How can a family law attorney determine whether a lifestyle analysis is needed in a divorce case? A suspicious spouse may be all that is needed to begin a lifestyle analysis; however, a more objective basis for undertaking the lifestyle analysis is preferred. A lifestyle analysis can be expensive and time consuming, so doing a thorough evaluation of whether it is warranted and/or worthwhile under a cost/benefit scenario is a good idea. This chapter discusses numerous red flags that may indicate hidden income, hidden assets, or other financial irregularities, which are the types of things that could trigger the need for a lifestyle analysis.

Gathering documents early is a key part of the lifestyle analysis. By doing so, the attorney reduces the risk that documents will be altered or destroyed or that financial institutions will be unable to locate the documents. Although it can be a huge task to gather documents for all bank, brokerage, and credit card accounts, in addition to income tax returns and business documents, it is a critical component of the family law case.

Gathering documents should not be left until the last minute, as discovery deadlines can approach quickly. Attempting a lifestyle analysis at the last minute is risky and expensive. Extreme time limitations could impact how thorough and accurate the analysis is. A lifestyle analysis may uncover previously undisclosed accounts or assets, possibly creating a need for additional discovery, and tight litigation deadlines may cause a problem. If the attorney waits too long to retain an expert, it may not even be possible to find a forensic accountant who can meet the deadlines.

The lifestyle expert may need more than just documents. The divorcing spouses usually have important background information and details about financial transactions that can be invaluable to the lifestyle analysis. Unfortunately, the expert typically has access to only the spouse who retained his or her services. It is unusual that the spouse on the opposite side of the case is willing to sit down for an interview with the expert. However, it may be possible to obtain information from the other side through the discovery process by requesting additional documents, serving interrogatories, or deposing people with relevant information.

In this chapter, we will first discuss how the client can manage the financial aspects of divorce. Next we will cover the red flags of fraud in divorce. Finally, we discuss sources of information, strategies for gathering and managing documents, and the discovery process from the perspective of the financial expert.

Red Flags of Fraud in Divorce

The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. Once a divorce case is resolved with a voluntary settlement, it is very difficult to reopen the case, even if there is a strong suspicion of fraud during settlement negotiations.

The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of red flags of fraud. A red flag is simply a warning sign or an unusual item or circumstance. Red flags can be divided into four different categories:

• Behavioral—actions of the parties that seem secretive or suspicious
• Documentation—unusual characteristics of paper or digital documentation and data
• Personal—attributes of the personal finances that raise questions or indicate potential improprieties
• Business—aspects of the finances of a business that indicate something unusual or improper

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something regarding the parties’ finances does not feel right, it probably should be investigated. A client is often suspicious of the spouse before they are separated. The spouse may even be known to manipulate the money.

Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean money has disappeared or the finances are being manipulated, but they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts.

Behavioral Red Flags

Evaluate the behavior of the spouse, both at home and at work. Is there secrecy or extreme control surrounding financial matters? Some general behavioral red flags include:

• Exerting excessive control over financial matters, such as control of all bank information, statements, and online access
• Concealing details of transactions from the spouse
• Making large expenditures or asset purchases without the knowledge of the spouse
• Being secretive about financial or other matters
• A history of deception
• Being focused on “getting one over” on others
• Asking or coercing a spouse to sign unusual financial or legal documents, especially with pressure to sign quickly and/or without advice from professionals
• Using a post office box or other private address to receive mail (which cannot be accessed by the spouse)
• Flaunting one’s power or control over the other spouse
• Engaging in unnecessarily complicated transactions

Also included in this chapter:

Documentation Red Flags
Personal Financial Red Flags
Business Financial Red Flags
Financial Disclosures
Financial Affidavits
Marital Balance Sheet
Investigating People
Sources of Private Records
Sources of Public Records
Information From Clients
Beginning the Engagement