In a Connecticut divorce, litigants must file with the court a sworn, comprehensive financial disclosure statement. One spouse may be surprised to see on the other declaring a lower account balance than presumed, failing to include expected assets, or claiming lower-than-expected profits or sales, among other potentially suspicious issues. Or at trial certain assets on the initial disclosure are gone or valued differently than initially reported.
What triggers a closer look?
When something seems not quite right in a spouse’s asset disclosures, a litigant may decide to consult a forensic accountant, a specialized accounting professional trained to investigate for negligent recordkeeping, fraud or theft when the numbers do not add up. Many scenarios in a dissolution of marriage could suggest the need for a forensic accounting to investigate personal, marital, investment, real estate, tax, income or business records:
- To uncover fraud or misrepresentation impacting the amount or existence of income, accounts, gifts or financial assets received
- To determine whether a litigant has dissipated or stolen assets
- To find if a spouse is hiding money, investment or property
- To discover irregularities in regular business or personal accounting records as compared to tax returns and other public filings
- To understand why a litigant’s lifestyle is incompatible with their claimed worth
- To investigate whether the litigant who works for a family business is taking the income they are due or if the business is transferring or holding that value in some other way
- To learn if the litigant has set up a secret trust to hold hidden assets
- To determine whether the litigant is transferring property or money into a third-party’s name pending the divorce
- And other scenarios involving deception or inept asset management
Information gathered from forensic accounting and investigatory processes may be helpful for a litigant’s attorney in focusing further investigation and planning discovery through requests for documents or admissions, interrogatories, depositions and more. Forensic findings may provide significant leverage in settlement negotiations. A divorce litigant may present to the court as expert evidence their forensic accountant’s written reports or their testimony.
Forensic basics and methodology
According to the Institute of Certified Forensic Accountants (ICFA), traditional audits did not always uncover complex fraud. Out of this scenario grew the field of forensic accounting, which uses a professional’s “accounting, auditing and investigative skills.” They must “look beyond the numbers,” analyze the “smallest detail,” use intuition and instinct to reconstruct past movement of money or assets – and ideally have a “photographic memory.”
A forensic accountant may review many kinds of documents, including some that seem obscure but that could contain a piece of the financial puzzle. Such documentation may include tax records, business financials, bank records, receipts involving major expenditures or transactions, business annual financial records and filings, real estate documents and appraisals, public records and more.
The forensic examination may get particularly complex when a litigant has moved assets or made investments abroad. A litigant may need to involve foreign professionals who can gather the offshore evidence the forensic accountant needs to complete the investigation.
Connecticut appeals court example
In one case, several years after a divorce that had incorporated the parties’ settlement agreement, one ex-spouse filed a motion for contempt of court, alleging that the other litigant owed significant alimony and child support from six years of deficient payments. The payments were to equal 45% of gross annual earned income, but the paying litigant had not included “partnership distributions.”
The payor had provided annual earnings statements to the recipient and monthly alimony and support payments. She testified not “know[ing] anything … financially about … the workings of how [the defendant’s] income [was calculated].” This prompted her to retain a forensic accountant, who told her that the ex-husband had omitted from gross annual earned income yearly capital account distributions of a limited partnership share they had purchased during the marriage.
The parties disagreed about whether distributions from a limited partnership were the kind of income from which alimony and child support were to have been transferred. The trial court found that the distributions were income under the agreement and that the payor-litigant owed $370,440 in past due payments and the appellate court agreed.
Without the analysis of the forensic accountant, the recipient-litigant would not have known of the significant underpayment. McTiernan v. McTiernan, 164 Conn.App. 805 (2016).
Without accurate inventories of assets, a litigant could face financial harm because a property distribution is not equitable without considering the full value of the marital estate. Similarly, questions of the need for alimony as well as of the size and duration could be made on false assumptions.
An experienced Connecticut family lawyer can recognize the signs or irregularities that could point to the need for a forensic accountant, who would investigate the marital estate in detail to determine its contents and actual value for purposes of fair property division and proper alimony awards.