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Forensic Accounting in Divorce

For most people, divorce is a time-consuming and stressful process, especially when complex matters are involved. To make the divorce process as smooth as possible, it’s essential to work with a team of expert lawyers like Austin Kemp Solicitors.

Besides lawyers, forensic accountants also play a significant role in divorce proceedings. Forensic accountants can handle financial investigations and provide expert testimonies in court. In addition, they can help identify and value assets, calculate child support and alimony payments, and uncover hidden income and assets.

If you’re going through a divorce, it’s essential to consult with a forensic accountant to make sure that you’re getting a fair financial settlement. They can help you protect your interests and ensure that you receive the financial compensation you deserve. For instance, if you or your spouse owns a business, has a lot of debt, or there are allegations of hidden assets, it is vital to seek the support of a forensic accountant.

In this guide, you’ll learn all you should know about forensic accounting in divorce and why it’s important to have a team of expert solicitors by your side. Let’s start by explaining what forensic accounting is.

What is forensic accounting?

Forensic accounting is the application of accounting, auditing, and investigative skills to resolve disputes or allegations. It is the process of applying specialised financial knowledge and techniques to legal matters.

Forensic accountants can be involved in many legal matters, including family law, matrimonial disputes, corporate fraud, business valuation, and white-collar crime. In addition, financial accountants audit complicated financials in divorce proceedings and provide data interpretation to ensure smooth divorce proceedings.

Why is forensic accounting important in divorce proceedings?

If the divorce process is peaceful and mutually agreed upon, there generally aren’t too many problems to begin with and the divorce can be handled amicably, especially when it comes to settlements. But in a contentious divorce, where spouses can’t agree on the divorce, there can be many problems associated with the division of marital assets.

One party may be acting out of pettiness or anger to sabotage the other party’s future. Some people may try to hide assets or income so that the other party doesn’t get their fair share.

Forensic accounting is important in divorce proceedings because it helps ensure that both parties get their fair share of the marital assets. Plus, it gives everyone peace of mind by shortening the divorce process as much as possible.

Forensic accountants can help determine how assets and properties should be distributed fairly between both parties. They also play an important role in calculating spousal or child support.

More importantly, a forensic accountant can help either party get an Injunction or Freezing order to protect their assets during the divorce process.

A freezing order is a court order that freezes all of the assets or property owned by one party. It means that the person won’t be able to sell, transfer, or dispose of any assets during the divorce proceedings.

Freezing orders are usually issued when there is a risk of one party dissipating assets before the divorce becomes final. Since it’s fairly common in complex divorces, forensic accounting can help minimise the risk of one party being disadvantaged due to the transfer or disposal of assets by the other spouse.

Role of financial accounting in divorce

Finances are one of the most contentious issues in divorce and can be the cause of distress. Forensic accountants can help identify, value, and divide assets and income between divorcing couples. In addition, they are involved in investigating financial discrepancies in the business and personal finances, wherever applicable.

If you want to ensure an equitable division of assets, it’s important to have a forensic accountant on your side. Here are some ways in which financial accounting makes divorce less lengthy and stressful.

Identification of liabilities and joint assets

A common problem in most divorces is that only one spouse was handling the financial matters of the household. This gives the person who was handling the financial matters an advantage, since they can hide assets to get a settlement that’s excessively in their favour.

Although hiding money in a divorce can have serious consequences and penalties, unfortunately, there are many people who are still willing to take that risk.

Financial accounting services come into play if this is a concern in any divorce proceeding. A forensic divorce accountant reports and identifies all liabilities and joint assets. Their input helps to ensure that both parties get a fair share of the assets.

Equitable distribution of assets

Once all assets have been identified and valued, the next step is to divide them between both spouses. It can be a complex process, especially if significant assets are involved.

A forensic divorce accountant can help determine a fair distribution of assets based on their findings. They do this intending to ensure a speedy and fair divorce.

Appraisal of properties, businesses and assets

Forensic accounting doesn’t just involve working with numbers, it also lists out the specific details behind these figures, so both parties are left with a clear understanding of what assets, in any form, they will receive. Forensic accountants use their analytical and investigational financial forensics skills to explain and verify financial data in a formal appraisal.

Within this, they will also calculate the value of properties, assets, and businesses in a divorce proceeding. This way, they facilitate the fair splitting of assets, including a property settlement between the divorcing couple.

Calculation of spousal and/or child support

Often, the higher-earning party in a divorce may report their income less than it is to minimise the amount they have to pay for child or spousal support. Forensic accounting can help unveil any discrepancies in income and assets.

The court uses this information to calculate an accurate amount for support payments. In addition, it ensures that the lesser-earning spouse doesn’t get taken advantage of in a divorce settlement.

Identification of hidden assets

During a divorce, spouses may try to hide assets to keep them from being included in the property division. They may do this by transferring the ownership of assets to someone else for the time being. After all, if an asset is unheard of, it can’t be divided.

A forensic accountant looks for any red flags that may indicate hidden assets. For example, using financial forensic processes, they may find hidden assets by tracking the spending habits of the suspicious party or reviewing their tax returns. In this instance, some people may hide their assets under ”dummy corporations”. Such a corporation is a front to make it look like the person has less money than they do. Forensic accountants are skilled at discovering such schemes.

