Was it Greed or Ignorance?

Forensic professionals endure trench warfare

Discovery provides a window of opportunity to gather evidence and develop expert reports. A trained forensics professional can ascertain whether cash deposits were all accounted for or secreted. It is advisable and well worth the time, trouble, and money to retain a forensic professional to conduct an analysis.

Was it legal greed or ignorance that deprived a divorcing wife her reasonable financial settlement and left her destitute after a 30-year marriage?

Recently, I received a call from a woman in distress, asking me to perform a forensic accounting engagement to ascertain and document the amount of income her husband truly received from a cash business. The attorneys charged hundreds of thousands of dollars in fees, collected dozens of boxes of financial documents and did nothing to prove the husband’s actual cash earnings.

Her quivering voice explained that the family business generated cash that was not reported for tax purposes and that the cash was never deposited into bank accounts. She believed the cash was being stashed with his relatives.

In a divorce, it is common for parties to believe that their spouse has been hiding cash or income. In most situations, the beliefs are unfounded. The best service that a forensic accountant can perform in these situations is to be honest and ease the party’s fears.

In the aforementioned case, the discovery period had terminated. That is a serious problem. Discovery is the time period where the court permits parties in a lawsuit to gather information, documents, and engage in depositions from the other party. The attorney never told them that an independent forensic account was needed. I find that many lawyers believe that their paralegal or other staff person has the skill to review bank and brokerage statements. That is naive. Unfortunately, hidden assets are not usually in bank or brokerage statements.

Illinois courts are less tolerant of violations of discovery rules, even at the expense of the case being decided. This means that if a party “stonewalls” and does not produce reasonably requested documents, the court can decide the case against the stonewalling party. Forensic accountants understand what records or documents are required in constructing income from lifestyle and income of businesses from sources of which attorneys may have no knowledge. In this case, the spouse found herself at trial and the attorneys could not prove the husband had any income except for family trusts (premarital or inherited). Therefore, the spouse received no maintenance after a 30-year marriage. She cried, not knowing where the monies were to come from to pay hundreds of thousands of dollars of legal fees or where she would find the funds to pay her rent and ordinary living expenses—while her ex-husband drives luxury cars and vacations several times a year at exotic locations.

These cases are sad and can be prevented. Individuals considering a divorce should retain divorce attorneys who meet their required criteria, but they should also engage a forensic accountant who will represent them and independently answer their questions and fears. The forensic accountant will work with the attorney and maintain their independence so that all the pertinent facts come to light in a timely and advantageous manner..

Lawyers and their legal assistants are not forensic accountants, nor have they most likely received advanced forensic training. They are knowledgeable in law and what it takes to handle your divorce with its unique issues.

The forensic analysis may be conducted by a trained professional that understands accounting principles or a forensic accountant. The professional(s) may be engaged to perform the following tasks in a divorce:

1. Identify and locate assets
2. Perform Internet investigations
3. Determine the income of the other party
4. Provide for a valuation of assets
5. Determine cash flow
6. Identify and quantify marital monies that may have been misused
7. Determine other accounting issues that would best assist the attorneys in court

More often than not, the forensic professional is an accountant. The forensic accountant is a financial expert. The courts respect the findings of court experts and this information, if reasonable, and can have an influence on how the court will decide a matter and in whose favor. A forensic accountant is not your tax-preparing accountant who reconciles bank accounts and advises companies. The forensic accountant is like the television detective Columbo, who pieces together clues to unravel the truth.

In a recent Illinois appellate case, the court ruled that the spouse failed to engage in discovery prior to entering into a marital settlement agreement and, therefore, she could not rely on the other party’s representations as to assets and income. In this case, her attorney’s failure possibly caused her a share in two million dollars.

In a divorce or business litigation, a forensic accountant is an essential part of the legal team. Certainly, litigation is costly; the contemplation of another professional fee is also frightening, but employing a forensic accountant is the best way to achieve a reasonable settlement and provide either peace of mind and/or a solid return on the expense incurred.
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Larry Goldsmith, JD, CPA, MAFF, is a member at CJBS, LLC, a Northbroook, Illinois-based accounting and litigation-support professional services firm. Larry is a member of CJBS’ Financial Group’s litigation, asset–protection, and tax-practices team. He has demonstrated success turning around financially distressed businesses in a variety of industries through the application of sound business applications. He is regularly retained as an expert witness for a variety of issues in both federal and state court matters. Larry can be reached at Larry@cjbs.com or at (847) 945-2888.