Here are a few common approaches: 

1. Analyze Bank Deposits
   Reviewing personal and business bank statements helps identify regular deposits, payment patterns, and income sources.
2. Look at Historical Tax Returns
   Previous years’ filings can provide a baseline for what income typically looks like, especially when paired with current spending behavior.
3. Review Lifestyle and Spending
   Monthly expenses—such as housing, utilities, travel, and discretionary spending—can provide insight into true earning capacity.
4. Examine Third-Party Records
   Vendor statements, insurance documents, payroll reports, or point‑of‑sale summaries can fill in gaps and help validate assumptions.
5. Use Industry Benchmarks
   When documentation is limited, comparing income to standard industry ranges for similar businesses or roles can help establish reasonable estimates. 

If you are facing a situation where financial information is unclear or incomplete, we can review the available documents and help determine the most reliable approach to establishing income.  

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Dissipated Assets refer to marital funds or property that one spouse has spent for purposes unrelated to the marriage.  Tracing these assets involves reviewing financial records, spending patterns, and depletion of marital funds leading up to the divorce. 

Diverted Assets, on the other hand, are typically hidden intentionally. They might be transferred to accounts in relatives’ names or overseas accounts to avoid division. Detecting these involves a thorough analysis of financial statements, unusual transactions, and the lifestyle maintained by both parties versus reported income. 

In situations where dissipation or diversion of marital assets is suspected, a forensic accountant can be invaluable in tracing these assets. They can provide insight into complex financial trails, ensuring that all marital property is accurately accounted for and equitably divided. 

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Identifying Personal Expenses in a Closely Held Business 

In the context of divorce proceedings, particularly those involving child and spousal support, the accurate identification of income is critical to ensuring fair and equitable outcomes. This task becomes increasingly complex when one or both spouses own a business. In such situations, the line between business and personal expenses can often be blurred, making it essential to scrutinize the business’s financial records to determine the true income available for support obligations. 

Understanding the Nature of Closely Held Businesses 

A closely held business is typically a privately owned company with a small number of shareholders, often family members. The owners of these businesses often exercise significant control over the company’s finances, including decisions about compensation, distributions, and the payment of expenses. This level of control can present opportunities to minimize reported personal income through the business, thereby potentially reducing child and spousal support obligations. 

The Need to Characterize a Portion of Business Expenses as Personal  

Business owners may deduct expenses that are personal in nature—such as vehicle costs, travel, meals, entertainment, housing, and even educational expenses—as business expenses on the company’s books. While such deductions might be legal under tax law when substantiated properly, they may nonetheless represent personal benefits that should be considered part of the owner’s actual income for child and spousal support purposes. 

Methods for Identifying Personal Expenses 

The process of identifying such expenses usually involves a detailed forensic analysis of the business’s financial records, including tax returns, general ledgers, credit card statements, and bank statements. Common expenses that most often have a personal component include: 

• Automobile expenses for vehicles used primarily for personal reasons. 

• Travel and entertainment that lack a clear business purpose. 

• Meals and lodging not associated with business meetings or travel. 

• Family member salaries for no-show or underqualified positions. 

• Payments to related-party vendors that may inflate costs or mask income transfers. 

Experts such as forensic accountants are often retained to perform these analyses and to offer testimony as to what portion of the business’s expenditures constitute personal benefit to the owner. 

Once personal expenses are identified, they can be imputed as income to the business-owning spouse for the purposes of calculating child and spousal support. This is consistent with the principle that support is based not only on reported income but also on the actual financial resources available to each party. 

Conclusion 

In divorce cases involving closely held businesses, identifying personal expenses that are paid through the business is critical to accurately determining child and spousal support obligations. Given the potential for financial misrepresentation, courts often rely on forensic analysis to uncover the true financial picture. Ultimately, the goal is to ensure that support calculations reflect the actual economic resources of each parent. 

If you or your client are navigating a divorce involving a business, don’t rely solely on the tax return. A forensic review could reveal income hiding in plain sight — and ensure a fairer financial outcome. If you have specific questions about this topic, I’d be happy to connect and discuss further.

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Take a look below, and feel free to pass this list along to anyone in your life who may find it useful. 

