So You’re Getting A Divorce: Do You Need A Forensic Accountant? – WorldNewsEra

admin
13 Min Read

They show up in celebrity divorces (think Kevin Costner), big bankruptcies (think FTX) and financial fraud cases. But you don’t have to be famous to benefit from the help of a deep diving accounting pro. By Kelly Phillips Erb, Forbes Staff As a stay-at-home mother of three involved in a nasty divorce, the Virginia woman saw early on in the process that her soon-to-be ex-husband had the advantage. The business he owned had been supporting the family. Now, she realized, she knew next to nothing about its revenues and likely value. And so she resorted to what has long been a go-to move in high dollar business disputes, celebrity break-ups and big bankruptcy cases: she hired a forensic accountant. Cheryl B. Hyder, a Fairfax, Virginia, practitioner, not only uncovered information that proved crucial to the court ordered division of marital assets, she also explained the numbers in layperson’s terms. The divorcee confides she couldn’t really afford to have Hyder testify in court (she charges about $400 an hour for court appearances) and fortunately, she didn’t need to. The CPA’s written analysis was enough to persuade the judge that more resources were available for support than her ex previously claimed. “Whoever controls the data, controls the narrative,’’ says the woman, who asked not to be named since her divorce was so contentious. Hyder earned a masters in tax, but began shifting into forensic work in the 1990s because, she says, she likes “the challenge of taming financial chaos” and communicating what she’s uncovered in a way that interested parties can understand. (Perhaps not so coincidentally, she volunteers with a pit bull rescue group, serving as a “breed ambassador” and fostering dogs.) These days, more than half her cases involve divorces, but she still works on everything from commercial litigation to fraud investigations. Ultimately, the tab for a forensics expert in a divorce case, with the meter typically running at $300 to $500 or more per hour, can range from $5,000 to hundreds of thousands. But with Baby Boomers increasingly getting divorced late in life when they’ve already built substantial assets, and the internet making it easier than ever to move money around, it’s a cost more of those involved in splits are finding worthwhile. It’s not just divorce creating a growing demand for forensic accountants. The Association of Certified Fraud Examiners (ACFE) now counts more than 62,000 active Certified Fraud Examiners (CFEs) around the world — an 18% increase since 2018. A significant portion of the CFEs, who must pass a four part exam, are accountants. These days, the numbers-focused gumshoes do everything from valuing privately owned business interests and quantifying damages to tracking assets hidden offshore and in domestic trusts to dissecting financial frauds and even tracking cryptocurrency associated with those frauds. They work within corporations to remediate fraud risk and are frequently brought into the more spectacular corporate bankruptcies. The FBI even has a special job title and training program for forensic accountants. For those working in the private sector, the fees can be substantial. AlixPartners, LLP, the lead forensic accounting firm hired in the bankruptcy case involving crypto exchange FTX and its dozens of affiliates, has billed more than $39 million in fees and expenses in less than a year. Its FTX team is led by Matthew Jacques, a former chief accountant for the enforcement division of the Securities and Exchange Commission, who now charges a hefty $1,280 an hour. (That’s just shy of the $1,300 an hour turnaround veteran John J. Ray is charging as FTX’s CEO..) Prosecutors hired their own outside forensic expert for the successful criminal prosecution of FTX founder Sam Bankman-Fried. Peter Easton, an accounting professor at the University of Notre Dame, laboriously traced where $9 billion of missing FTX customer funds went. Among other things, the money was invested in businesses and real estate, used to make political contributions, and donated to charity, he testified. As one report of the trial noted “This was a numbers heavy bit of testimony. At one point, a juror could be seen with the fingers of both hands pressed against his temples.” While it may not seem daunting compared to untangling the FTX mess, when forensic accountants are on the job, even a divorce case can involve extensive analysis of assets (known and hidden), income (current and potential) and spending (necessary and over-the-top). Consider the prominent supporting roles forensic accountants played in the recent divorce of Yellowstone star Kevin Costner. His ex, Christine Baumgartner, filed for divorce in May 2023 after nearly 19 years of marriage. The couple had a prenuptial agreement and the case was ultimately settled out-of-court in September–but only after months of haggling in court over child support, among other issues. She was originally awarded $129,000 a month in child support and in August requested that be boosted to $175,000, saying it was necessary to allow their three teenagers to continue to live in the luxurious style they were accustomed