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Financial Detectives: How Forensic Accounting Assists Divorce Cases

Tracing Assets to Community or Separate Property Sources

When it comes to dividing assets in divorce cases, California courts use the community property system of asset division. Under community property principles, all property acquired during the marriage is considered community property that is subject to division upon divorce.

In contrast, a party’s separate property is not divisible upon divorce. If a party acquires property before marriage or after their date of separation, it qualifies as their separate property. Also, property a party acquires during marriage through gift or inheritance is considered to be their separate property.

Sometimes an asset that would qualify as separate property turns out to be community property and vice versa. If community property funds were used to purchase property after the parties’ date of separation, it takes on the community property character of the source of those funds.

For example, imagine the parties separated on September 1, 2017, and one spouse purchased a boat on September 10, 2017, using savings comprised of earnings received in the month of July 2017. The boat would be considered community property subject to division upon divorce because the funds used to purchase it were acquired when the parties were married.

In situations like these, financial experts such as Certified Public Accountants (CPA) can analyze financial records to trace assets back to their source. Such records help your attorney determine whether the true character of certain assets is a community of separate property. CPAs can utilize forensic accounting to reveal concealed or otherwise undisclosed property as well.

Valuing Assets

Another aspect of divorce that benefits from the services of a forensic accountant is valuing assets. Sometimes community property cannot easily be divided, such as a home or small business. In such cases, courts order the home or business owner to buy out their spouse’s interest. Sometimes the court may order the sale of the asset and order the parties to divide the sale proceeds.

Valuing an asset is a vital issue in such cases. If a party needs to buy out their spouse’s share of an asset, they have an interest in claiming the asset has a low value while the other party will want to argue for a higher value. If the parties are ordered to split the proceeds from the sale of the property, both will want an appraisal for its maximum value.

Finding Hidden Assets & Income

When it comes to property division, child support or alimony, courts look at the respective financial condition of each party. In California, the parties typically submit an income & expense declaration to the court (Form FL-300). The income & expense declaration asks the parties to list their income, assets, expenses, and other financial declarations.

Certified public accountants help the parties figure out spousal and child support issues by discovering the correct quantity and value of assets courts use to determine the parties’ rights and obligations for alimony or child support. Courts issue such orders in proportion to the party’s wealth. As a result, a party who wants to minimize their alimony or child support obligations has an incentive to reduce the value of their wealth. Sometimes a party might go as far as to conceal assets.

This is where the work of a forensic accountant can help. An experienced financial expert is familiar with various financial documents—such as financial disclosures, IRS documents, and financial statements—and can tell when certain items should be included on an income & expense declaration. An experienced accountant can look at financial documents and determine if the math adds up properly or if it suggests an undisclosed source of wealth or income.

Get Comprehensive Legal Representation

At Moshtael Family Law, our clients not only get quality legal representation from an outstanding team of attorneys but also benefit from the services of our in-house CPA. Our CPA has experience with various financial issues that come up in divorces, including tracing the source of assets as well as discovering concealed income and property. If you are going through a divorce, we can help you understand and address complex financial matters to ensure your rights to community property or family support are properly promoted.

Call Moshtael Family Law at (714) 909-2561 or contact us online for a consultation today.

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