Using Forensic Accountants In Divorce Financial Investigations

by | Jul 25, 2023 | Divorce

A Forensic accountant in a divorce proceeding plays a critical role. The division of marital assets and liabilities is often one of the greatest sources of tension in a divorce proceeding. Much of that tension can be relieved if both spouses had equal access to joint accounts and shared financial information freely during the marriage and then amicably agreed to work together with complete transparency during the divorce itself. Where that level of cooperation is lacking, the seeds of trouble can be sown, often leading to a financial investigation in divorce. 


At Hoover Krepelka, we work closely with forensic accountants to fight for your share of financial assets. Outlined in this article we cover:


Navigating Divorce Finances? Let Our Forensic Accountants Be Your Guide

Financial inventory


Often only one spouse tracks the finances of the marriage. This includes holding all account access information, awareness of cash flow (incoming and outgoing), and they know the values of their assets. The other spouse, sometimes called the “out-spouse,” may be entirely in the dark about these matters. This may put them at a significant disadvantage in the event of a divorce.


One of the first steps that must be taken in any divorce, regardless of the value or complexity of the marital estate, is for each party to produce a complete inventory of all financial property (i.e. financial disclosures), categorized as either “community property” (defined under Family Code Section 760) or “separate property” (defined under Family Code Section 770). In California, unless the couple produces an estate division plan of their own that does not violate state law and is approved by the judge, or proves their separate property,  all “community property” will typically be divided evenly, 50-50, in the divorce.


It is here that we see the first disadvantage for the “out-spouse,” namely, their likely inability to produce a complete inventory of their marital estate. There is also a second disadvantage: they may not be aware of how the separate property that they brought into the marriage may have become commingled with and become a part of their community property. In that case, without the ability to prove otherwise, it may be divided equally.


The spouse that maintains the books has their own problems as well. It is possible, especially over time, that the marital estate may become complex enough that they simply forget about some of their assets. If their character is questionable, they may also be tempted to hide some of their assets in an attempt to reduce alimony or child support or to merely gain an unfair financial advantage. In these scenarios, it may be necessary for one (or both) spouses or their respective attorneys to retain the services of a forensic accountant in their divorce case. 


Using a forensic accountant 


A forensic accountant is a private investigator and a financial expert who is trained to discover irregularities and trace  them to their source (marital asset tracing). Through their services, a more complete and reliable financial image can be created to ensure that the marital estate is divided properly.


The use of a forensic accountant in divorce may assist proceedings in the following ways:


Asset tracing

The process of asset tracing investigates the origin point of a particular asset and how that asset has changed over time. This can be most useful if a spouse claims to have brought into the marriage a particular asset that they claim should remain their separate property. Still, current financial records indicate that it has been commingled or otherwise converted to community property. A forensic accountant is able to track where the asset came from and when, what its value was at the time it was acquired versus its current value, the role of that asset in the marriage, and whether it meets the criteria for separate property or not.


Hidden assets

If one of the spouses is suspected to be hiding assets from discovery (which can make them liable for financial penalties or even jail time if judged to be intentional fraud), a forensic accountant is able to uncover those assets and ensure they are included in the marital property inventory. 


The process of asset searches typically starts by examining known and available records such as tax returns, bank account statements, business records, or other transaction records, looking for signs of movement that may indicate some form of asset shielding. Suppose a “red flag” is detected, for example, a large sum of money wired to an unknown account. In that case, a party can use the court’s power to compel banks or other financial institutions to produce the necessary data to confirm their suspicions.


Need Help Uncovering Hidden Assets In Your Divorce? We Can Help


Uncovering hidden assets


Forensic accountants can also work with their client’s divorce attorney to produce interrogatories – written questions requiring formal, under-oath written answers – for the spouse under suspicion, or conduct depositions of that spouse or other suspected witnesses to their financial mishandling.


There are many ways that a spouse may try to hide assets, for example:

  • Shell companies;
  • Secret bank accounts;
  • Offshore investments;
  • “Gifts” to family and friends which are expected to be returned after the divorce;
  • Selling assets and under-reporting the sale price;
  • Fake liabilities.


Whatever method is used forensic accountants have many tools available to legally acquire whatever information is necessary to uncover these assets and ensure that they are included in the marital property inventory.


Asset valuation


Once the marital property inventory is complete, a forensic accountant is able to also assign dependable values to each item. Bank accounts and other liquid assets usually have immediate values already, of course. Other assets, especially complex assets like a small business or an art collection, require more research, and the method of evaluating is not necessarily straightforward. 


Marital property division


A forensic accountant can also work with the couple and their divorce attorneys to help develop a property division plan that meets legal requirements. If such a plan is not reached and agreed to ahead of time, the property division will be left up to the judge, and it is likely that neither party will be satisfied.


The family law practice of Hoover Krepelka works closely with several expert forensic accountants who can ensure that your marital property inventory is complete and properly valued. Once the divorce is final, it is very difficult to change its outcome. Therefore, if you are in the midst of a divorce proceeding, especially if you suspect that your spouse is hiding something from you, we’re here to help.

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While this website provides general information, it does not constitute legal advice. The best way to get guidance on your specific legal issue is to contact a lawyer.

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*The above is not meant to be legal advice, and every case is different. Feel free to reach out to us at Hoover Krepelka, LLP, if you have any questions. Information contained in this content and website should not be relied on as legal advice. You should consult an attorney for advice on your specific situation. 

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