In divorce proceedings it is often the case that one party claims that the other has hidden assets and has failed to declare them on the Form E financial statement. It is in such cases that the expertise of the forensic accountant comes into play.
Forensic accounting is the specialist practice area used to investigate details on financial issues, which can then be used in negotiations or in court. In family cases that regularly valuing business assets and calculating capital gains liabilities or how much income a business generates so that the figures can be used in financial statements.
In addition forensic accounting is used to find ‘hidden’ assets.
The types of assets most commonly hidden are cash, bonds, mutual funds, the cash value of insurance policies and variable annuities, stocks, travellers’ cheques, savings bonds and bearer municipal bonds. Converting cash into assets such as art, jewellery, antiques, vehicles and collectibles is often used by one party in the divorce.
In their attempts to conceal assets, partners may often involve relatives or acquaintances who may or may not be aware that they are party to the concealment. Repayment of non-existent debts to friends or relatives is often used as a smokescreen – as may also expenses for gifts, travel, rent or college tuition.
Where one party owns a business they may use it as a vehicle to conceal assets, by paying salaries to fictitious people or skimming cash from the business – or even undervaluing stocks and writing off as bad debts valid debts collected in cash.
Trying to find such assets or prove unreported income is often one of the most difficult jobs during the divorce process. Being aware of the ways individuals move assets into the hands of their partners or behind false documents, and of the techniques needed to find those hidden assets, can result in their discovery.
If one of the partners to the divorce does not have documents to prove the whereabouts of their assets, however, identifying even ‘easy to find’ assets can prove costly. In those cases one has to ask if the cost of the investigation is worth the potential value of the assets which are assumed, at that point, to be hidden. Remember, they may not actually exist.
However, through diligent and effective preparation it is possible to discover assets no disclosed or acknowledged by the other party.
In a recent case we were advised by the wife of some public company shares she ‘thought’ her husband had owned. We were able to ascertain which shares they were, when they were sold and the fact that sales proceeds were not banked in the UK. As a result, we ultimately found over £6m in hidden assets.
We have also used self-assessment tax returns and company CT600 corporation tax returns to investigate hidden assets and reported our concerns about under-declaration to HMRC. Their subsequent investigations have proved very useful in finding these assets. In our experience, the use of forensic accountants has always proved of benefit when searching for hidden assets in divorce proceedings.