Here’s a typical scenario: A spouse who owns a business walks into a family law attorney’s office looking for legal assistance for a divorce. The atmosphere is charged with emotion – mostly anger – and the discussion inevitably works its way to the issue of finances.
This leads to the big (sometimes a multimillion dollar) question: “How do I protect assets so my spouse gets as little as possible?”
It’s likely that “protect” is nothing more than a code word for “hide,” and it’s up to the attorney to make two clear and unequivocal statements: (1) we can’t hide or protect assets – the best we can do is to maximize results; and (2) it’s time to call in an accountant experienced in matrimonial disputes.
Maximize results, minimize mistakes
The key to maximizing results to minimize asset allocation mistakes starts with knowing what a business-owning spouse can do, according to state law, about classifying separate versus marital assets prior to the divorce.
Here are a couple of guidelines we give attorneys to maximize their divorcing clients’ results:
*Emphasize to your client that they should not try to hide or game assets. A good forensic accountant will be tenacious in their quest to find everything from hidden accounts to improper spending patterns.
*Prior to the divorce, have your client separate marital assets from non-marital assets, which ultimately will make it easier for the judge to make a ruling. Get counsel from a CPA to help in making this separation.
It’s this last point that can be particularly complex for the business-owning spouse, especially if they own a substantial business that issues stock or stock options. You’ll need to present a convincing case to the court about business assets that should not be on the table. This can easily become a major point of contention, especially when adding things like retirement accounts, the non-owning spouse’s tangible and intangible contributions to the business’ growth, intellectual assets, and the discovery of any underhanded attempts at hiding or protecting assets into the forensic mix.
The best time for an attorney to bring a forensic accountant into the fray is as soon as possible. At that time, you’ll want them to do a deep dive on the assets your client owns, and make recommendations based on their experience and knowledge of state law on what can be considered separate versus marital assets.
Quality forensic accountants leave no stone unturned, investigating everything from suspicious spending patterns to hidden accounts and intangible assets. It’s their job to arm attorneys with the evidence they need to get their clients what they deserve.
Their role is to help you maximize your client’s position. Getting to that position requires experience, honesty and integrity combined with a deep understanding of the field of forensics and divorce.
After all, in any divorce, bright spots are always welcome. If you can find income that wasn’t previously reported by a spouse or help determine whether or not certain assets should be part of a settlement, you give your clients a big reason to smile. Or at least breathe a little easier.
Mark Vogel, CPA/ABV/CFF, CMA, CVA, a partner in Gross, Mendelsohn & Associates’ Forensic & Litigation Support Group in Baltimore, has extensive experience in matrimonial disputes, including serving in expert witness and business valuation roles.