In doing our investigations for assets in divorce, we often work with a forensic accountant. Sometimes they bring us into the case and sometimes it’s the reverse.
When do you need one, the other, or both?
- If you have all the pertinent records and you don’t think there is much being hidden, the forensic accountant is probably your best bet.
Say you have all the tax and business records you think are out there, but things still aren’t adding up. An accountant can do a lifestyle analysis that can indicate spending that isn’t supported by the stated income and assets. Records of banks, brokerages, and credit card companies give you details of sources of funds and where they are spent.
Credit reports are also critical. Those can give you bank and credit card information you didn’t already have.
A few examples of alternative sources of data include telephone records, UPS or FedEx records and airline receipts. These can get you to business relationships, sales and shipments to customers, travel activity, and major expenditures.
- Interest – May indicate the existence of bank accounts, certificates of deposits, bonds, investment accounts, or loans receivable.
- Dividends – Indicates the existence of bank accounts, investment accounts, stocks, or other investments in business entities.
- Capital Gain or Loss – May point to investment accounts, stocks, business interests, or other investments.
- IRA Distributions, Pensions, Annuities – Points to the existence of retirement accounts, annuities, or other valuable retirement assets.
- Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts – Indicates the existence of income-producing assets (real estate or business) or an interest in estates or trusts.
- SEP, SIMPLE, Qualified Plans – Indicates retirement accounts for self-employed individuals.
- IRA deduction – May also signify the existence of retirement accounts.
- General Sales Taxes – This could point to the purchase of substantial assets.
- Mortgage Insurance Premiums – Points to real estate.
- Investment Interest Paid – Can indicate the existence of investment accounts.
- Other Expenses (Investment, Safe Deposit Box, etc.) – This may point to investment accounts, safe deposit boxes at banks, or the like.
- You Have No Records or Incomplete Records, Try an Investigator
If you have nothing, think you have incomplete records or haven’t even filed for divorce yet, an investigator could help. We’ve written about this before with The Offshore Asset Starter Kit but usually recommend starting onshore.
What are the person’s businesses? Are there other assets and corporate interests he has never divulged? Old mutual fund holdings buried in securities records? An investigator can help find those.
Remember, a forensic accountant can’t analyze accounts of companies you don’t know about.
A lot of what’s out there is in public records. Anyone can get them, but the United Statese has more than 3,000 counties. Each keeps records in its own way, and a lot of the information is not on line – you have to send someone in there to look for it.
As I explain in my book, The Art of Fact Investigation, the real challenge of fact finding is in knitting together the output of various databases. More importantly, it’s playing smart hunches about which search terms to use and filing in the blanks the databases always leave. “John B. Smith and hidden assets and companies” as a search term will never get you very far.
- When you need both professionals
Once the investigator is done, you may still want an accountant if the numbers don’t make sense. Finding a new business is not the same as going over that entity’s books and records to see how they relate to known assets or yet further undivulged assets.
Sometimes, a forensic accountant will find a hole in the accounts that they can’t explain. Who is behind Argo Industries LLC, a payee for suspiciously expensive catering services? Is Argo really a way our person is paying himself? This is where an investigation can help.