Buried Treasure:
Looking for Hidden Assets in a Divorce
By David Fox Divorce is an emotional event for those involved. Because the
emotions are typically negative -- anxiety, anger, and mistrust -- it is common for one
spouse to suspect the other is hiding or undervaluing significant assets in an attempt to
keep them out of the divorce settlement. This suspicion often arises when a family owned
business is at stake. In these cases, determining whether one spouse has hidden assets
requires that a forensic accountant investigate the business's financial records and
documents. The forensic accountant then can understand the location of assets, track any
significant changes in spending habits of either spouse prior to the date of separation,
and look for patterns or breaks in patterns that may point to suspicious activity.
Know the Company
A key reason for understanding the
location of assets is to help identify whether any have been removed. The first step in
making this determination is to thoroughly understand the company. Knowing the company
makes it easier to spot changes in business patterns -- changes that might indicate
whether assets have been shifted out of the business.
Some of the questions a forensic
accountant may inquire about the company include:
- Who are its customers?
- Has the level of business from these customers remained
steady?
- What types of products or services does the company
provide?
- How do trends in other industries affect the company's
income?
- Have key clients been leaving the company for a single
competitor or a new company?
- Have there been changes from year to year in key areas of
its balance sheet or income statements?
The answers to these questions may point
to any number of explanations. For example, a review of the customer activity logs may
show a sudden decrease in revenues from a major client. Further investigation may show
that several customers have switched their business to a new competitor in the market. It
may turn out that one spouse is a partner in the competing business, which was set up for
the express purpose of siphoning-off key accounts from the existing business to reduce its
value in the divorce settlement.
Know the Industry
Just as an understanding of the
company in question can help a forensic accountant unearth unusual patterns or trends in
its business, so can a thorough knowledge of the industry. Trends within the industry as a
whole, as well as with the business’s competitors in particular, affect the business.
Questions a forensic accountant may ask
include:
- Is the industry in a growth phase?
- What are common earnings for other companies in the
industry?
- What are common levels of expenses?
- What other industry trends affect the company?
- What is happening with the competition?
- Is the company using a higher level of supplies to produce
the same amount of goods as other businesses in the industry?
- Has the company experienced an income decrease while
similar companies are experiencing growth?
If a forensic accountant suspects that a
business owner is siphoning-off assets from the company by cooking the books, he or she
should look at statistics from similar companies. As a rule, two companies with similar
levels of business will likely have similar levels of expenditures, but if one is spending
twice what the other spends for supplies, there might be a problem.
Make Sense of Emerging
Trends
Unearthing hidden assets can be a
painstaking process because the spouse involved in the business may have taken steps to
cover his or her tracks in anticipation of the increased level of scrutiny. Careful
investigation of the company and the industry (as well as consideration of other factors,
such as the individuals involved) can often reveal the trends that will show an
investigator how and where assets have been moved. |
