The role of the forensic accountant
“Whoever controls the data controls the narrative,” said an anonymous divorcée from Virginia in the US. She hired a forensic accountant when her marriage ended and she suspected her husband, a business owner, of being less than transparent about the value of that business. As she had not worked outside the home and his business had supported the family, she was about to become dependent on maintenance derived from the business revenues. She knew nothing about its value, and needed to ensure she was not taken advantage of in the divorce settlement. The forensic accountant hired discovered critical information that helped the court decide how to divide the marital assets, and also explained her findings in terms a non-accountant could understand.
What exactly is a forensic accountant, and what is their role in a divorce?
More than just hidden assets – valuation
The presence of a forensic accountant does not automatically suggest hidden assets are suspected or that one party has potentially committed fraud. A forensic accountant analyses financial records and accounts. When a high-net-worth couple with complicated finances starts divorce proceedings, a forensic accountant can help ensure equitable distribution of assets. They ensure that each asset – property, investments, retirement funds, business interests, even intangibles like artwork or a wine collection – is accurately assessed. They make a valuable contribution to open and honest negotiations as well as uncovering underhand dealings.
Determining income and expenditure
Forensic accountants not only value assets – capital. They also determine income, both current and future, and expenditure. Are the outgoings claimed necessary or excessive? In a household with average income, where one or both spouses are in permanent employment with a fixed salary, and the household budget just about makes ends meet, income and expenditure are difficult to disguise or manipulate. But when the stakes are higher, income is derived from multiple sources, and the lifestyle is lavish, validating income and expense claims becomes complicated and opaque.
In the recent divorce between Kevin Costner and Christine Baumgartner, both parties employed forensic accountants. The wife’s claim for a certain amount of monthly maintenance for the teenage children was shown to contain expenses for items used solely by her, such as beauty products and designer clothing. The amount of child support was duly reduced by the judge. Equally, future income can be difficult to assess if a spouse works on fixed contracts or derives a portion of income from fluctuating investments or business proceeds. Forensic accountants have both the tools and the skill to analyse financial records and tax returns and make an assessment that will lead to a fair spousal maintenance or child support agreement. They have the authority to produce financial reports that can be used in court (if the divorce is contested), allowing the court to make informed decisions. In the case of a mediated divorce, the forensic accountant’s report gives the mediator the necessary facts to help the couple reach agreement and protect their respective financial interests.
Uncovering hidden assets in divorce
Reasonable, honest people sometimes act unreasonably during divorce proceedings. In a high-net-worth divorce where a couple is married in community of property, one spouse may feel the other is not entitled to an equal share, particularly if they have been the sole income earner or are a business owner. There is a legal duty to provide full and frank financial disclosure to the court in a divorce (this applies even if the divorce is not contested; a court still grants the divorce decree). Yet some spouses go to great lengths to hide or disguise assets. Tactics involve not declaring the full financial portfolio in the discovery phase of the divorce, depreciating assets beyond their current value, or concealing the extent of the assets. The deceptive spouse may transfer assets to a third party, overstate debts, under-report income, and/or exaggerate expenditure. If they are a business owner, they may fail to reimburse their own business expenses, overpay creditors or pre-pay suppliers, having the money refunded later. Family or friends may be put on the payroll or paid for fictitious services rendered, which will also be refunded. Liabilities may be fabricated, for example a friend writes a letter claiming money owed. It has even been known for someone to quit their job until the divorce is finalised, in an attempt to reduce maintenance obligations.
All these actions have consequences. They may result in contempt of court, which can lead to fines or even imprisonment. The court may decide to impose a punitive financial order, giving the other spouse a greater share of assets. And once credibility is undermined, it is very hard to restore it, potentially impacting other aspects of the deceiver’s life.
Forensic accountants are the private investigators of the accountancy profession. In addition to valuation and income/expenditure determination, they track down hidden assets, using financial audits and investigative techniques. Any attempts at asset concealment will be revealed. Forensic accountants add a layer of cost to the divorce proceedings but can be an invaluable asset in ensuring a fair outcome, potentially securing a more financially favourable settlement than would have been possible without their intervention. Whoever controls the data controls the narrative.
Speak to your family attorney first
SD Law is a firm of attorneys based in Cape Town, with offices in Johannesburg and Durban, who are experienced in high-net-worth divorce. If you are considering divorce and want to discuss your options, or if you think your spouse is being less than honest with you about their finances, call family lawyer Simon Dippenaar on 086 099 5146 or email sdippenaar@sdlaw.co.za for a confidential discussion. We can determine if a forensic accountant would help your case.
Further reading:
- Forensic accountants and divorce
- Hidden assets in family trusts
- Two-Pot doesn’t mean you can hide money during a divorce
- Protecting business interests during divorce
The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.