It is fairly common for an initial divorce interview to reveal that one spouse has never really kept track of family finances. And that often brings up suspicions about whether the “money spouse” has been playing games by hiding income or assets.
Finding those things is typically the work of a person known as a “forensic accountant.” That person has accounting skills augmented with some training in tracing cash flows to see if money has escaped from the normal accounts. We live in a day when people have lots of different places to park assets and hide debt. When those concerns emerge either the client or the lawyer must consider where and how to begin the hunt.
We live in a day when people have the bad habit of getting financial reports electronically or discarding the account statements that come in the mail. To find assets or undisclosed debt requires that someone review these statements and the transactions they reflect. Clients and lawyers like to hand off this project and that makes for a very expensive process yielding poor results.
Yes, there are bright-light signs of trouble. Cryptocurrency and offshore accounts are two of the easier ones. But forensic accountants don’t come with knowledge related to how your family does business. They see a $250 weekly cash withdrawal from a local convenience store and flag that. Is the person making the withdrawal wandering over to buy Bitcoin? Turns out that is your withdrawal because the woman teaching your kid to be an equestrian wants to be paid in cash.
But then there are the $400 withdrawals of the business executive from ATM machines around the Philadelphia airport. Our client’s husband traveled lots for his chemical company employer, but these withdrawals weren’t made at the airport. They were made a mile or two away from a variety of ATMs. That area is kindly described as an “adult entertainment” neighborhood and that hobby was clocking in at about $10,000 a year. You know your spouse to be someone who always pays with a card and never cash. Those ATM withdrawals may be to a purchase cryptocurrency. Or you see a pattern of ATM withdrawals in Shamokin, Pennsylvania. Accountants will ask questions. But you know your spouse always gets cash to give his mom when he visits her there.
In a word, the forensic study needs to start at your kitchen table with a year of the account statements you have. This includes credit card statements and those for things like home equity credit lines. Don’t forget to look at Paypal and Venmo accounts as well. And, folks also can borrow from 401K retirement accounts to fund extracurriculars. You will probably know about a withdrawal used to consolidate debt or re-roof the house. The borrow for girlfriend’s new car is not discussed as much.
As you tediously review all those transactions, mark the ones that seem out of place. Make notes of what you do recall. Then, gather all of the data and go see the forensic accountant. You will have saved yourself a lot of money because you are focusing the accountant on things that you have processed. You know about the roof, Shamokin and the horse trainer. Those transactions are understood. You want the accountant focused on what you can’t explain.
People love to wave a hand and say, “Go back 3 years.” That’s a lot of statements to review. I suggest starting with the last calendar year and see what it yields. Spouses who play games with money don’t usually stop. If you find trouble in 2025, then a look at 2024 may be worth the cost. It’s helpful to view the statements with a current credit report and your most recent income tax return. Interest and dividend sources are listed on Schedule A&B. Self -employment income appears on Schedule C or Schedule 1. A Form W-2 will show money paid to retirement and health spending accounts. These documents are also important for your forensic encounter.
If you don’t like numbers, this is a painful process. But, passing this off can make it an expensive one.