The Basis of Child Support Payments 

Myth: Child support is determined based on the child’s needs. 

Fact: Child support payments are actually calculated based on the parents’ earning capacities, not directly on the child’s needs. 

Use of Child Support Funds 

Myth: Child support must be strictly spent on the child. 

Fact: There is no requirement for the recipient to account for how child support payments are spent, as long as the child’s basic needs are being met. 

Evading Child Support 

Myth: Moving out of state can help avoid child support obligations. 

Fact: Child support enforcement is a nationwide system; relocating does not absolve these obligations. 

Employment Status and Child Support 

Myth: Quitting a job will stop child support obligations. 

Fact: The court can impute income, meaning it can assign an earning potential to a non-working parent, and child support obligations continue. 

Job Loss and Legal Consequences 

Myth: Losing a job and failing to pay child support leads to jail. 

Fact: Incarceration is only a consequence for those who can pay but choose not to. Legitimate loss of income is taken into consideration. 

Custodial Parent’s Expenditures 

Myth: Excessive spending by the custodial parent should reduce child support. 

Fact: The focus is on whether the child’s basic needs are met; the custodial parent’s additional expenditures are generally not considered. 

Personal Expenses and Child Support 

Myth: High personal expenses should lower my child support payments. 

Fact: Only necessary and extreme expenses might influence child support adjustments. 

Tax Implications of Child Support 

Myth: Child support payments are tax-deductible. 

Fact: Child support is neither deductible for the payer nor taxable income for the recipient. 

Understanding the legalities of custody is so crucial to setting realistic expectations and making informed decisions.

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In my practice, I have found that there are several key reasons why a business valuation is essential during a divorce: 

• Determining value: An objective valuation provides a picture of the business’s worth, considering factors such as assets, liabilities, market conditions, and future earning potential. 

• Facilitating equitable division: With a fair valuation, the parties can negotiate a division of the business interests, helping to avoid future disputes and potential litigation. 

• Supporting financial transparency: A detailed valuation ensures that relevant financial details are disclosed, promoting transparency and trust between divorcing parties. 

• Expert testimony: If the divorce proceeds to court, a professional valuation can serve as important evidence, supported by expert testimony, to support the value assigned to the business interests. 

If you or someone you know is facing a divorce and owns a business, I highly recommend preparing a business valuation. It can make a difference in achieving a fair and equitable outcome.

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Examples of Financial Infidelity 

Financial infidelity in divorce cases can take various forms, including: 

• Dissipation of Marital Assets: One spouse may intentionally waste or deplete marital assets, reducing the overall pool of assets available for division. 

• Hidden Assets: Concealing assets to avoid equitable distribution is another common tactic. This might involve transferring assets to friends or family, underreporting income, or creating fictitious debts. 

• Undisclosed Liabilities: Failing to disclose debts or financial obligations can also constitute misconduct, as it affects the fair division of liabilities and assets. 

Legal Remedies and Financial Restitution 

Courts take financial misconduct seriously, and there are several remedies available to address it: 

• Reallocation of Assets: If financial misconduct is proven, courts may reallocate assets to compensate the affected spouse. This could mean awarding a larger share of marital property or ordering reimbursement for dissipated assets. 

• Sanctions and Penalties: Courts can impose sanctions on the offending spouse, including fines or payment of the other party’s legal fees. 

• Forensic Accounting Investigations: Employing forensic accountants can uncover hidden assets, trace dissipation, and provide evidence needed to support claims of financial misconduct. 

Ensuring Fair Outcomes 

As a forensic accountant, I can assist in identifying and proving financial infidelity, making sure that you and/or your clients receive a fair and just resolution. Detailed financial analysis and expert testimony can be crucial in these cases. 

Please feel free to contact me if you need assistance with any cases involving financial infidelity. I’m here to support you and your clients in achieving equitable outcomes.

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The financial components of divorce involve knowing the couple’s assets, liabilities, income and expenses. Most of the information for assets, liabilities and income is readily available from third parties such as banks, mortgage companies, brokerage houses, employers, and others. But often the only information available for expenses is from the parties, and it is their assessment or estimate of expenses. If there are questions or disagreements about the expenses as listed by each party, it may be advisable to prepare a lifestyle analysis focusing on expenditures.  

