Merriam-Webster dictionary defines the word “forensic” as:
- relating to the use of scientific knowledge or methods in solving crimes;
- relating to, used in, or suitable to a court of law;
- relating to or dealing with the application of scientific knowledge to legal problems.
Consequently, forensic accounting is application of accounting principles and methods in crime solving and in litigation. Examples are fraud investigation and various calculations used in civil litigation (damages, lost profits, business valuations, etc.). In Family Law litigation accountants are employed as experts to help parties divide community property and determine support obligations. The benefit of involving a forensic accountant is in obtaining reasonably exact and defensible in court estimates of the value of the community property and of the amount of support to be paid. The more complicated are financial circumstances of the divorcing couple, the more desirable it is to have a forensic accountant involved in the divorce process.
It is certainly possible to get divorced without engaging a forensic accountant even when one's financial affairs are complicated, but this decision usually involves a risk of losing more money than the expert's services would cost, therefore one should consider doing some cost-benefit analysis. Below are some considerations that explain a need for a forensic accountant in divorce litigation.
First, in modern world financial
affairs of a middle class family can be sufficiently complicated to present serious difficulties in determining
what assets the parties own together and what income they have. For example, how should
be unvested stock options or restricted stock treated? Or what if one of the
parties bought a house prior to a long term marriage, never added the spouse to
the title, but the house was remodeled and the mortgage was paid with community
money during marriage? Who does the house belong to now? Or what if most of the
couple’s income during marriage came from a family run business? How can a
business be divided?
Second, divorce litigation is an adversarial process, which means that each side has to be able to advance convincing arguments in support of their positions. When it comes to financial issues, the argument can become very technical and require an expert’s involvement. While it is true that most of divorce cases are resolved through settlement discussions, to advance a settlement proposal an attorney still needs to have a thorough understanding of the couple’s financial situation and this can require an expert’s opinion and advice.
Third, divorce is an emotionally charged and lengthy process. Accountants are employed as neutral experts and are expected to provide an unbiased and well substantiated opinion on financial matters throughout the whole process, whether it ends in a settlement or in a trial. Reliance on a neutral expert's opinion in financial matters can substantially decrease the intensity and animosity of the related arguments and facilitate the equitable resolution of the case.
While not every divorcing couple needs a forensic accountant, the ones who do should consider involving him/her at an early stage to be able to use the expert’s services efficiently.