Here we will answer the most common questions we get about when a forensic accountant may be required:
- What is forensic accounting?
- What does a forensic accountant do in divorce (or de facto) property settlement?
- Who pays for a forensic accountant in divorce or financial settlement matters?
What is Forensic Accounting?
Forensic accounting is the process of investigating financial records and analysing transactions to verify or uncover a true and accurate financial picture.
At the start of any property settlement process, full and frank disclosure of all financial information between both parties is to occur. Essentially this is laying out all the financial information on the table so decisions can be made with a full picture and understanding.
A forensic accountant will look for discrepancies, unusual transactions, and patterns that might indicate if some information is being withheld, deliberately or otherwise.
What Does a Forensic Accountant Do in Divorce & Property Settlements?
In the property settlement process, parties undertake financial disclosure to ensure that both parties are aware of their true financial circumstances, in order to make informed decisions about their property settlement.
A forensic accountant will dig deep into the financial records and transactions of both partners to help uncover an accurate financial picture. They look for hidden assets, investigate discrepancies, and ensure that all financial information is true and complete.
In financial settlement matters, a forensic accountant is most commonly brought in as a joint independent expert witness.
Typically they will value businesses, trusts or companies associated with one or both parties, including when:
- There is a dispute about the value of a business or businesses;
- There is a family business where one party’s share in a business valuation may be impacted due to not having a controlling interest.
Less commonly, parties can engage their own forensic accountant, where there is suspicion that one party is withholding financial information or hiding assets or one party is ‘in the dark’ about the financial circumstances.
In that last example, a forensic accountant may be brought in as a ‘shadow accountant’. This is particularly helpful when one person in the relationship maintained control of the finances and any business interests, and the other was unaware or had very little involvement or understanding of the financial circumstances.
Who Pays for a Forensic Accountant in a Divorce?
Where a forensic accountant is appointed as a joint expert to provide valuations for both parties, the costs are usually shared.
However, if one party does not agree with the findings, particularly where funding a review isn’t an issue, they may wish to get their own forensic accountant to investigate and have a report completed.
If however the dispute is in Court, and a separate and independent review is desired by one person, then they must make an application to the Court to have an adversarial expert appointed, which may not be granted. They will need to satisfy the Court as to why an adversarial expert should be permitted to come in. Usually the circumstances require there to be a significant discrepancy in opinion about valuations. In these situations, the competing experts present their findings and then a Judge makes the final decision about the value. In this circumstance the person asking for the adversarial expert to come in will generally meet the costs of their expert.
Engaging A Forensic Accountant
Separation, inclusive of the financial separation process, can be complex and challenging. If there are differing perspectives on valuations or the asset pool, then engaging a forensic accountant may well be a beneficial avenue to explore. However, seeking a forensic or shadow accountant is only one piece of this equation. As family lawyers we work closely with our clients advisors so that in the financial discussions, family law is taken into account. This is especially important as these matters can end up in the Family Court, and what the law says in relation to provisions and adjustments based on the unique circumstances of your relationship, must be taken into consideration when determining a fair and equitable financial settlement.
Related Information
Additional Property Settlements Information
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