Searching for Hidden Assets in Tennessee Divorce | Forensic Techniques
When searching for hidden assets in Tennessee divorce, family lawyers need to review complicated financial documents including tax returns, financial statements, and complex compensation documentation. Forensic accountants help Tennessee divorce and family lawyers and their clients by employing a forensic accounting methodology and choosing among an unlimited number of techniques. The “Eyeball and Smell Tests” are two of the most important, yet simple, forensic accounting techniques in divorce cases.
How To Find Hidden Assets in a Tennessee Divorce
In forensic accounting, there are too many techniques to identify and categorize them all. Each day that passes, more techniques are written about in books and articles. Techniques can be simple, routine accounting processes or complicated statistical analyses. Techniques are like tools for the carpenter. Some are common, like the saw. Other tools must be invented and handcrafted to address specific problems. In this article, the two techniques discussed below are common to family law engagements. Forensic accounting techniques do not have official names. Accountants often use different names to describe the same techniques.
The Eyeball and Smell Test
One obvious job of the family lawyer is to read all discovery responses. Generally speaking, it is helpful for one single person to perform the following tasks:
a. reading all documents and financial information provided by the client,
b. reading interrogatory answers from both parties,
c. reviewing all documents exchanged between the parties, and
d. reviewing all subpoena results.
These tasks may be performed by the lawyer, a skilled paralegal, or the forensic accountant. Whether or not you delegate these tasks, there is always a risk something that will be missed. The advantage of one person reviewing everything is that the risk of a loose end or red flag being missed is significantly reduced. Some tasks may not always be complicated, but most require management of a tremendous amount of detail, including the following:
a. identifying all assets and debts, including searching for hidden assets;
b. classifying all assets and debts as marital or separate (community or separate);
c. reviewing all valuations of marital or separate property, as well as the appreciation of separate property;
d. determining income and earnings capacity for temporary support, child support, and alimony;
e. organizing alimony claims and defenses;
f. creating a list of suspicious transactions for possible dissipation claims; and
g. determining if commingling or transmutation claims or defenses are at issue.
In many cases, party depositions take place after settlement negotiations. In others, depositions come before proposed settlements are created. In either circumstance, it is the better practice for one set of eyes to see every important piece of information in order to put all of the financial information in context and determine if additional investigation is needed. Sometimes, by staring at enough documents long enough, lawyers or forensic accountants can determine if something smells wrong.
Forensic accountants are exceptionally gifted “smellers.” For almost any given level of net worth and corresponding income level, they know what the tax returns should look like. Correspondingly, from the tax returns, forensic accountants have an idea of what the net worth statements should look like. In their careers, most forensic accountants have reviewed thousands of brokerage account statements, capital gains transactions, and 401(k) statements. CPAs also know what spending levels are common and what deductions should or should not exist. They can look at personal and business financial statements and question whether debt is overstated, uninvested cash is too high, or reported income has been manipulated.
If something smells wrong, forensic accountants can best determine the scope of what additional work should be done. Experienced family lawyers know the value of asking the forensic accountant to look over everything, identify potential problems, suggest additional investigation, and recommend if additional discovery is needed or specific techniques should be applied to a particular case. This may be the most valuable service a forensic accountant can perform.
This blog post is an excerpt from The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers. Reprinted by permission. Copyright © 2011 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Footnotes may be omitted from the original text.
Miles Mason, Sr., JD, CPA practices family law exclusively and is founder of the Miles Mason Family Law Group, PLC, in Memphis, Tennessee. Miles is the author of The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers, published by the American Bar Association.
The Forensic Accounting Deskbook teaches lawyers, forensic accountants, and divorcing spouses how to uncover hidden income and discover hidden assets in complex divorces involving business owners and highly compensated corporate executives. The author, Miles Mason, Sr. has presented numerous seminars on divorce, family law, forensic accounting and business valuations at national and regional conferences for judges, divorce and family lawyers, forensic accountants, and business valuation experts. For a complete listing of speaking presentations, publications, and more of his professional biography, see Miles Mason, Sr.’s professional biography.