Engaging a Consulting or Testifying Forensic Accounting Expert Witness

In Tennessee divorce and family law cases, family lawyers and their clients should engage a forensic accountant to serve as either a testifying or consulting expert.  But which?

Once the decision to hire a particular forensic accountant is made, one of the first decisions you’ll face is whether or not the expert will be a “testifying expert” or “consulting expert.” The expert you are hiring will most likely be a testifying expert. Designating an expert as a testifying expert means he must be disclosed to the other side. There may be mandatory disclosures under Rule 26 (see Federal Rule of Civil Procedure 26(a)(2)(B) and/or your particular state’s equivalent). Everything the expert sees, reads, hears, and thinks is at risk as discoverable through discovery, depositions, and trial testimony. If there is a confidential fact or theory that must stay confidential, carefully consider whether or not to share it with a testifying expert. If the information is relevant to the testimony, it may need to be disclosed. The client must be advised of this, too. Clients have a tendency to tell everyone on the team everything, so if something must remain confidential, caution your client about discussing it with the expert. Even though most opposing counsel won’t dig for extraneous facts in discovery and deposition, you must nevertheless plan on receiving such questions from opposing counsel.

Consulting experts are extremely valuable for an important strategic reason. As most states’ rules require disclosure of all witnesses broadly with respect to potential trial witnesses only, this is the legal basis for not disclosing consulting experts. Consulting experts, by definition, are not going to testify at trial. The information shared with them may be kept confidential through nondisclosure. If a potential expert is engaged in a consulting role only and the expert forms an opinion that is contrary to the client’s position in the case, the opinion may be kept confidential and cannot be used against the client at trial.  If the same expert were initially engaged and disclosed as a testifying expert and that expert formed an opinion that was contrary to the client’s case, the opinion would have to be disclosed on cross-examination and could not be suppressed. Forensic accountants will testify honestly. It’s what they do.

How should a competent and careful lawyer maneuver through this situation? The straightforward answer is to engage all forensic accountants as consulting experts fi rst and learn their opinions in advance. Then later, determine whether or not to convert the consulting expert into a testifying expert. These gymnastics involve carefully crafting engagement letters and documentation of what documents were reviewed when, but in most cases it does not add a material amount to the overall cost in the case.

If it makes a lot of sense to engage a forensic accountant first as a consulting expert and then wait until learning the expert’s opinion before converting the expert to the testifying role and making a disclosure, why don’t lawyers do this every time? There are at least two reasons. First, most divorce cases don’t usually have “smoking guns” that will never be discoverable. For example, if a cheating husband is going to produce business credit card statements with approximately $15,000 spent on his girlfriend, there is no need to have an expert who can be secretive about that expense. For your forensic accountant, the secret girlfriend problem will only involve analyzing the information and adding up the disputed dissipation. In most cases, there is usually no special need for confidentiality regarding your forensic accountant and the documents shared with him.

The second reason most lawyers don’t worry with the hassle of engaging an expert first as a consulting witness is that courts can disallow an expert’s testimony for failure to timely disclose the witness.  Lawyers should avoid the temptation to sandbag opposing counsel with an expert witness disclosure, waiting to disclose that expert until shortly before trial. At some point during her career, the lawyer who routinely utilizes this tactic will wait too long to make the disclosure and face a motion to exclude an expert witness for failure to timely disclose his existence. If the opposing lawyer wins the motion, the losing lawyer must explain this avoidable problem to the client. The conversation will be professionally embarrassing and painful. The client may have paid several thousands of dollars to a forensic accountant who cannot testify because of sandbagging.

Only rarely in most divorce cases is there a reason to hide the engagement of a forensic accountant at any stage in the case. Divorce counsel should recognize the pitfalls of trying to get cute with nondisclosure and learn how to exploit the opportunity if opposing counsel is using this tactic. If opposing counsel has converted a consulting expert to a testifying expert, it might be a red flag to dig a bit into what else the forensic accountant knows about a case beyond the numbers.

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.