It is an old joke that when a divorce is filed, money suddenly disappears. When it happens to you, though, it’s not a joke. It is not uncommon for you to go from being very well off and financially secure the day before your divorce is filed, to having no money and being financially unstable the day after your divorce has been filed. How can your finances change that fast? As Sherlock Holmes would say, “That, my dear Watson, is the question.”
How Does Money Disappear?
In these days of electronic everything, tracking money has become enormously easier. Even still, if your spouse owns a business, or works for cash, or has a complex financial situation involving multiple corporations, trusts, and hidden bank accounts, making money disappear is not nearly as difficult as you might think.
Let’s say that your spouse owns a business. Before the word “divorce” entered your marriage, the business was doing well. Suddenly, for no apparent reason, the business starts to falter. Perhaps a major client left, or the business invested in new equipment. Or, maybe the business started funneling money into a secret account, or began paying a new employee that no one has ever seen, or has started wracking up strange, unknown expenses. The problem is, you don’t know whether the business’ sudden downturn is legitimate, or a sham. That’s when you need a forensic accountant.
What is a Forensic Accountant
A forensic accountant is an experienced auditor or accountant who investigates possible fraudulent financial activity. Forensic accountants also analyze and interpret complex financial issues and documents and present them in a way that is easy to understand. In a business context, forensic accountants are normally hired to investigate fraudulent financial activity within a company. In a divorce, forensic accountants are hired to investigate fraudulent financial activity within your marital “company.”
Forensic accountants don’t just investigate business finances, though. They can also help you figure out if your spouse has been hiding money, or spending thousands on someone new “sweetie” that he has had on the side.
Who Needs a Forensic Accountant?
In order to figure out whether you need a forensic accountant in your divorce case you have to ask yourself two questions:
1. Is there a realistic possibility that my spouse has hidden money or used marital funds in a way that he should not have done? and
2. How much money is involved?
Is Your Spouse Hiding Money?
While trust is one of the first casualties of divorce, if your spouse is a W-2, wage-earning employee whose entire paycheck is direct-deposited into your joint bank account, it is highly doubtful that he is hiding any significant amount of money from you, no matter how much you don’t trust what he says. It’s not necessarily that he’s telling you the truth. He just didn’t have a chance to cheat.
You also don’t need to hire a forensic accountant if your spouse is being reasonably up front about your finances. If your spouse is being honest (even mostly honest) about your finances, you probably don’t need a forensic accountant. If you have all of your bank records, tax returns, and other financial documents, and you can pretty clearly see that there isn’t a major amount of money missing, you don’t need a forensic accountant to review all of your records.
On the other hand, if your spouse owns and operates a business that is suddenly having problems, if you have significant assets and a complicated financial structure, or if a large amount of money seems to be unaccounted for, then you may need a forensic accountant to help you unravel your financial picture. You may also need to hire a forensic accountant if your spouse won’t produce financial records and you have multiple bank accounts, investments, and credit cards and you need to hire someone to follow where your money went.
How Much is Involved?
Even if you strongly suspect that your spouse has hidden money or played fast and loose with your finances, unless a significant amount of money is involved, it might not make sense to hire a forensic accountant to try to trace where the money went. Why not? Because forensic accountants are expensive.
It doesn’t make sense to pay an accountant $10,000 to try to find the $2,000 you believe your spouse stole. Moreover, if your spouse works for cash, and pays for everything in cash, a forensic accountant may not be able to help you as much as you would like. It’s one thing if your spouse owns a business that brings in thousands of dollars (or more) a week. Its another thing if the business only makes a couple hundred dollars a week.
The Bottom Line
Most people either don’t need, or can’t afford, to hire a forensic accountant in their divorce case. Those who do need one, though, typically really need one. They are the people whose spouses have hidden tens, or hundreds, of thousands of dollars. Those unlucky people may have to pay a small fortune to hire forensic accountants to find the lost money, but what they find may make the whole ordeal worth it.
Karen Covy is a divorce lawyer and advisor in Chicago, Illinois. To get more divorce information and helpful tips from Karen, go to www.karencovy.com.