A lifestyle analysis is a detailed review of financial records to understand the couple’s spending habits during the marriage. Often, expenses are viewed as discretionary, such as vacations and gifts, and non-discretionary, such as rent and groceries. This process demonstrates the average lifestyle a couple enjoyed during the marriage and highlights expenditures that may not be sustainable post-divorce. 

It is advisable to work closely with a financial expert who specializes in divorce proceedings and who is knowledgeable in lifestyle analyses. The lifestyle analysis ensures that both parties have a clear understanding of their expenses while married, and how their lifestyle may have to change after the divorce. Please let me know if you have any questions or need further assistance. 

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In family law, forensic accountants focus on valuing marital estates, determining which assets and liabilities may be non-marital, determin- ing the parties’ incomes, and calculating alimony and child support.
With clients (or their spouses) who receive a W-2, calculating net income should be easy. Many divorcing couples have at least one party who is employed, receives a regular paycheck, and has federal income taxes withheld from each paycheck. Within certain boundaries, the taxpayer determines the amount of tax withheld by filing a W-4 form with the employer.
Here is an example of how a W-2 employee tried to use the IRS to conceal marital assets for distribution, and to hide income for support.

Hiding Income

In 2014, my client (the wife), filed for divorce. The husband, who was pro se, was a marketing manager for a large corporation, and was, therefore, a W-2 employee. Through her attorney, the wife engaged me to value the marital estate and to determine her husband’s income.
In 2014, the husband was ordered to pay the wife temporary support of $800 per week, or $1,600 bi-weekly. At the time, the husband’s bi-weekly gross income was $3,900 and his net income was $2,675. After paying temporary support, he was only left with $1,075 per pay period. The husband requested another hearing to reduce his temporary support obligation, which was reduced to $400 per week, or $800 bi-weekly.
The wife was not able to sustain at that level, so she requested another hear- ing, and the temporary support was adjusted to $600 weekly, or $1,200 on a bi-weekly basis. Under that scenario, the husband was able to retain $1,475 bi-weekly from his $2,675 net pay.
In 2015, the husband received a raise, bringing his bi-weekly gross wages from $3,900 to $4,400. His withholding have been around $350. After other deductions, his net pay shoul have been about $3,150. After tempo-rary support to his wife of $1,200, the husband should have netted $1,950 bi-weekly during the temporary support period.
However, the husband decided to increase his federal withholding taxes to $875 per pay period. This had the effect of reducing his bi-weekly net pay to $2,625, or approximately the same level as 2014, thereby hiding his $13,000 annual pay increase.
In December of 2015, the husband again wanted to reduce his temporary support obligation. He came to court with a pay stub that showed net pay of $1,875, and claimed that his pay was reduced. With temporary support payments of $1,200 to his wife, the husband claimed that he only had $675 per pay period, while his wife had $1,200.
Upon closer examination, there was a one-time adjustment of $750 (net of taxes) that caused the husband’s bi-weekly net pay to go from $2,625 to $1,875 that one pay period that he brought to court. Using the IRS as an accomplice, the husband was able to demonstrate, with his pay stubs, that his bi-weekly net income in 2014 was $2,675 and his bi-weekly net income in 2015 was $2,625, in spite of a 13% pay increase.

Summary of Husband’s bi-weekly wages, taxes, deductions, and net pay

*Other deductions include social security taxes, Medicare taxes, and health insurance

Summary of Husband’s annual wages and taxes

Hiding Assests

In addition to hiding income, this husband also managed to hide assets at the IRS.
From 2013 to 2016, the husband’s gross wages showed modest annual increases. During the same time period, the husband’s income taxes were never more than $8,200.
In 2014, the year that the wife filed for divorce, the Husband sent a $20,000 estimated tax payment to the IRS. This unnecessary payment, plus some ordi- nary excess withholding, resulted in an overpayment of about $27,000 in 2014. The husband received a refund of $3,000, leaving $24,000 to apply to the following year’s (2015) taxes.
In 2015, the husband increased his withholding, adding about $16,000 in overpayments to the IRS. After filing his 2015 tax return, the husband had almost $40,000 in refunds available at the IRS, but not requested.
In 2016, the husband again over-withheld his (W-2) federal income taxes, adding an additional $17,000, to his IRS “savings account.” The funds secreted in the US Treasury totaled over $57,000 at the end of 2016 – and some portion of those funds were marital.

