How Forensic Accountants Make Sense of Complex Finances to Secure Fair Settlements

Written by: Megan Dell

If you’re getting a divorce in South Carolina, you’re probably worried about how your finances will be impacted. 

Maybe you no longer trust your spouse at their word, or you believe they’ve engaged in fraudulent behavior. Maybe you simply want someone to verify that your spouse has been fully transparent about their – and your – financial situation, especially if you’re about to embark on a high-asset divorce. 

If any of the above scenarios apply to you, you’ve also probably heard that you might need the assistance of a forensic accountant.  

Though obtaining full financial disclosure can be stressful, a forensic accountant can help you investigate and understand more fully your and your spouse’s financial situation and how it might impact you in your divorce. But first, a brief explanation of what a forensic accountant is.

What’s a forensic accountant?

 A forensic accountant is an investigative accountant. This means they use a variety of analytical tools to audit individuals or companies, including small businesses or family businesses. Sometimes a forensic accountant might, as a result of their investigation, discover evidence of a crime or wrongdoing or simply that someone is hiding assets, including bank accounts, or has undisclosed debt.

A forensic accountant might also be asked to investigate when there’s suspected wrongdoing. For example, a forensic accountant might be asked to look into a company if there are suspicious or large purchases. 

They might be hired to investigate a spouse during a divorce to clarify that all assets and debts have been disclosed. Or a forensic accountant’s services might be requested to help prepare clients for legal action. 

Regardless of the reason they were hired, a forensic accountant has one primary goal. And that is to bring all financial matters to light.

What’s the difference between a regular accountant and a forensic accountant?

A regular accountant is generally tasked with seeing that their clients’ financial information is tracked and recorded properly and that their taxes are filed according to any applicable tax codes. A regular accountant can help you make decisions based on your financial information or advise you on areas of opportunity or risk.

A forensic accountant has accounting knowledge but, in addition, is trained to use investigative methods to look for evidence of wrongdoing. Forensic accountants might conduct interviews as part of their fact-finding. Forensic accountants might also be asked to testify in court if their forensic accounting services are required.

What role does a forensic accountant play in a divorce?

A forensic accountant can be tasked with many functions during a divorce. They include:  

1. Compiling and analyzing financial documents. 

During the discovery phase, your forensic accountant can work with your legal team to gain access to documents held by your spouse that might be relevant to your divorce. To facilitate this process, your forensic accountant will put together a list of documents and other information they and your divorce lawyer will need. 

Your forensic accountant will also make requests of you so they have a full financial picture. Once your forensic accountant has the information they need in hand, they will then interpret it for use in your case.

2. Locating Hidden Debt

A forensic accountant can help locate hidden debt your spouse might have been keeping from you. For instance, your spouse could have credit cards you don’t know about that house substantial debt, potentially incurred while you were married and which you could be responsible for paying.

3. Locating Hidden Assets

Forensic accountants can similarly comb through your spouse’s financial information to determine if they have been hiding assets you might not have previously been unaware of. Hidden assets could include an additional home or vehicle. 

4. Finding Inconsistencies

One of the most important roles a forensic accountant has in a divorce is to find inconsistencies. A forensic accountant is trained to see irregularities in your spouse’s financial disclosures (like their financial declaration) and follow their trail to understand if there has been any wrongdoing. 

A forensic accountant might analyze any number of items, from large purchases to tracing the flow of money in and out of separate and marital accounts. They can also look for red flags of other fraudulent behavior that you might not be able to uncover on your own. 

5. Valuing Assets

A forensic accountant can also help in valuing assets. If you’re unsure of how much one of your or your spouse’s assets is actually worth, a forensic accountant can assist you so either of you can use these values for any important calculations in your divorce, such as spousal support. 

For business owners or spouses married to a business owner, assigning a value can be complicated. So, too, can valuing a book of business (aka an account or client list) where an individual might not own the company but whose compensation is based on how much revenue they bring in. For either, a straightforward business valuation might not be intuitive.

6. Analyzing Lifestyle and Historic Spending

Property division is not the only part of divorce proceedings a forensic accountant can help with. When one spouse seeks an award of alimony or spousal support payments from the other, the alimony factors include the lifestyle maintained by the parties during their marriage. Forensic accountants can review financial records to perform a lifestyle analysis to help the parties reach a fair settlement.

What information does a forensic accountant need in a divorce case?

In a divorce case, a forensic accountant is like a financial detective who helps figure out the money side of things. If you’re going through a divorce in South Carolina, here’s the kind of the financial statements and records they need:

• Income Details

They want to know how much money each person makes. This includes salaries, bonuses, and any other sources of income.

• Expenses

What are the regular bills and costs each person has? This includes things like rent or mortgage, utilities, groceries, personal expenses, and more.

• Assets

Forensic accountants need to find out what valuable stuff you own, like houses, cars, or investments. They’ll also look into any debts you might have.

• Bank Statements

These are like the money diaries of your bank accounts. They show what money comes in and goes out, helping the accountant understand your financial story.

• Tax Returns

Just like you file your taxes every year, these documents help the accountant see the bigger picture of your finances.

• Business Details

If one or both spouses own a business, the accountant will need details about it. This includes profits, losses, and the overall health of the business.

