.
In a collaborative divorce, spouses generally agree with the assessment of the forensic accountant since the accountant is considered a financial neutral and is not working for one spouse or the other. The accountant charges one fee and the spouses generally split the cost of the accountant.