How Can A Forensic Accountant Help Me In My Divorce?
Q: How does a forensic accountant find hidden assets and income?
BR: Forensic accountants have many ways to find hidden assets and income. The first step is to establish and review an overall snapshot of the spouse's assets and income. This is accomplished by developing a profile of the spouse's assets and income sources, including real estate, businesses, investments, bank accounts and other assets.
The next step is to identify hidden assets and income. One way to uncover hidden bank accounts is to conduct a tracing analysis. This is where we examine all bank accounts and look for significant bank account transfers. If a transfer cannot be traced from one account to another, it may signal that the spouse has used an undisclosed account.
A second way is known as a lifestyle analysis. This is where we review all of the spending of a spouse and compare total spending to the reported income. If the reported income is significantly less than the spending total, and there were no explanations for the difference, for example, gifts, loan proceeds, inheritances or capital used, then this could prove that there is unreported income.
Another way is to examine when the spouse has obtained a bank loan either for personal purposes or to purchase a property or fund a business. In these situations, we obtain the bank loan application which will list the spouse's assets and income. Often there are discrepancies between the assets and/or income disclosed to the lawyers versus what was stated on the loan application.
Q: What can a forensic accountant do if there is an allegation of unreported cash income?
BR: Although cash income can be difficult to prove, there are ways to estimate the amount of cash income. For example, in one of our past cases, the husband owned a night club and the wife claimed there was a large amount of cash sales. We proved there were substantial cash sales in two ways. First, we reviewed the personal bank statements, credit card statements and brokerage statements of the husband for several years. We determined that the husband was spending $300,000 per year, yet he only reported $60,000 of income on his personal income tax return.
Second, we reviewed the internal sales reports of the night club, which indicated that there were periods of time where no sales activity had been recorded and in fact the sales entries had been deleted by the husband in order to understate sales.
Q: If a spouse owns a business, how do you assess the...
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