Reprint from Family Lawyer Magazine with permission.
Family Lawyer Magazine’s Publisher Dan Couvrette asked Certified Public Accountants Rod and Heather Moe what family lawyers should know about business valuation and forensic accounting; here is a summary of that interview.
Heather: Forensic accounting is the use of accounting skills to investigate fraud or embezzlement and to analyze financial information used in court proceedings.
Rod: Lawyers are not necessarily trained in financial aspects, taxation, or business valuations. We can assist them in doing a proper job and limit their liability by supplementing their skills in areas where they are not proficient.
Do you act for one attorney, or can you act for both sides in a divorce case?
Rod: Generally, we work with one attorney; however, in collaborative divorce, you have one neutral forensic accountant working for both sides.
When would a family lawyer work with a forensic accountant?
Heather: If you have a case where either party has premarital assets – such as an investment account, a retirement account, or 401K – we can assist in determining the marital account balances for equitable distribution purposes. If a party had property prior to entering the marriage and there is a pay-down on principal, we can assist in the calculation of the marital value.
Rod: In divorce, you cannot determine how big a slice your client should get until you know the size of the marital pie. For business owners, self-employed spouses, and high-net-worth individuals, we can trace and calculate a party’s true income and assets, the tax liabilities that may follow those assets, and suggest a plan for equitable distribution. If the other side fails to produce documents, we can impute income for alimony and child support calculations. We prepare requests for production of financial statements and documents, and also prepare responses to opposing counsel’s requests for productions.
What are some of the ways that spouses could hide assets?
Heather: I have seen business owners make advance payments for goods when in fact they have no intention of purchasing those goods. I have also seen them inflate their estimated taxes and then intentionally overpay their taxes, knowing that they’ll receive a refund later.
Rod: I had a case where the business owner had an American Express card they used for business expenses. One of the monthly line items was “privileged assets,” which was an annuity account where they made regular monthly investments via charges to the credit card. This business owner was claiming this as an expense and failed to disclose the annuity.
How can you help attorneys with the new tax legislation?
Heather: If the divorce is not finalized before January 1, 2019, clients will have to renegotiate support and settlements that no longer work under the new law. Since alimony will no longer be taxable to the recipient or deductible by the payor, we’ve had an uptick in divorce cases of those who will be paying or receiving alimony. We can help ease the attorneys’ burden during this crunch time. The personal exemption has been eliminated; the standard deduction has been increased; the child tax credit has increased in value and is now refundable; and there is a new tax credit for non-child dependents. In cases of joint custody, you should consider who will benefit most from the credits during negotiations.
Rod Moe (CPA, CVA, ABV, Cr. FA, CFF) and Heather Moe (CPA, CFF) are Certified in Financial Forensics in Florida, and their accounting firm specializes in forensic accounting and economics. With over 50 years of combined experience in tax and accounting, they support family lawyers in litigation and nonlitigation matters with expert testimony and consultation. www.rodmoecpa.com