• Retirement Accounts

Information about any pensions, 401(k)s, or other retirement savings is crucial. These are part of your financial puzzle, too.

What are the benefits of a forensic accountant in a divorce?

From the beginning of a separation, a forensic accountant can advise your lawyer on the financial data that will be needed to untangle complex financial issues. Then, your lawyer can use the discovery process to compel your spouse to reveal financial information you may not have been privy to during your marriage.

Though collecting the documents may be time-consuming, a forensic accountant may want your attorney to collect real estate records, credit card statements, sales invoices, loan applications, mortgage applications, 

When a business valuation is being performed, the forensic accountant will need cash flow projections, business contracts, sales invoices, employment records, and all regulatory documents related to the business controlled by the opposing party. A financial expert can identify documents needed to prove the existence of certain assets or debts and show whether they are marital property. Then, the expert can provide input to your divorce lawyer, who can issue subpoenas to obtain the information and protect your financial interests. 

An experienced forensic accountant can trace transactions to uncover hidden assets like offshore accounts.

In addition to all of the tasks a forensic accountant has during a divorce, they can also be an invaluable ally in court. They can help you and your lawyers make sense of intricate financial information, separate or marital, and can provide your lawyers with any potential evidence of wrongdoing by your spouse, such as having hidden bank accounts or inaccurately valuing assets. 

If you and your spouse own a small business together or are part of a family business, a forensic accountant can similarly provide vital divorce documentation and help you pinpoint information that could be relevant to your divorce.

Based on the knowledge they ascertain, a forensic accountant can be called on as an expert witness in court. Not only can they help your legal team during the discovery stage, but they can also provide invaluable testimony regarding their findings. If you lack witnesses to substantiate your financial picture, your forensic accountant can fill that role. 

Even in settlement negotiations, forensic accountants can play an important role in ensuring the provisions of the marital settlement agreement are enforceable and allowable by the IRS and other agencies. In some complex financial situations, a forensic accountant can give family law attorneys creative advice about how to structure retirement plan transfers, transferring real estate to take advantage of favorable interest rates, or design alimony payments that serve both parties long-term goals.

Is a forensic accountant only necessary in a high-asset divorce?

Though a forensic accountant can be helpful in a high-asset divorce, a high-asset divorce isn’t the only situation where hiring one could provide value. Many of the same issues that apply to high-asset couples – searching for hidden assets, business valuations, alimony or child support determinations (including lifestyle analyses), tax consequences, and distribution (assets and debts) – all apply only on a smaller scale. 

Given that South Carolina is an equitable division state, meaning that when you divorce, the division of marital property will be equitable, but not necessarily equally, having a solid understanding of tax implications for all relevant financial matters is particularly important.

Will you need a forensic accountant in your divorce?

Though every divorce is different, there are several factors indicating that you might benefit from a forensic accountant. If you and your spouse co-own a family business or a small business, for example, or if you suspect that your spouse engaged in fraudulent behavior while you were married, you should consider hiring a forensic accountant. 

If your divorce is a high-asset divorce or high-net-worth divorce, you can particularly benefit from a forensic accountant, given that your financial situation is likely more complicated than average, and forensic accountants will be better equipped to provide the analyses you need. Of course, as stated earlier, net worth doesn’t have to be a determining factor in hiring a forensic accountant. 

Bottom line: If you think a forensic accountant could help you gain a more comprehensive picture of your finances, it’s better to consult with your family law attorney about hiring one to be a part of your legal team. Your family law attorney can help you make that determination. 

How much does a forensic account cost?

Forensic accountants in South Carolina can cost anywhere from $300 to $500 an hour, though rates can vary. Additionally, most South Carolina forensic accountants collect a retainer before beginning work.

Who pays for a forensic accountant in divorce?

Even if you’ve hired a forensic accountant to investigate your spouse, you will still likely be the one to pay for their services. This is typically the case, even if your reason for hiring them is suspected wrongdoing on their part, such as hiding assets.

What is a joint forensic accountant?

A joint forensic accountant is a person who investigates all parties involved in the divorce. You (with the help of your divorce attorney) and your spouse both hire them and use their expertise, often sharing the cost.

If you and your spouse hire a joint forensic accountant, their allegiance isn’t to either of you but rather to the court. Particularly if you and your spouse co-own a family business or a small business, their work can be helpful since they will not have a responsibility to just one of you.

Is hiring a forensic accountant worth it?

A forensic accountant can be an invaluable asset in a South Carolina divorce. Particularly if you want extra or expert help in the discovery stage of your divorce or you are worried that there has been fraudulent behavior or hidden financial information, assets, or debt, forensic accountants can be well worth the cost. 

If your divorce is especially complicated or you have assets you care deeply about keeping, such as a marital home, hiring a forensic accountant might mean the difference between having an equitable and fair divorce and a divorce characterized by misinformation, an incomplete picture, or surprises.

How do you find a forensic accountant for your divorce?

A full-service family law practice should have a team of forensic accountants they work with regularly. At Dell Family Law, our team of family law attorneys understands how daunting the financial aspects of divorce can be. To provide you with the most comprehensive financial picture we can, we often work closely with forensic accountants we know and trust. 

Together, we work to secure the most positive outcomes for your situation. If you would like to learn more about how a forensic accountant can help with your divorce, contact our South Carolina office today.