to. Her forensic accountant, Jill Bombino, of CMM LLP, provided an analysis showing Costner could afford it—he had cash flow in 2021 and 2022 averaging $19.2 million per year. But Costner’s forensic accountant, Tracy Katz of Gurney Schneider LLP, dissected the family’s $240,000 monthly expenses and backed out items solely attributable to Baumgartner (as opposed to the children). Those, Katz testified, included spending of $3,000 a month on beauty products and treatments and $18,000 a month on designer clothing. The judge ended up knocking down child support to $63,000 a month, in addition to requiring Costner to pick up all the kids’ medical costs, school tuition and extracurricular expenses, including hunting club dues. The judge was apparently persuaded, in part, by the opinion of Costner’s forensic pro that his income should be properly evaluated without the extraordinary (and now ending) Yellowstone payday, in which case, she calculated, his cash flow was less than half a million a month. Before settling, the unhappy couple also sparred over whether Costner would have to pay hundreds of thousands in both forensic accounting and legal fees for Baumgartner. Analyzing spending is harder and more time consuming than you might think, says Claudio Martellacci, Lead Partner in the Valuations and Litigation Support practice at Grewal Guyatt LLP, a Canadian accounting firm. It requires not only breaking out big-ticket items like mortgage payments, car leases, and vacation expenses, but itemizing smaller ones, down to the cell phone bill and dog food costs. Typically, that analysis would involve combing through supporting documentation like invoices and receipts to identify spending patterns over time. Establishing patterns is key whether the forensic accountants are looking at simple (if extravagant) spending or actual fraud, observes David Levy, a partner at Kleinberg Kaplan in New York, who specializes in complex litigation and leans heavily on forensics in some trials. “It’s indispensable in our world,” he says, noting that when he cannot find actual evidence of willful conduct, he needs to rely on piecing together how the money was moved. Those patterns can sometimes be enough to impute bad faith– or lead to bigger discoveries. The same is true, of course, for so-called business divorces. Companies or former partners that are in conflict may often disagree about current holdings, as well as future expected income. It may be tempting for one party to hide those future income streams, even going so far as to park income in holding companies or offshore. A good forensic accountant can trace transactions and pick up on clues that lead to discovering those sources of previously hidden income. Levy retained Hyder as one of two forensic accountants he used in a particularly nasty Florida divorce. In that case, his client had inherited a substantial portfolio before marriage, including real estate in Florida and New York. Her ex-spouse did not come from money and the pair had a prenuptial agreement keeping her wealth–and the couple’s finances–separate. On paper, she had done everything right to protect herself. But over the period of more than a decade, the then-husband was able to siphon money from his wife’s holdings with the help of the couple’s accountant, who it turned out was in cahoots with him. Levy says the “boldness” of the bad acts was remarkable, but weren’t obvious until the forensic accountants created extensive spreadsheets laying bare the illicit transfers. Even if they don’t find a smoking gun, the questions the forensic accountants raise can be useful in a divorce case, observes Lynda Hinkle Zurlo, a family law attorney in Southern New Jersey. “Judges infer things, especially when they don’t add up,” she notes. Financing an extravagant lifestyle on an apparent shoestring budget, for example, can raise eyebrows. She’s most likely to recommend hiring a forensic expert when businesses are involved, particularly those where money is quick to change hands—real estate flips are a good example, she notes, since the money and assets have to be traced for each sale. She’s also inclined to bring one in when there are international holdings where records may be difficult to find. “I will always recommend an expert when an expert is needed,” she says. Some of what a forensic accountant can unearth, she notes, like discrepancies that contradict what’s reported on tax returns, isn’t necessarily something the parties want to present to a judge (particularly if both sides signed a joint return and because in some instances, the judge might have to report it to the IRS). But that sort of radioactive information gives parties the push to settle or move to arbitration. “Divorce can be complicated,” she says. MORE FROM FORBES MORE FROM FORBESCare Bears And Other Classic Toys Are Back In Vogue, Sparking ‘Fist Fights’ Over Licensing RightsBy Lauren DebterMORE FROM FORBESWhy Cornel West Is BrokeBy Jemima DenhamMORE FROM FORBESThe Top 10 Richest People In The World (December 2023)By Forbes Wealth TeamMORE FROM FORBESAn ‘Outsider’ In European VC, Midas Newcomer Hussein Kanji Wants To Bring Silicon Valley To EuropeBy Rashi Shrivastava

Share This Article
By admin
test bio
Leave a comment