Fraud in Divorce: The Forensic Accountant

January 2014      Download PDF      Print

As a legal practitioner of family law, you will likely find yourself reaching out to a forensic accountant. These professionals can assist in identifying what income is available for support following the divorce. They can also help piece together the net assets that will be distributed to the respective spouses.

When you engage a forensic accountant for professional assistance on your case, you can expect them to complete a number of tasks, including the following:

  • Developing a profile of the marital unit
  • Conducting interviews of relevant persons
  • Reviewing documents
  • Investigating for unreported or under-reported personal income and assets
  • Evaluating closely held businesses
  • Concluding the investigation

This white paper will address developing a profile of the marital unit and conducting interviews of relevant persons, and will also serve as a resource for those regularly engaging forensic accountants to assist with their clients' divorce cases.

Developing a Profile of the Marital Unit

One of the first and most critical tasks that should be performed by the forensic accountant is to identify sources of income and marital assets and liabilities that may have been reported to third parties prior to the divorce proceeding. Tax returns, loan and life insurance applications, and bank credit files are examples of reports requiring personal and business financial disclosures that may have been provided to a third party prior to the divorce. The forensic accountant can then compare his findings to court descriptions of the divorcing couple's marital lifestyle. This crucial step in the investigation will allow the forensic accountant to identify inconsistencies between the actual lifestyle of a spouse and the lifestyle portrayed to the divorce court.

This step in the investigation is critical because the data points used in the comparison are from a time that precedes the divorce and often predates any spouse's motive to manipulate actual financial information related to the marital estate. Please keep in mind that as an expert for the court, the forensic accountants' role is to develop information that will be useful to the court when identifying the marital income and assets. It is not their role to advocate a particular spouse's position.

Conducting Interviews of Relevant Persons

The next logical step for the forensic accountant is to conduct information-gathering interviews of both spouses and other relevant persons. The purpose of an initial meeting with each spouse is to obtain an understanding of the marriage from a fiscal perspective. The interview will also allow the forensic accountant to gauge each spouse’s underlying personality, as well as their regular activities both inside and outside the home and office.

Such interviews may best be completed by a forensic accountant who is also trained as a fraud examiner. Certified Fraud Examiners are trained to recognize verbal and non-verbal cues that signal deception. These professionals are also skilled at identifying irregularities between information gathered prior to and during the interview.

Ideally, the interview process will provide the forensic accountant with a better understanding of the couple’s current and prior income sources, and unique non-recurring situations prior to the divorce such as insurance settlements, inheritances, and living expenses. The interview should also produce information regarding each spouse’s personal and business relationships.

It is ideal to interview the opposing spouse as documents are being produced for examination. Once the forensic accountant is able to analyze the gathered data, they may conduct a follow-up interview. The forensic accountant may also be interested in interviewing other parties that generally have information regarding the couple, such as the personal CPA, financial planner, and business partner(s), if any.

Final Thoughts

Divorce is often so distracting for spouses that it can have a negative impact on their incomes and the value of their assets. However, your forensic accountant can investigate alternate causation for these changes or produce viable explanations before determining the unforeseen change is the result of "fraud."