FAMILY LAW ARTICLES

Using Forensic Accountants in Business Valuation Proceedings

Business valuation is an essential aspect of divorce proceedings in family law courts. Having a proper business value will help the parties decide how to split assets and whether alimony or other payments should be included as part of the final divorce decree.
Deciding whether to use a forensic accountant can be tricky, but it may be necessary in some cases. Here we address some of the benefits and common concerns of bringing in a forensic accountant into a divorce proceeding.

Cost Considerations: Aren’t Forensic Accountants Expensive?
One of the main reasons many people avoid bringing in a forensic accountant is because they are concerned about how much it will cost to use their services. Unfortunately, some parties (and their lawyers) will bring a forensic accountant as a scare tactic. They will hire an expert to value the business, but the other party might not want to spend money to get an expert to refute the first expert’s opinion.

To address this concern, you may want to consider scaling the work of the forensic account. Scaling, in this context, means that you can specifically dictate what you do and do not want the accountant to do. By limiting the scope of work, you can often significantly cut down on the expense associated with using this type of expert.

For example, you can limit the examination to only prior tax returns. You could also have the accountant review only a specific aspect of the business, such as one department or one source of income that might be a problem area. These more limited examinations are much more cost-effective than asking the forensic accountant to comb through years worth of business records or bank accounts.

The Value of Using a Forensic Accountant
1. Basic business valuation information
Getting value for a business in a divorce is extremely important. A judge considering how to split community property will want information about the business valuation so that assets can be divided fairly. Planning to give this necessary information to the judge can be extremely helpful.

2. Determining whether the value on the paper is the actual value of the company
A forensic accountant can also review certain aspects of the business to determine whether the costs or income on paper represent the company’s actual value. For example, if you have a business owner who uses their business income to purchase all kinds of personal items, that will affect valuation. It may also affect how property is divided or how support payments (alimony) are calculated.

3. Developing an income number for support considerations
When one spouse gets most or all of their income from their own business, it can be hard to determine their annual or monthly payment. An accountant will review the distributions, costs, and other information to develop an income number. That number can be used to perform the calculations necessary to determine whether support payments (such as alimony and child support) are appropriate.

When and how to use a forensic accounting expert can be confusing, but Hartley Lamas et al. can help you decide the best way to use an expert in your family law case. Call today to schedule a consultation with a member of our team.