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Forensic accounting in divorce cases, part 2: hidden assets and more

Let's continue the discussion we started in part one of this post on forensic accounting in divorce cases.

As we noted, seeking out assets that may have been hidden by a spouse is only one of the uses of forensic accounting. CPAs who do forensic accounting can also assist with helping a couple get better clarity on their financial picture. This clarity can be very helpful in dividing up the couple's assets and liabilities.

In this part of the post, let's look in more detail at how forensic accountants try to provide this clarity.

It starts with some pretty basic steps, such as documenting the education and employment histories of each party to the divorce.

Naturally it is also important to identify the various accounts where the couple has assets. This can include:

  • Bank accounts
  • Pension or retirement accounts, such as 401(k)s
  • Investment accounts

In the case of retirement accounts, it is often the case where one party to marriage has a 401(k) but the other does not.

As we discussed in our March 19 post, it may be possible in such cases to use a procedure called a qualified domestic relations order (QDRO) to divide up the account. But it all starts by documenting the existence of the account and how much money is supposed to be in there.

There are also many other items that a CPA doing a forensic accounting will seek to identify, perhaps by using a checklist. This could include:

  • Life insurance
  • Estate proceeds
  • Loans
  • Expenses in various categories, such as child care

In short, forensic accounting begins with compiling a comprehensive picture of a couple's financial life. Once that picture is in place, it can facilitate the task of property division.

This phase of the accounting could also, in some cases, make it possible to see that all of the money that was supposed to be on the table isn't there. If that is the case, a search for hidden assets is genuinely in order.

The CPA Journal, "CPAs as Forensic Accountants in Divorce Engagements," Accessed May 9, 2014

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