Assessment of joint accounts

It’s common for most couples to have a joint account. However, if they’re divorcing, one of them may withdraw a large amount of money from the account without a record of how they spent it.

That’s where forensic accounting comes in. A forensic accountant assesses the couple’s joint funds and monitors how they spend them during their divorce.

Explanation of tax implications

A forensic accountant also explains the tax implications of disposing of assets during a divorce. The division of an asset can significantly impact the taxes that each spouse has to pay.

For instance, if one spouse gets the house in the divorce, they may have to pay more taxes. On the other hand, if both spouses split the house’s value, they may get taxed less.

A forensic accountant can help determine the best way to divide assets so that both spouses pay the minimum or at least comparable amount in taxes.

Expert witness

Since they know both accounting and the law, forensic accountants can serve as expert witnesses in divorce cases. Their testimony depends on their findings during the investigation.

Their assistance is helpful when there is a need to clarify financial information in a divorce case. It ensures that the court has all the relevant information to make a fair decision.

At Austin Kemp Solicitors, we work with expert forensic accountants to ensure a fair distribution of assets during the divorce. Get in touch with us at mail@austinkemp.co.uk to learn more about our divorce and forensic accounting services.

When do you need forensic accounting?

If your divorce is a fairly simple matter, you probably won’t need the assistance of a forensic account. But when divorces become troublesome or complicated, it’s important to work with a forensic accountant. Here are some cases in which you’ll need forensic accounting.

Lots of assets

High net worth clients often have complex financial situations that require forensic accounting. The same is true for divorcing couples who have a lot of assets to divide.

Allegations of financial misconduct

If you believe your spouse may be hiding assets, you’ll need the help of a forensic accountant. They can help track down any hidden assets and determine their value to distribute the assets between both parties fairly.

Independent contractor

If one of the spouses is a 1099 worker or an independent contractor, forensic accounting can help report all of their income as the taxes of 1099 workers and independent contractors are often not withheld from their paychecks.

Conflict resolution

Conflicts are fairly common in divorce proceedings. For example, one spouse may not want to cooperate with the other spouse’s investigation. In these cases, forensic accountants can often provide a neutral third party that both spouses can trust.

Business valuation 

If one of the spouses owns a business, the forensic accountant will assess the value of the business so that it can be divided fairly in the divorce.

Significant premarital liabilities

If the couple had significant liabilities before marriage, the forensic accountant will investigate how these debts were incurred and whether or not they should be considered marital debt.

Complex tax returns

Forensic accountants can also help with complex tax returns, it is almost essential for couples who have a lot of assets or businesses.

Should you hire your own forensic accountant?

Let’s say your spouse has already hired a forensic accountant. Do you still need to hire your own? Yes. While the forensic accountant will most probably do justice to their job, they will still have some bias in your spouse’s favour.

On the other hand, when you hire your own forensic consultant, they will most likely work in your interests. Moreover, the judge will give preference to the testimony of an expert over you.

Suppose there’s an issue of hidden assets. The court will consider a forensic accountant’s testimony more credible than yours since they’ll support their words with evidence, such as graphs, studies, documents, and charts.

When you’re filing for divorce, it’s important to work with a competent team of lawyers, such as Austin Kemp Solicitors, that will take care of all financial aspects of the divorce in an efficient manner. You can learn more about how we work with forensic accountants to manage asset distribution in a divorce by getting in touch with us through our email, mail@austinkemp.co.uk, or contact number 0333 311 0925.

What to look for in a forensic consultant?

If you plan to hire a forensic accountant for your divorce, you’ll need to look for certain qualities to make sure you’re hiring the right person. Here are some of them:

  • Qualified: First and foremost, they should be qualified. They should have a degree in accounting from an accredited school plus experience in forensic accounting.
  • Competent: They should also be competent in their field and know how to handle complex financial investigations, especially those specific to your case. For instance, if your issue is surrounding hidden assets or under-reporting of income, you should look for an accountant who specialises in such cases.
  • Trustworthy: The forensic consultant needs to be trustworthy so that you can feel comfortable sharing sensitive information with them.

It’s best to read testimonials about different forensic accountants before making your decision. You can also ask your friends or family who may have hired forensic accountants for their divorces to recommend reliable options. 

Then, once you’ve narrowed down your options, you can set up a consultation with the shortlisted accountants to see which one you feel most comfortable working with. You can also work with a legal firm that provides forensic accountancy services too. 

Get your fair share in divorce

At Austin Kemp Solicitors, we understand that ”unknotting” the tie can be quite a difficult phase of anyone’s life. On top of that, if you also face financial setbacks due to unfair distribution of assets, divorce can get even harder.

Our experts are skilled in working with high net worth clientele, helping resolve financial conflicts, and ensuring that you get what you’re entitled to, even in the most complex of situations. 

Contact us today through email, at mail@austinkemp.co.uk, or contact number 0333 311 0925 to get the services of a team with a 92% success rate.

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29th March 2022

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