As assets and income in dissolution of marriage (or Divorce) cases become more and more complex, attorneys and courts turn more frequently to forensic accounting to reach the ultimate resolution of the case. Forensic accounting is, broadly, the use of accounting and auditing skills to assist in legal matters. The testimony of the forensic accountant can have a critical impact on the court’s analysis of the equitable distribution of property and debt, or of an award of child support, maintenance, or attorney’s fees. In divorce cases, forensic accounting most commonly involves one or more of the following: 1) valuation of a closely held business; 2) investigation of hidden income or hidden assets; and 3) a tax consequence and cash flow analysis for the purpose of helping to determine appropriate amounts of child support and maintenance.
Perhaps the most common use of forensic accounting in divorce cases occurs when one or both spouses have an ownership interest in a non-publicly traded business entity. In this case, the forensic analysis focuses on the valuation of the business, which is necessary to arrive at a fair property division. Forensic accounting can also be critical in looking for unreported income or hidden assets, for it can aid the attorney in looking for and reconstructing the indicators of unreported income and hidden assets. The proper use of a forensic accountant requires thorough and careful preparation, but often in today’s world, a forensic accountant’s testimony is indispensable to illuminate the financial issues in a divorce case.