Accounting is a topic that can frighten otherwise brave professionals. All the asset, liability, income, and expense talk can be overwhelming if the listener is not trained in the field of accounting. Even those who have taken a couple of accounting courses can get bogged down in the details and have a difficult time translating the numbers and determining what they really mean to a case.
The best forensic accountants are able to present financial issues in litigation so they can be understood readily. Attorneys, judges, and juries often lack an accounting or finance background, so being able to break down financial topics in a way that is easy to understand is essential for forensic accountants. The best expert witnesses are those who can relate to the judge and jury and who can make sense of even the most complex numbers. Continue reading
An area of divorce financial analysis of great interest to attorneys and accountants is the standard of living, both during and after the marriage. Jurisdictions have varying factors that come into play when determining the standard of living during the marriage. The attorney must be familiar with local rules. However, this chapter details some of the most important factors to be considered in analyzing the standard of living of spouses.
To be clear, the discussion of standard of living in this chapter is simply the author’s viewpoint on the most important factors. This viewpoint was developed after consulting on the issue of lifestyle in family law cases in various states. The family lawyer’s local rules will take precedence; however, the factors discussed here may be presented to the court for consideration. The more familiar the family law attorney is with these issues, the better the attorney may be able to present the position and the more convincing the argument may be for the court to consider additional factors. Continue reading
Many different definitions of income can be used in family law cases. Local law will play a big part in defining income, but in more complicated cases, other definitions may come into play. The financial expert can help the attorneys and the court understand the various types of income and why they should be included or excluded from income calculations in a family law case.
Internal Revenue Service Definitions
The Internal Revenue Code is often a starting point for defining and quantifying income in family law cases. Experienced family lawyers know this is only the tip of the iceberg and does not cover many of the unusual situations arising in cases with complicated financial scenarios. However, because the Internal Revenue Service definition of income is so heavily relied upon in many divorces and child support cases, it must be addressed. Continue reading
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. Continue reading
Discovery for the financial portion of the family law case can be time-consuming, particularly for cases involving high-net-worth or high-income spouses. There may be many accounts with a high volume of transactions, creating thousands of pages of paper or digital financial documents. Unfortunately, this process is a necessary part of family law cases, particularly if there are multiple sources of income, if the totality of the family’s assets is unknown, or if a number of the red flags discussed in Chapter 4 are present.
Even though documents can be obtained during discovery through informal requests for them, it is not advisable to rely on an informal process for gathering data. What happens if a key account is “forgotten” in the process? By making the demand for documents formal, a paper trail has been established, and the party can be held accountable for failing to disclose that account and the relevant documents. Continue reading
In this chapter we discuss the documents needed to perform a lifestyle analysis and how those documents are used. We have already talked generally about financial documents that are used in divorce and child support cases, but here we will talk about their relevance to the lifestyle analysis. In later chapters, we will focus on specific types of income or assets and, more specifically, how the documents are used to investigate those items.
This book does not discuss the basics of accounting, as our focus is very narrow and our space is limited. It assumes you have a basic working knowledge of income taxes, financial statements, and accounting terminology. Miles Mason, Sr., JD, CPA, covers the topic of accounting for lawyers thoroughly in The Forensic Accounting Deskbook. An entire chapter is devoted to discussing financial statements, basis of accounting, general ledgers, and audits. Mr. Mason’s book covers all sorts of information on working with financial experts and dealing with financial issues in divorce, and it is an invaluable reference tool for family lawyers. Continue reading
In many divorce cases, it is easy to determine income and identify assets and liabilities. In a run-of-the-mill case, income includes W-2 wages of the spouses and a few small items such as interest income and dividends. Assets and liabilities are obvious, as they often include houses, automobiles, and a bank account or two.
In other divorce cases, it is much more complicated. Divorces involving self-employed individuals, rental properties, income-producing assets, or high-level executives with special perks and benefits are more difficult to evaluate. These are the cases in which more documentation must be evaluated, including the laundry list of documents in Appendix B and possibly other documents depending on the unique factors in the family law case. Continue reading
As discussed in Chapter 2, the standard of living enjoyed by the spouses during a marriage is often one of the main factors in awarding spousal support and child support. One cannot determine the “reasonable need” of a spouse unless the actual expenses during the marriage are analyzed. The standard of living will be determined on the basis of historical expenditures, with some modifications or adjustments depending on local rules and/or the circumstances of the case.
It is important to know how your jurisdiction defines “during the marriage.” In some locales, this could include the time up to the date of divorce, whereas it only includes the period up to the separation in other places. Continue reading
Finding hidden sources of income is important as it relates to spousal support. However, the discovery of income streams can also influence the division of assets. If one spouse has a larger income stream than previously disclosed, that spouse may not need as large a share of the assets divided during divorce. Clearly, the discovery of hidden income can significantly impact the financial outcome of a divorce or child support action.
Support calculations and asset divisions are fairly straightforward when spouses only have wage income from jobs at companies that are unrelated to the spouses. The income is verified with a W-2 or income tax return, and there is nothing complicated about the calculations. Continue reading
Hidden assets can impact both the property division and the award of support payments. Assets hidden by one spouse deprive the other spouse of his or her share. If the hidden assets include income-producing assets such as a business venture or an investment portfolio, the spouse receiving support could receive a lesser amount of support to which he or she is entitled.
Some of the most common personal and business assets hidden during a family law case include: Continue reading