Pitfalls for the Abuser

It would seem logical that the IRS should be happy when taxpayers overpay or withhold excess taxes. However, the tax code prohibits such behavior. The code identifies certain practices as frivolous, and applies penalties for filing frivolous tax returns. The Internal Revenue Code section 6702(a) lists positions (taken when filing a tax return) that constitute frivolous filing. Included in paragraph (22):
“…an amount of withheld income tax or other tax that is obviously falsebecause it exceeds the taxpayer’s income as reported on the return or is disproportionately high in compari- son with the income reported on the return…” The penalty for filing a frivolous tax return is $5,000. Of course, it is safe to say that most judges do not look kindly on litigants who engage in such dishonest practices.

Conclusion

Just because your client is a W-2 employee does not mean that you don’t need a forensic accountant on your team.

With an MBA from MIT and a Masters in Accounting, Harriett Fox (CPA) specializes in com- plex financial analyses in divorce proceedings. She has served as an expert witness in numerous cases, and she is a Collaborative Financial Professional. www.harriettfoxcpa.com

Related Article

How Do You Find Hidden Assets?

Suggestions for how to go about locating hidden assets: questions to ask, places to look and things to look for.

www.familylawyermagazine.com/
articles/find-hidden-assets

As a Certified Public Accountant with many years of experience, Harriett Fox provides attorneys, divorcing couples and businesses with forensic accounting services. As a collaborative financial professional, Harriett works with divorce attorneys and helps couples to settle out of court.

Harriett was born and raised in Newton MA, a suburb of Boston. She holds an MBA from the Sloan School of Management at MIT, and a Master of Accounting from FIU. She has worked in positions at Fortune 500 companies, family owned businesses, and international, national and local accounting firms. She was recently appointed to the Florida Bar Grievance Committee – Eleventh Judicial Circuit.

Harriett has had her own forensic accounting practice in Coconut Grove for over 10 years. She is devoted to minimizing the damage caused by divorce by helping families navigate and communicate using the collaborative divorce process

harriettfox@alum.mit.edu
T: 305.495.2179
www.harriettfoxcpa.com
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You probably became a lawyer for the exact opposite reasons that I became a CPA: I could not fathom doing all that reading and writing, and you probably could not fathom dealing with numbers. You did not become an attorney because you wanted to spend the rest of your life crunching numbers – but a lot of the work you do as an attorney requires some knowledge of financial calculations.
Almost every lawsuit includes a financial component. In a divorce, the financial components include valuing marital and non-marital assets and liabilities, determining each spouse’s income, and calculating spousal support (alimony) and child support. There may also be a closely-held business, stock options, or a pension that needs to be valued for inclusion in the mari-tal estate. In non family matters, the financial pieces can include calculating damages for insurance claims, personal injury, wrongful death, and tort actions to name a few.

A Grand Today is Better Than a Grand Next Year

Having $1000 today is better than having $1000 a year from now because you can use that $1,000 to make money between now and next year. If you can earn 10% interest, you will have $1,100 a year from now. Put another way, the value of $1,100 a year from now is equal to $1,000 today. Expressed in financial terms, the present value of $1,100 in one year, with a 10% discount (interest) rate, is $1,000.
In divorces, the horizon is often longer than a year. For illustration purposes, we will use a five-year time- frame in our calculations. Using the same $1,000 today, the following shows the future value of $1,000 at 10% interest.

