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What is forensic accounting?

On Behalf of | Mar 16, 2020 | Divorce

Most of us have never heard the phrase forensic accounting. To the uninitiated it sounds like something taken from the script of a TV show such as CSI or Law & Order. But forensic accounting is actually quite common when it comes to divorces where one spouse may be hiding assets.

Forensic accounting is accounting that delves deeper and follows paper trails to find where they lead. A forensic accountant might be called a “financial detective” because of the skill, experience and knowledge required to “sniff out” assets or money that may otherwise be hidden.

When is forensic accounting needed in a divorce?

During a divorce all property, which includes all the assets and debts of the parties, will be accounted for and divided. There are few exceptions, one of which is an inheritance or a gift which is presumed to be excluded from division in a divorce, providing it can be traced and has remained separate from joint funds.

Forensic accounting may be needed if:

  • The marriage includes multiple properties
  • The marriage includes a business or businesses
  • There are common financial investments, such as retirement funds, stocks, or other non-tangible assets
  • There are assets of substantial value
  • One spouse owns a business that is heavily cash-based (laundromat, bar, restaurant, some rental businesses).  Or, a spouse is self-employed and can easily hide income through cash, personal expenses or other expenses which are overstated or cannot be accounted for
  • There are assets which are missing or monies which have been spent during the marriage which cannot be traced
  • There are substantial debts of which the other party was unaware

When a couple divorces it can be very emotionally complex. A spouse may hide assets for a variety of reasons including fear of not having enough after the divorce or in an effort to retaliate. A forensic accountant will know where to look for assets and debts, and know how to locate multiple bank accounts, even if these accounts are in someone else’s name.

A professional financial sleuth will be able to readily uncover stowed cash, deferred income and transferred stock or other investments. Not only that, but by working with a divorce attorney or firm that uses a forensic accountant, you can be assured that high-value items will be appropriately valued and all assets and debts are appropriately accounted for and divided. The results of investigations done by forensic accountants are suitable for use in a court of law.