What Is Forensic Accounting and Can It Help With Your Divorce?

Financial matters often play a significant role in divorce. Whether you’re going through a civil process and using tools like divorce mediation or are involved in a heavily contested divorce, money matters are important. You may want to protect your future stability, and if you are divorcing in part because of broken trust in your relationship, you may not be able to rely on your soon-to-be ex to do what is in your best interest. In some cases, forensic accounting can help ensure all the financial cards really are on the table to support equitable distribution of assets during a divorce.

What Is Forensic Accounting?

Forensic accounting refers to a specific area of accounting concerned with finding hidden assets, discovering fraud, and otherwise creating a narrative based on accounting data. Typically, this work is handled by someone who is an expert in forensic accounting, often within the context of legal proceedings such as divorces or business disputes.

Forensic accountants engage in investigations and audits, reviewing bank records, monetary transactions, and other financial information to uncover and analyze evidence that might be used in court. If a forensic accountant might be helpful in your divorce case, your family law attorney can hire one and work with them.

How Can Forensic Accounting Be Used in Divorce Proceedings?

The main purpose of forensic accounting in divorce cases is usually to ensure you have a comprehensive understanding of assets and income. You might use a forensic accountant if you believe that your spouse is hiding assets, that the other person is not being forthcoming about income, or that there are other financial irregularities that could impact the outcome of a divorce settlement. For example, you might believe that your spouse has made secret purchases of large assets recently or has hidden income to keep it safe from distribution in the divorce. Some specific ways forensic accounting experts can help in divorce cases are summarized below.

1. Tracing Hidden Assets

A forensic accountant can uncover and follow clues that help them find hidden assets. This can include undisclosed bank accounts, secret real estate holdings, or items of significant value, such as fine art.

2. Identifying Undisclosed Income

These financial experts review records such as tax returns, check stubs, and bank statements to discover sources of income that a spouse may not have disclosed. That can include unreported rental or business income and investment accounts.

3. Valuing Businesses

In some cases, a business may be part of a divorce proceeding, and the value of the company is critical in understanding how to treat relevant assets in the divorce. A forensic accountant can conduct a valuation of the business or aid in providing the data and analysis to complete an accurate valuation. When large assets like businesses are involved, it’s typically a good idea to get a third-party valuation, even if you don’t suspect your spouse is trying to hide assets.

4. Understanding Digital Assets

Digital assets such as cryptocurrencies make it easier to potentially hide value during divorce proceedings. An experienced forensic accountant with knowledge of digital assets can track transactions involving cryptocurrency to help ensure these types of assets are included in divorce considerations.

5. Analyzing Spending Patterns and Other Financial Data

Forensic accountants do more than review known bank statements, tax returns, and other financial documents. They can assess spending habits and the general lifestyle of a person to help detect inconsistencies between actual expenses and reported income and assets. For example, a forensic accountant may see trends in spending, such as eating out at pricey restaurants on a regular basis and buying many items for personal use, that don’t equate to what someone says they earn. If the spending can’t be explained via credit card use or other channels, the conclusion may be that there is hidden income.

Working With a Family Law Attorney

If you are going through a divorce, working with a family law team can help ensure you have peace of mind about the process and access to all the tools you need to support your interests. Experienced family law attorneys listen to your story and provide advice about the best steps in your case. They can work on your behalf to gather information to support your case in a divorce and negotiate with your spouse’s attorney regarding the division of property as well as other matters, such as alimony, child support, and child custody.

A divorce attorney can also help you understand when you might need assistance from others in the divorce process, including whether it might be a good idea to hire a forensic accountant. In some cases, divorce attorneys will hire a forensic accounting expert on your behalf, working with them to build a case regarding potentially hidden assets or income. Of course, you would be involved in this process as we work with you as a team every step of the way.

If you are considering divorce or believe your spouse is hiding income and assets from you and want to know what you can do to ensure you get an equitable share in your divorce, start by talking to a family law team. Reach out to the Arizona Family Law Attorneys by calling 480-448-0608 to make an appointment to find out how we can help with your divorce, including property division matters.