Divorcing? Know when to hire a Forensic Accountant.

Not every divorce case is so complex that it requires a battery of experts to figure out how to divvy up the property or figure out who owes what to whom. In fact, most cases – even those involving business entities – can be resolved without any experts at all.

Reasonable parties – perhaps with the help of an attorney with solid bona fides – should be able to cut to the chase and resolve issues pragmatically and efficiently. The problems arise, though, when one or both parties cannot be reasonable (or worse when they think they’re being reasonable but they’re actually unable to see things from the other spouse’s perspective in any meaningful sense).

When the parties are miles and miles away from an agreement on financial issues – like the valuation of a business or professional practice, the calculation of reimbursements between the parties, or even the characterization of assets as separate property or community property – a qualified forensic accountant can be a huge help.

In many of the more complex cases, the parties each will hire their own forensic accountant. Each accountant will generally resolve any ambiguity in the favor of the party who hired him or her, but forensics tend to be even more conservative than the attorneys will be when stating their opinions of value or of characterization. This is because they are held to a very rigid standard when issuing a statement of opinion called GAAP – Generally Accepted Accounting Principles. This basically means that they cannot color too far outside of the lines when interpreting financial data. They can certainly advocate for a client’s most favorable result. But that “most favorable result” must take into consideration other interpretations of value, so will be conservative in many cases. The benefit here is that the forensic is doing what the client cannot – understanding and accounting for the position the opposing party may be taking in the case and coming up with a defensible argument for the client to stand behind. Not just simply assuming that the highest (or lowest) value is the right value.

More to the point, if two forensics are going to be involved in the case, they are typically going to talk to each other about the assumptions each is making, and 9 times out of 10, the forensics are going to settle the dispute between the two parties in a matter of minutes. They will evaluate the respective strengths and weaknesses of the two positions and come up with in most cases a compromise figure that accounts for those risks.

I recently had a case where the parties had been disputing the value of a professional practice for three years without any clear answer as to its value. The parties were about $600,000 off from each other, which did not help, and the attorney’s fees that each party had expended in this dispute were getting out of hand. Then we got two skilled forensics involved and the value was negotiated to resolution after one 45-minute meeting with them. This is the value that a forensic can bring.

So if you have a case that is languishing because the parties are not willing to come out of their trenches and meet in no man’s land, or if you fear that a case could get messy because you fear the other side won’t play nice in the sandbox, you should definitely look into hiring a forensic accountant to help shape the discussion of the community finances. A good accountant can be as important to the resolution of your case as a good attorney can be, and though the initial retainer may seem large, the savings on the back end could be huge.

This information is general in nature and should not be construed as legal advice.