By: Manjula Shaw, CFP®, CDFA®
“Tips from the Trenches” is a series of articles based on conversations with professionals who work with individuals facing or considering the prospect of divorce. Watch this space for conversations with professionals in Family and collaborative law, Forensic-Certified Public Accountants, Mediators, Marriage Counselors, Family Court Judges, and Valuation Specialists.
Manjula Shaw is a Certified Financial Planner (CFP®) and an Asst. Vice President at Tanglewood Legacy Advisors. As a Certified Divorce Financial Analyst (CDFA®), Manjula works with individuals facing late-stage divorce.
Manjula’s conversation is with Cynthia Nguyen, a Certified Public Accountant (CPA) and Managing Director of the Private Client Services practice at Anderson based out of their Houston office. Cynthia has over 23 years of experience in forensic analysis. She specializes in marital property settlement issues, tracing assets and liabilities, and business valuations for clients going through divorce.
What is Forensic Accounting?
It is the science of analyzing financial records, transactions, and data to detect irregularities and discrepancies. The findings can be used as evidence to help in legal proceedings.
So, when is such analysis needed during a divorce?
In a divorce, when substantial assets are involved, and the marital estate is complex, a CDFA® might recommend an engagement with a forensic accountant.
CPAs charge for their time. From a financial standpoint, weighing the cost vs. benefit of such an exercise before retaining a forensic accountant makes sense. A CDFA® could help with the preliminary work needed. For example, a CDFA® could suggest that a forensic CPA audit a sample period to understand how far back you need to examine financial records. The result of the sample could help determine whether it makes sense to research a more extended period. Consider the cost of the process vs. the financial gain to determine if it is worth digging more.
What is the process?
Cynthia says she first starts with the needs of the client. An initial conversation with the client and their divorce lawyer unpacks the client’s situation to determine the scope. She educates the client on separating emotional trauma from their financial reality. In a contentious divorce, Cynthia suggests, “When emotional issues get tangled with the property division, focus on the property.”
What documents are needed?
The Institute of Divorce Financial Planning (IDFA) recommends gathering five years of tax returns for a general historical overview of a couple’s financial situation. However, for a forensic investigation, one must consider the alleged action—for example, waste of marital assets, misuse of marital assets, undisclosed property, or undisclosed income.
What qualifications does a Forensic CPA need?
Board certification as a Certified Public Accountant (CPA) is a must. Previous experience in tracing and characterization of property is also a needed skill set. With the help of a CDFA®, the forensic CPA could simplify complex financial data for their mutual client. They can help the client sift through the intense emotions while navigating towards a positive financial outcome. Cynthia says she is “matter of fact” when dealing with her clients. She likes to “paint the picture to a client on the realm of possibilities.” It is essential to set expectations and translate financial rules for the client.
Case Studies in Forensic Accounting
Suppose you suspect your divorcing spouse, before a settlement, of deferring bonus payments. A recourse could be to look at the history of bonus income streams. Reviewing historical pay stubs could give this insight. The timing of a bonus is another factor; generally, a bonus is paid at a particular time of the year. So, if a bonus is not paid during the usual period, it may raise a red flag.
Bonus dollars granted depend on the company’s profitability and the employee’s performance. If historical bonus sums fluctuate, looking into economic conditions and the company’s performance could shed light on whether the bonuses are being manipulated. A CDFA® could assist you with this investigation. Work with the divorce attorney and a forensic CPA to develop a strategy as a team to address the circumstance legally.
Suspicious that your spouse has been spending on gambling, extramarital affairs, or maintaining a secret family? A forensic CPA could assist in understanding the extent of the waste. Cynthia says, “You must be realistic about how far back you want to investigate.” How long was the gambling habit or the affair? From her experience, Cynthia has observed that “in reality, it may not be as far back as the wronged spouse alleges.”
When a closely held company ownership, complex marital property, or marital assets waste are considerations in a divorce, and if those assets are substantial, retaining a forensic CPA to investigate could make a material difference in a divorce settlement.
If you think a forensic accountant’s skill set could be a good match for your family situation or someone you care about, or if you have further questions, please contact:
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