How a forensic accountant can help in a divorce

Welcome back to Juba Forensics PLLC. Today we're going to talk through the first divorce case that I worked on as a forensic accountant, just to give everybody an idea of how a forensic accountant can step in and help during a divorce case. So, in this case, the two spouses, the wife was a stay-at-home mom for at least a decade. Did not have a job during that time. She was raising multiple children. The husband worked in the family business. It had been passed down for a couple of generations.

At that point, the couple had never lived on a budget before. They got to travel when they wanted. They had direct TV, a brand new truck payment, a goodiz house. As I said before, never really on a budget. And going through this divorce process, she was uninvolved in the finances throughout their whole marriage. She had she let him handle everything. money related because they were taken care of and they she didn't have to worry about it. going through the discovery phase. She's trying to figure out how much she can ask for in child support if she gets full custody and how much she can ask for in alimony, which alimony is that spousal support and is designed specifically for a situation like this one where one spouse works full-time and the other spouse is either a stay-at-home parent or works part-time, whatever the case may be.

Through this discovery phase, she's trying to pull together finances. She's pulling together bank information, bank statements, pulling together tax returns, W2s, anything she can get her hands on to figure out how much money do they make, how much money can she ask for um in both alimony and child support. So during this process, she looks at his W2 because she does not have one. and his W2 for the last couple of years is only about $20,000. And she stops for a second and thinks about it and says, "That doesn't seem right for us to have new truck payment, nice house, travel, you name it on $20,000 a year. Something is wrong." And when she started to look through her bank statements to see where the mortgage was coming out, so she knew how much the mortgage was and the car payment, things like that, she started looking through her bank statements and couldn't find those expenses. So she said, "I have no idea what is happening."

She brought everything into the lawyers. And the lawyers also said, "Well, we don't know how to trace this, how to find this, where this is located." So from there, they recommended, the lawyers recommended that we they hire an outside forensic accountant to come in and look at where is this money? Does he actually only make $20,000 a year? And if so, then how is he funding all of these things that you guys have and get to go do? So, long story short, um I was handed a big stack of documents including everything I just mentioned. So, tax returns, bank statements, anything she could get her hands on for the last three or four years. She also was able to get her hands on business information. So, business bank statements, business tax returns, you name it. Got all of that, gave it to us for at least I think I believe it was about three years worth of data that was given to me. and I was able to go through and try to find what it is that she was looking for, those big expenses like the car payments and the mortgage, Direct TV, you name it.

I was able to find where all of that was being funneled out of the business instead of his personal bank account, which is how he was able to take only $20,000 in a salary every year because he didn't actually have to pay any bills really with that money. because even even the utilities were running through the business instead of through his personal bank account. So, I'm not here to tell you that that's right or wrong. I will say if your CPA or accountant or yourself, whoever's doing your taxes, if you are taking all of your personal expenses directly out of the business, that's probably not right. I I just want to point that out there that that is not how a business is supposed to work. There are actual deductions you can take for your business, especially if your business is in your home. There are legitimate deductions. There are legitimate things you can expense, but just expensing everything personal out of the business is not how that works.

You can get in a lot of trouble with the IRS, but I am not here to give you tax advice about what you can and cannot take from where exactly, but taking everything out of the business. And then just especially going through a divorce and telling your soon to be ex-spouse, we only make 20K a year, so I can't afford to pay you child support or alimony. None of that really works out so well. So me as the forensic accountant, what I was able to do is I was able to quantify here is what they spend in utilities every month. Here is what they spend with their truck payments. Here's what their mortgage is on a monthly basis and come up with a total yearly. So yes, his W2 only says $20,000, but when you add all the expenses up, they're living off of more like an 80 or $100,000 budget a year. and that was able to help her negotiate throughout that divorce process to get what she needed in alimony and child support to support herself and her children.

Now, I do not know the ins and outs of exactly how that played out for her. Like, I can't tell you exactly, oh, she got $2,000 a month in alimony and child support. I being the forensic accounting be the sorry being the forensic accounting piece and not the lawyer side of things I don't actually know how much money she how much money she did get in that process but I do know that what I was able to find and quantify and get put into a report for her she was able to negotiate very well for herself because there were other ramifications if it came to light that he was running all his personal expenses through the business. Just to throw that out there. A forensic accountant can help you make heads or tails of where your money is, where it's going, what it looks like, and a forensic accountant can really make a difference throwing that putting all of that together into an official report.

Our job as a forensic accountant in a case like that is to make sure we find as much as we possibly can find. Hopefully, we find everything, but there's always that off chance that there is something hidden somewhere that even we cannot find. But the goal is to have us find as much as we can, put it into a report that will be upheld in court if it gets to court. If not, it will just help with the negotiation process. And in this case, it did not actually go to court. I did not have to testify as an expert witness in the court system. It was they just took my report and were able to negotiate based on what the report says. I will also say from there something else that may happen in this process.

If one spouse owns a business, there may be business valuations that come up as well. Just know that that is sometimes a forensic accountant can do a business valuation and other times that's another separate person you can bring in on your team to help you is to value that business. That's another piece that could have played into this. But as far as I got to see and do, I was just the forensic accountant figuring out where the money was coming from, where it was going, putting that into reports. Did they hire an outside business valuation expert? I am not a 100% sure. I personally do not have a certification to value a business. One day, will I have that? Possibly, but not today. Today, I am a forensic accountant where I can help trace some assets, figure out where money is going, and quantify that loss for you and get it hopefully upheld in court, be that expert witness on the stand if that's what you need as well.

That was the long story, shortened quite a bit. It did take a couple of days, couple of weeks to really get into the weeds of what is happening, get it written up the way it was supposed to be and sent back over to the client. So, that's just one example of where a forensic accountant in a divorce can be helpful, can be can provide clarity, can help with the negotiation process. There are other cases that I have seen and heard about where one spouse is cheating and is paying for the boyfriend or girlfriend paying for all of their expenses or a lot of their expenses out of marital assets. Things can get crazy with that. So having a forensic accountant to even help in that case can also be helpful. And there are so many more examples that I would love to cover in some of these videos as to how a forensic accountant can help you not just in your divorce case, but any forensic accounting need that you may have in the future just to really talk about what it is that we do. Hopefully you enjoyed this very quick blog post and if you have any questions, feel free to shoot me a message.