Forensic Accounting Law

The term legal term “forensic” refers to the use of scientific methods and techniques in investigating a crime or a legal issue. As such, forensic accounting is a legal tool that is often required by a court when an issue is being litigated that involves a financial dispute that needs to be investigated.

A forensic accountant is a specialist that utilizes techniques to investigate and unravel financial disputes for businesses, individuals, and governmental entities. Forensic accountants are often hired by a party to assist with an investigation of a financial dispute, such as in cases involving the following legal matters:

• Bankruptcies;
• Misappropriation of assets;
• Fraudulent accounting statements;
• Contract disputes;
• Divorces;
• Shareholder disputed; and
• Investigations of financial records of corporations by governmental entities.

As can be seen, forensic accountants are often hired in a variety of legal matters, and as such, must utilize a variety of different investigation tools and knowledge to solve the financial legal dispute. Forensic accountants are often individuals that are certified public accountants (“CPAs”), but they may also be individuals with a background in criminal investigations.

Other common professional credentials that forensic accountants may possess include:

• Certified Fraud Examiner (“CFE”): This is a certification that is issued by the Association of Certified Fraud Examiners (“ACFE”); or
• Certified in Financial Forensics (“CFF”): This is a certification that is issued by the American Institute of Certified Public Accountants (“AICPA”).

All of the above credentials are earned through continued education, experience, and examinations. When choosing a proper forensic accountant, one should look at their certifications, referrals, and results from past clientele.

Sometimes during the divorce process one the spouses may take on unscrupulous practices, such as hiding assets from their partner. The typical reason that a spouse may attempt to hide assets is that they are attempting to guard “their” own money or give their spouse an unequal division of the marital estate.

Other reasons may include attempting to make their partner suffer financial hardship or be unable to properly afford legal services. Whatever the reason, in many cases a spouse may have to take matters into their own hands and launch an investigation as to the financials of the other spouse to ensure they are getting everything they are entitled to.

In such scenarios, a forensic accountant may be hired to investigate the finances of the other spouse. Forensic accountants can look into the financial practices of the other spouse and develop a snapshot of their actual finances by tracking how much money they make and how much money they spend. Then the accountant will determine whether or not the finances add up to total an equal division of the marital estate.

Essentially, forensic accountants will launch a forensic accounting audit to determine whether the other spouse has attempted to hide money or assets from their spouse. After the forensic accounting investigation has concluded, the evidence could then be put into a proper court exhibit and utilized in a divorce proceeding, if necessary.

How Can I Tell If My Spouse Is Hiding Assets from Me?

If you believe that your spouse is hiding money from you, then you will need to investigate all of the financial accounts and account activities for those accounts. Typically a spouse will attempt to move assets from a shared account to a private account that the other spouse does not have access to. For example, the spouse may understate their assets, income, or the value of other finances, such as a business they own in a financial statement.

Examples of patterns that may help in identifying when a spouse may be hiding assets include:

• The spouse not reporting all of their cash transactions;
• The spouse engaging in a large one-time purchase write-off;
• The spouse engaging in self-dealings or inter-family dealings where they transfer assets to a third party;
• The spouse creating new or hidden bank accounts;
• The spouse paying themselves an unreasonable salary from their business; and/or
• A very sudden decrease in the spouse’s gross income from prior years.

In addition to the above list of behaviors and acts, there are plenty of other examples of patterns that may indicate a spouse is hiding assets. However, all of the acts or behaviors lead to the analysis of whether or not the spouse suspected of hiding assets could be supporting themselves at the level of income and expenditures that they are claiming to have.

In short, if there is less money coming in than is being spent by your spouse, then that may be an indication that your spouse’s financial records may not be revealing the whole truth. In such a case, you may wish to hire a forensic accountant to find the hidden assets.

What Should I Do If My Spouse Is Hiding Assets During Divorce?

Once again, if you believe that your spouse is hiding assets during a divorce proceeding, you will need to investigate their financial statements and accounts in order to gather evidence of their act of hiding assets. As such, you may wish to hire a forensic accountant that can utilize professional accounting skills and tools to investigate your spouse’s financial records for evidence of withheld assets.

In addition to a forensic accountant, legal counsel will also be needed as the legal counsel will help direct the forensic accountant as to what information is needed for the immediate divorce proceedings. Often, the use of a forensic accountant will occur during the discovery stage of the divorce proceedings. In the discovery stage, the legal counsel for one spouse will consult with the forensic accountant to prepare proper interrogatories, request for documents, and deposition questions aimed at uncovering hidden assets.

The forensic accountant will then launch an investigation into the financial activities of the other spouse suspected to be hiding assets and provide a report. Then legal counsel may designate the forensic accountant as an expert witness, so that they may be later called upon in the trial on the divorce matter. Additionally, the forensic accountant’s written report of findings may be submitted to the court as an exhibit to also be used at trial.

Should I Consult an Attorney?

As can be seen, there are numerous reasons in which a forensic accountant may be utilized in a legal matter. As such, if you believe that your spouse may be hiding or withholding assets from you, you may wish to hire an experienced forensic accountant to investigate their financial records.

However, it is important to first consult with an experienced divorce lawyer in your area, prior to hiring a forensic accountant. An experienced divorce attorney will be able to assist you in determining whether or not a forensic accountant is needed, or if they will be able to uncover hidden assets without the necessity of hiring an accountant.

If an accountant is necessary, an attorney will be able to corroborate with the accountant and utilize discovery tools to uncover hidden assets with the forensic accountant’s assistance. Then the attorney will be able to help ensure that the written report of the accountant and the accountant’s testimony will be able to be properly admitted and utilized in the divorce proceedings. Finally, an attorney will also be able to represent you in a court of law, as necessary.