A Complicated Formula for an Uncomplicated Concept

It is simple to use a mathematical expression to calculate future value. Instead of adding 10% interest each year, the factor of 1.1 is used to multiply the value of $1,000 each year into the future. Calculating the value in 5 years at 10% interest is:
$1,000 x (1.1) x (1.1) x (1.1) x (1.1) x (1.1). or, using exponents from algebra: $1,000 x (1.1)5 Expressed in financial terms: Future Value (FV) = Present Value (PV) x (1 + interest rate (r))number of years (n) or FV = PV x (1 + r) n

Let’s look at an example of a future value calculation. If I buy a $10,000 bond today that earns 10% interest with no payments until maturity, how much will the bond be worth in three years? The formula to calculate the future value is:
FV = PV x (1 + r) n
FV = $10,000 x (1.1)3
FV = $10,000 x 1.33
FV = $13,300
Using this formula, it seems obvi-ous that if the PV (the amount we start with) increases, then the FV will also increase. And, as long as the interest continues to accrue, the longer we hold the bond, the higher the FV of the bond will be. Finally, if the interest rate goes up, we will earn more interest on the initial $10,000, and will, therefore, have a greater FV.

Reversing the Concept

Suppose instead of calculating the FV of a present amount, we want to find the PV of a payment in the future. Instead of multiplying the PV by an interest rate to calculate a FV, we divide the FV by a factor (discount rate) to calculate the PV. The factors are derived from the interest rate. For 10% interest, the factors for the first five years are as follows: Since the formula for FV (from earlier) is:
FV = PV x (1 + r) n
Using basic algebra, the PV is then:
PV = FV / (1 + r) n
Let’s look at an example of a present value calculation. Suppose there is a marital certificate of deposit (CD), earning 10% interest, that matures in three years. It can be retitled from joint ownership to single ownership, but it cannot be redeemed without a large penalty. Rather than wait for the CD to mature in three years so the couple can divide the proceeds, one party will take the CD in exchange for some other marital asset. To ensure a fair exchange, we have to calculate what the value is today on a CD that matures in three years. The formula to calculate the PV is:
PV = FV / (1 + r) n
PV = $10,000 / (1.1)3
PV = $10,000 / 1.33
PV = $7,518 (rounded)

Annual Payments in the Future

So far, we have presented cases that are for single payments in the future. What if there are annual payments? How can you find the PV of multiple future payments? The basic calculation is the same. The PV of each year’s payment is calculated and summed to find the PV of the stream of payments. Suppose there are five annual payments of $1,000. Each year’s payment would be divided by the factor for that year. The calculation looks like this: The PV of the five-year stream of payments is the sum of each of the values, or a total of $3,793 for the five annual payments of $1,000.

The Magic is in the Assumptions

Now that we know the formula for calculating PV, what could be contro- versial about the calculations? Let’s see what happens when the basic variables are changed. The vari-ables are:
PV – present value
FV – future value
r – interest rate
n – number of years in the future
Any one of the variables can be calculated when the other three values are known. The interest rate can be calculated if you know the PV, FV, and number of years. The number of years can be calculated knowing the PV, FV, and interest rate. But we’re concerned with the PV calculation and how its factors impact the outcome. Let’s use the example from the single payment PV calculation, changing the variables one at a time.

To review: we have to calculate what the value is today, on a 10% CD that matures in 3 years. This is the calcula-tion from above.
PV = FV / (1 + r) n
PV = $10,000 / (1.1)3
PV = $10,000 / 1.33
PV = $7,518 (rounded)
Now what happens when we change the variables?

Double the future value:
If the FV is $20,000 instead of $10,000, then the PV becomes:
PV = $20,000 / (1.1)3
PV = $20,000 / 1.33
PV = $15,036 (rounded)
As expected, the PV increases proportionately as the FV increases. When we double the FV, the PV also doubles.

Double the number of years:
If the FV stays at $10,000 and the number of years is 6 instead of 3, what is the PV?
PV = $10,000 / (1.1)6
PV = $10,000 / 1.77
PV = $5,649 (rounded)
The PV of $10,000 is less the further into the future we go. But it is not proportional. In other words, by doubling the time horizon, the PV was not reduced by half.

Double the interest rate:
If the FV is $10,000 and the number of years is 3, what if the interest rate is 20% instead of 10%?
PV = $10,000 / (1.2)3
PV = $10,000 / 1.728
PV = $5,787 (rounded)

The PV of $10,000 is less than the resulting $7,518 from the original scenario. But it is not proportional. In other words, by doubling the interest rate, the PV was not reduced by half.

