The Role of a Forensic Accountant in Property Division

If you’ve ever heard the term forensic accountant, you may or may not understand exactly what their job responsibilities are. While they do not solve murders by poring over their clients’ bank records, their job is important in uncovering financial crimes or discovering hidden records and transactions. Forensic accountants use their auditing, accounting, and investigative skills to discover things within financial records that just don’t seem right.

In corporate law, forensic accountants are used to find embezzlement, fraud, and other white color crimes. They prepare detailed reports of their findings for use in investigations, litigation, testimony, and as evidence. Forensic accountants in family law, however, play a slightly different role. Family law attorneys typically bring in forensic accountants in high-asset divorce cases when one spouse suspects the other may be hiding assets.

Property Division in California Divorce

To understand the role of a forensic accountant in divorce, we must first understand California’s laws that govern how assets and debts get divvied up in divorce cases. California is a community property state. This means that any community property, which includes assets and debts acquired during the dates of marriage, is jointly owned by both spouses and must be divided equally at the time of divorce.

Data collected in 2023 by the U.S. Census Bureau shows California’s median household income for married couples at $131,674. The U.S. Census also reports, nationally, that the primary asset of Americans is home equity, with the highest median values at $174,000. In addition, retirement accounts represented a large portion of household wealth, with a median value of $79,000.

When high-net-worth couples divorce, the financials can become more complex. For instance, in households in or around the 90th percentile for household wealth, which was valued at $1.6 million, it can be difficult to know for sure where and what the funds are.

The Role of the Forensic Accountant

In high-asset divorces, and sometimes other divorces, a forensic accountant is called in to investigate the community property and the separate property of the couple’s assets. The forensic accountant’s job is to uncover hidden assets, trace all sources of income and spending, evaluate business interests, and verify that everything is accounted for and disclosed in the divorce case. Things a forensic accountant might do include the following:

• Scrutinize financial records, such as bank statements, tax returns, credit card statements, and business ledgers.
• Trace and separate community property and separate property
• Look for evidence of hidden assets or unreported income
• Value assets, such as stock options, retirement accounts, pensions, real estate property, investment ventures, and businesses
• Determine alimony and child support payments
• Testify in court as a professional witness to explain discrepancies in marital financial reports

Who Needs a Forensic Accountant?

Not everyone needs a forensic accountant. You might need one in your divorce case if any of the following apply to your marriage:

• One spouse was significantly wealthier before the marriage.
• One spouse earns a significantly larger amount than the other.
• You have complex financial holdings, such as investments, trusts, and offshore assets.
• You suspect your spouse is hiding income or assets.
• Child support or spousal support agreements have gone to litigation or are stuck in negotiation due to discrepancies in financial reports between the two opposing sides.
• You have a lot of commingled assets in which separate and community property have gotten mixed up over the years and need to be separated on paper.

If you have an experienced divorce attorney on your side, they can inform you if you need to hire a forensic accountant. They should also have a network of trusted professionals and highly rated forensic accountants, private investigators, and other types of specific third-party interests that they can call on your behalf, if needed.

FAQs

Q: Is There an Accountant-Client Privilege in California?

A: No, there is no specific accountant-client privilege in California in cases of family law. However, some conversations between you and your accountant may be protected if the attorney contracts the accountant to come in and work on your case as an agent of your attorney on your behalf. Make sure to confirm exactly what you can say to the accountant. They can be called to testify against you in certain situations.

Q:  Do Forensic Accountants Take an Ethical Oath?

A: Forensic accountants have an obligation under the Institute of Certified Forensic Accountants to their profession, as well as to the public at large. Members of the ICFA must agree to comply in writing each year that they will meet the requirements of their clients, uphold integrity, objectivity, and independence, and maintain their responsibility to the ICFA and to their profession. Forensic accountants can serve as professional witnesses in divorce cases, which are handled by the Superior Court.

Q: Who Hires a Forensic Accountant?

A: Forensic accountants are hired by family law lawyers for high-asset divorces, criminal law firms in the defense of defendants charged with white collar crimes, insurance companies investigating the validity of claims, financial institutions, large asset corporations, and government organizations. Many of these institutions keep forensic accountants on as regular staff members to ensure everything is in compliance.

Q: How Does a Forensic Accountant Find Hidden Assets in a Divorce Case?

A: A forensic accountant looks over the financial records of the divorcing couple, including bank statements, credit card statements, including virtual accounts such as CashApp, PayPal, or Venmo, tax returns, and investment accounts. They compare their spending habits against their income and assets. An experienced forensic accountant becomes keen at spotting inconsistencies that appear awry in an effort to uncover hidden assets and money.

If you suspect your spouse may be hiding assets in your divorce case, speaking to a family lawyer is the first step in determining if you need a forensic accountant to investigate your case. The team at Bickford Blado & Botros can provide you with experienced legal advice on family law matters. We can recommend a reputable forensic accountant whom you can trust, if needed. Contact us to schedule a consultation.

 

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