DO I NEED A FORENSIC ACCOUNTANT? by Kerri Lee Cappella
Very early in our representation, we discuss with our clients the composition of the marital estate and evaluate the nature of the parties’ incomes. As we analyze the financial aspects of the case, we may suggest, or our client may ask, “Do I need a forensic accountant?”
The Pennsylvania Institute of Certified Public Accounts (PICPA) describes the role of a Forensic Accountant, as “Services generally involve an application of the specialized knowledge and investigative skills possessed by CPAs to collect, analyze, and evaluate evidential matter and to interpret and communicate the findings in a courtroom, boardroom, or other legal or administrative venue. Simply put, forensic accountants quantify the financial aspects of matters in dispute…. The forensic accountant should be able to simplify complex accounting and financial issues in such a way that nonaccountants can understand the evidence and its implications.”
A forensic accountant becomes a team member in a divorce case in myriad circumstances, including:
- Evaluating complex income sources. We are routinely tasked with providing evidence of a party’s disposable income for child support, spousal support, or alimony. Calculating a party’s income from sources other than traditional W2 wages, be it income from self-employment, rental real estate, or distributions from partnerships, often requires expertise to ensure we are not overstating or understating that cash flow.
- Valuation of closely held companies. Whether it’s a one-person law firm, a construction company, or a multi-office medical practice, often the business is among the most valuable assets in a case. Arriving at the correct valuation of businesses impacts the distribution of the assets, and at times, the distribution scheme.
- Differentiating between an income stream and an asset. Often a business or investment account is income-producing, and determining whether that income is available for support or is an asset available for distribution becomes necessary. The allocation between parties of that income differs considerably for support or equitable distribution purposes.
- Tracing assets. As asset values change over time, the forensic accountant will be called upon to trace accounts, examining:
- Deposits and withdrawals during the marriage and following separation;
- Growth or losses during the marriage and following separation.
This tracing analysis enables us to provide evidence to the Court of the marital estate and to allocate credits or advances to parties.
In all of these instances, the forensic accountant will consult with us, prepare detailed reports, and if necessary, provide expert testimony at trial.
Clients frequently ask, “Can I use my CPA?” or “Can I use the company’s accountant?” Your client’s accountant may be a highly skilled tax preparer, but they may not have the necessary background to be an expert witness. A company’s internal bookkeeper or accountant possesses a wealth of information vital to the analysis of the case. That said, he or she may be a necessary fact witness. Likewise, the in-house person could be viewed by the Court as lacking impartiality.
At GHA, we have worked for nearly 30 years with forensic accountants who have assisted us in effectively advocating for our clients in complex litigation.