Halve the interest rate:
If the FV is $10,000 and the number of years is 3, what if the interest rate is 5% instead of 10%?
PV = $10,000 / (1.05)3
PV = $10,000 / 1.157
PV = $8,643 (rounded)
The PV of $10,000 is higher than the resulting $7,518 from the original scenario. With a lower interest rate, the resulting PV is higher, but again, not proportionately.
The explanations contained here are just the tip of the PV iceberg; there are many applications for using PV calculations. Ask your financial profes-sional to explain the elements of the PV calculations used in your cases. You should question the assumptions he/ she is using – especially the interest rate (discount rate), as it has a major effect on the outcome. And you should always
feel confident that your financial profes-sional understands the calculations and isn’t pulling results out of a hat. 

With an MBA from MIT and a Masters in Accounting, Harriett Fox (CPA) specializes in com- plex financial analyses in divorce proceedings. She has served as an expert witness in numerous cases, and she is a Collaborative Financial Professional. www.harriettfoxcpa.com

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Thank you for your interest in Forensic Accounting. I chose this field of practice because it allows me to use my skills to help couples understand and make decisions about the financial aspects of their divorce and the life that is to follow.

Many people think that Forensic Accounting has something to do with death or dead bodies. It doesn’t. Forensic accountants value a couple’s assets and liabilities for equitable distribution, and determine income for alimony and child support purposes.

With over 40 years of experience and with my knowledge of business, the divorce process, and financial matters, I can assist a divorcing couple and their attorneys to understand the financial aspects of their proceedings and settlements. Please call me at 305-495-2179, or email me at harriettfox@alum.mit.edu to schedule a consultation.

Thank you.

What is a Forensic Accountant?

Forensic accounting is a specialty practice area of accounting that involves working with clients and their attorneys on legal matters. As a Forensic Accountant, I collect evidence, primarily in the form of financial and accounting documents, in order to answer financial questions in legal matters. In the case of divorce, I prepare financial affidavits, calculate the parties’ incomes, establish the value of marital assets and liabilities, value closely held businesses, and complete alimony and child support calculations. In many cases, I assist the attorneys in preparing document requests, deposition questions and trial questions. In some cases, I testify in court as an expert witness, and render my opinions to assist the court in reaching better financial decisions.

How is a Forensic Accountant different from all other accountants?

A forensic accountant’s work differs from traditional accountants’ work in many ways.
Traditional accountants prepare financial statements and tax returns in specified
formats. All personal tax returns are filed on the same form – Form 1040. Forensic
accountants are free to tailor their presentations to best explain the issues under
consideration. As a Forensic Accountant, I testify in court as an expert witness.

Traditional accountants are usually called as fact witnesses. Traditional financial accountants and financial statement auditors can sample accounting transactions to make their conclusions. In contrast, forensic accountants typically look at all transactions. Within forensic accounting, we learn that “the devil is in the details.”

What does a Forensic Accountant do in divorces?

In family law, I focus on valuing the marital estate, determining which assets and liabilities may be non-marital, determining the parties’ incomes, and calculating alimony and child support.

To accomplish this, I prepare a financial affidavit for each party, or I use the financial affidavits already prepared. The financial affidavit summarizes the parties’ assets, liabilities, income and expenses. Information comes from volumes of documents from both parties. Typically, three to five years of documents are collected, including:

• Income tax returns
• Bank statements for checking, savings, individual and joint accounts
• Investment account statements including retirement accounts, individual and
  joint accounts
• Credit card account statements, individual and joint accounts
• Debit card transactions, if not included in bank account statements
• Mortgage statements
• Loan statements

For closely held business:

• Tax returns
• Balance sheets, income statements, general ledgers
• Articles of incorporation
• Shareholder/partnership agreements

From these documents, I prepare a set of schedules that show all the marital and non- marital assets and liabilities, and a proposed equitable distribution for discussion. I calculate alimony and child support based on the parties’ incomes and anticipated tax status.

And sometimes, Forensic Accountants are called upon to find hidden assets. In short, as a Forensic Accountant, I make sure that clients and their attorneys have the financial information they need to make informed decisions.

How to choose a Forensic Accountant

In the case of a litigated divorce, it is important that the Forensic Accountant have the necessary credentials to be accepted as an expert witness by the court. It is also helpful if the Forensic Accountant has sufficient experience in family law and understands court proceedings.

