Forensic Accounting to Help With Property Division
According to the law in California, all marital property in a divorce must be divided equally between the two parties. This may appear simple on the face of it, but in practice, accurate division of property can be a complex exercise. If your community assets and debts are elaborate or complicated, it becomes important to identify, trace, and value every major item accurately.
A resourceful divorce attorney in Orange County will know when to use the services of a forensic accountant in order to protect your interests in a property division. Forensic accountants have the tools, techniques and training to determine issues such as how much you have at stake, where did all the money and investments go in your marriage, and how to correctly value and divide the entire community property.
If the finances are large or complex, you may need the professional assistance of a forensic accountant even if your divorce is relatively amicable. In a high net worth divorce, it is particularly important that you choose to work with a divorce law firm that either has an in-house accountant or has a relationship with a reliable forensic accounting firm.
When to Hire a Forensic Accountant in a Divorce?
Here are a few examples of when you should hire the services of a forensic accountant for the purpose of property division in an Orange County divorce:
Division of Business
If you or your spouse or both owned a business during marriage, you may find it helpful to hire a forensic accountant for dividing business assets and liabilities. Even if a business started after marriage was owned by only one spouse, the other spouse will usually have a rightful share in it at the time of divorce. Business assets and debts can be complicated, and it takes specialized skills to evaluate and divide them correctly.
A forensic accountant will be able to review and analyze the books and accounts of the business to determine its value. Intangible assets such as intellectual property, brand value, and goodwill of the business are particularly difficult to evaluate. Your forensic accounting expert will utilize both subjective scrutiny and hard data to assess all aspects of the marital business.
Stocks and RSUs
During your marriage, if you or your spouse or both received restricted stock units (RSUs), stock options, performance shares, or other financial units as a corporate incentive from your employer, these will have to be divided accurately at the time of divorce.
The forensic accountant will determine the current fair value of the unvested and vested portions of these stocks and RSUs. This will often involve the use of statistical projections and complex mathematical models to arrive at the correct valuations.
Claim of Asset Dissipation
Your divorce could involve a claim from either side that the other party wasted marital assets on non-marital actions. These may include money spent on gambling or an extramarital affair.
In these situations, a forensic accountant can track all credit card statements and bank accounts to help you establish how much of marital assets have been dissipated or wasted in this manner, and what amount of compensation you should receive at the time of property division.
Determining Actual Income
Sometimes the tax return of your spouse may hide more than it tells about his or her actual income during the marriage, and what will be that income going forward. This is particularly true in case of business income where numerous tax deductions and other tax saving techniques and instruments are used.
Your forensic accountant in this case will evaluate all financial data in close details to determine what items need to added back to the business owner’s income. This will give you a clear picture of the real cash flows that were generated during the marriage. This assessment is not only important for property division, but also for determining spousal support and child support in many cases.
Lifestyle and Expenditure Analysis
For the determination of spousal support and even child support in some cases, the family law court in Orange County may want to know the lifestyle of the parties during marriage and how they used to spend their money. This type of analysis could involve a detailed assessment of all the major expenses incurred during the course of marriage by each spouse and the type of purchases made over the years.
An expert accountant will be able to present all relevant information and analysis in a clear, evidence-backed manner to show to the court the general lifestyle and spending habits of the parties during marriage. This will help the court in determining appropriate support payments.
Locating Hidden Assets in a Divorce
During your property division, you should remember that if an asset is not accounted for in the divorce settlement, it can’t be divided. By the time you learn about the existence of that asset, it may already be too late and the other party may have sold it off and consumed the proceeds.
At that stage, you may want to move on, and may not find it worthwhile to reopen your divorce case. Therefore, it is prudent to ensure at the outset of your divorce that all marital assets are fully revealed and valued for the purposes of property division.
Hidden assets in divorces often include cash, stocks, bonds, annuities, mutual funds, insurance policies, offshore bank accounts and real estate. To hide these assets, the other may sell them off for cash and convert them into high value items such as art, antiques, jewelry, and collectibles, which can be physically stashed away.
It is also easy to hide or under-value certain business assets, especially if the other party has been contemplating or planning for divorce for a long time. Your forensic accountant should have the professional expertise and experience to locate these multi-layered hidden assets.
To begin with, your account will examine the income tax returns to see how much income was earned during the last few years, what amount of interest or rental income the assets are producing, and whether some of the assets have been recently sold. If your spouse has any executive benefits or deferred compensation plans, you can learn about it from W2 information.
Form 6521 can show incentive stock options, real estate development costs, and accelerated depreciation on fixed assets. Form 4797 can reveal whether some business assets have been sold off. The business profits or losses are indicated in Schedule C. Your forensic account will map all cash withdrawals and deposits to ascertain if any unknown asset is generating income. Loan applications may also reveal actual assets and income of your spouse.
If there have been any major write-offs in business accounts, your forensic accountant will investigate it. They may also evaluate property deeds and other public records, which could show a quit claim deed (where a property has been quickly transferred to a family member). Public records and Secretary of State Office records may reveal business assets, judgments, liens, or bankruptcy.
Does Your Divorce Lawyer have a Resourceful Team?
When the stakes are high in your Orange County divorce, make sure you work with a top-rated divorce lawyer who has a resourceful in-house team of professionals as well as a robust network of experts, including forensic accountants.
The accountant, with the guidance of your divorce attorney, will make use of their advanced financial analysis tools and techniques to uncover valuable marital assets and income so that your interests are well-protected.