Business Valuation During Divorce
When a marriage ends, all marital property must be equitably distributed which includes any interest in a family-owned business, whether only one spouse has an ownership interest or whether both spouses have an ownership interest in the business. In this scenario, the following questions must be answered:
- When did the business start? Was it before or during the marriage?
- Were there any contributions to the business by the non-owner spouse? Did the non-owner spouse contribute to the family and the marriage in a way that enabled the owner-spouse to operate the business?
- Will one spouse buy out the other or will the business be sold?
- Who will be responsible for the liabilities associated with the business?
Forensic Accounting During Divorce
Forensic accountants analyze money which requires sorting through complex financial documents in order to gain an accurate assessment of the relevant financial situation. Once involved in a family law dispute, a forensic accountant will evaluate when money is coming into the family, where assets are stored, and how assets are being distributed.
The forensic accountant is an important part of the process of evaluating assets for equitable distribution. Equitable distribution requires a full understanding of the marital assets. If both spouses have not been actively involved in the management of family finances, one might not be aware of all investments. Also, if one spouse is attempting to conceal assets, it can be very difficult for an untrained person to find financial assets. A forensic accountant can investigate and review finances to determine whether there are hidden assets and to ensure that equitable distribution accounts for all assets.
When Is A Forensic Accountant Necessary?
Not every divorce requires the expertise of a forensic accountant, here are a couple circumstances where a forensic accountant is very valuable:
- Self-Employed Spouse(s): When one or both spouses are self-employed, the forensic accountant will more than likely be tasked with verifying that a spouse is not using the business to conceal marital assets. Business owners have the ability to manipulate financial statements in various ways, however, a forensic accountant can ensure that assets are properly classified and disclosed by thoroughly reviewing business records. Additionally, the forensic accountant can assign a value to the business and analyze any distinctions between separate and marital property as related to the business.
- Determination of Income: In this situation, the forensic accountant can assist with disputes over the reported income or assets of either spouse, which is the most important factor for determining child support and alimony. Who earns what? Is the income reported to the IRS complete? Are the books cooked? Were there any cash transactions? Can the CPA calculate imputed income from the spouse’s monthly spending? Does a spouse’s loan application contain admissions of a much greater income than reported in the case? A forensic accountant can investigate to ascertain whether there is a misrepresentation of income.
The circumstances surrounding a divorce proceeding will often determine the necessity of working with a forensic accountant. Generally, the complexity of the estate as well as the cooperation of the spouses are important factors to consider before engaging a forensic accountant. When something does not make sense with one or both spouses during a divorce, the knowledge and advice from a forensic accountant and/or valuation professional will be a worthwhile expense.
Contact One of Our Credentialed Professionals Today
The division of marital property in a divorce can be very complicated. Contact us today or call us at 615-822-8342 to schedule a consultation and receive preliminary information about the specifics of your circumstances and what strategies might be available to assist you and your attorney during divorce proceedings.