What does it mean for a Forensic Accountant to be independent?

Attorneys and accountants are highly respected professionals. They take an oath to practice to the best of their ability and to uncompromisingly represent the best interests of. And that is where the biggest professional difference between attorneys and accountants lies. Attorneys take an oath to zealously represent the best interests of their clients. Accountants take an oath to protect the public trust. Forensic Accountants cannot advocate for their client, but they can advocate for their opinion.

The attorneys’ case theory may change depending on whether the husband or wife is represented. Or whether the “earner” or the “non–earner” is the client.

The accountants’ case theory should not change, no matter who the client is, who the attorney is, or which side is paying the fees.

Often times the most volatile item in a divorce settlement is the valuation of a family business. As an independent Forensic Accountant, my opinion of valuation will not change depending on who owns the business (my client or the other side). And, as an independent Forensic Accountant, I will not agree to produce a predetermined value presented by either party.

What does it mean for a Forensic Accountant to be
neutral?

I like to help people save time, money and energy as they navigate their way through a divorce. That’s why I believe in using a neutral Forensic Accountant.

Let’s face it. There are only so many ways to combine numbers. This is not to simplify or minimize the amount of training and knowledge that is required to do the forensic accounting in a divorce case. But, if each spouse engages a Forensic Accountant, chances are that the two accountants will agree on about 80% of the financial issues. Then the two accountants meet to see if they can hash out the balance of the items. If not, then the remaining 20% will be negotiated, mediated or decided by a judge. Having a neutral forensic accountant at mediation saves fees by having only one, instead of two, accountants presents. Often times, as a neutral Forensic Accountant, I will assist the mediation process by following the mediator and working with both parties.

When I am a neutral Forensic Accountant working equally for both parties, then the accounting fees are reduced almost by half. Usually discovery is more transparent and faster because there is less tendency to withhold information.

When should you hire a forensic accountant?

Not only because I am one, but because the financial issues in divorce are becoming more complex, I believe that most divorces should have a Forensic Accountant involved. I have seen cases where “W-2 employees” have hidden assets and income at the IRS. Many times, albeit with the best of intentions, attorneys’ calculations for future income (for alimony and child support), use the wrong tax bracket. Sometimes, the martial portion of pension and retirement funds are improperly calculated.

As for deciding at what point in the divorce you should hire your Forensic Accountant, unequivocally at the earliest possible time. Too often, I am called after the discovery date has expired, and some relevant documents were not requested. When involved at the beginning of a case, my expertise can be used throughout the proceedings.

What about the cost?

The cost of divorce can be staggering. Decisions made will impact your life and your children’s lives for a very long time. Even if the case seems simple – W-2 employees, a house, a few investment accounts, a few retirement accounts, a couple of cars and some jewelry – it is important that the assets and liabilities be properly valued, and the income properly calculated. These activities should cost a few thousand dollars (not tens of thousands). When there are extensive properties, pre- or non-marital items, or a closely held business, the costs could be higher. But it is always worth asking: should I pay a little more to make sure it’s right? I think so, because it is the rest of your life.

If you are a family lawyer or a party in a divorce or an impending divorce, engaging the services of a forensic accountant—

Call Harriett Fox at 305-495-2179 today, or email her at harriettfox@alum.mit.edu

As a Certified Public Accountant with many years of experience, Harriett Fox provides attorneys, divorcing couples and businesses with forensic accounting services. As a collaborative financial professional, Harriett works with divorce attorneys and helps couples to settle out of court.

Harriett was born and raised in Newton MA, a suburb of Boston. She holds an MBA from the Sloan School of Management at MIT, and a Master of Accounting from FIU. She has worked in positions at Fortune 500 companies, family owned businesses, and international, national and local accounting firms. She was recently appointed to the Florida Bar Grievance Committee – Eleventh Judicial Circuit.

Harriett has had her own forensic accounting practice in Coconut Grove for over 10 years. She is devoted to minimizing the damage caused by divorce by helping families navigate and communicate using the collaborative divorce process.

harriettfox@alum.mit.edu
T: 305.495.2179
www.harriettfoxcpa.com
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