Forensic Accountants for the Self-Employed During the Divorce Process
The two main issues that come up with self-employed business owners during the course of a divorce frequently involve (1) cash flow determinations for support purposes (both child and/or spousal support) and (2) the value of a business for purposes of property division (perhaps in a “buy-out” of the other spouse’s interest in the business). Both issues may require the use of a forensic accountant (among other experts) familiar in the particular business subject matter (some experts are better equipped than others to deal with particular businesses such as bars, jewelry businesses, etc.). There are two types of forensic accountant appointments: One which can occur by way of a Court-appointed expert who is a “neutral” and serves as the Court’s own expert to determine the issues or a party-retained expert (serving as the advocate of the spouse who may have retained the expert).
A Court-appointed expert is one that is appointed on the Court’s own motion (meaning by the Court itself) or by application by one party to the Court. The Court-appointed expert would usually request/demand information from both parties (but likely more so from the party running the business since he or she is likely the one in possession of the records) and he or she will prepare a report to the Court with his or her findings. The benefits of a Court-appointed expert generally relate to the costs (instead of having dueling experts) and the fact that the expert serves in a “neutral” capacity as the Court’s own expert. The downside is that the Court-appointed expert is not your advocate. Unlike a Court-appointed expert a party’s separately retained expert is his or her advocate (just like your attorney). The retained expert will usually ensure that his or her client’s position is strengthened (explaining any discrepancies) and will be willing to testify in Court on key issues that could benefit the client.
The nature of the business may have an impact on both the cash flow of the business and the value of the business. With a corporation there may be other shareholders involved, which may thereby effectively reduce the community’s interest in the business and/or the cash flow. With Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs), the same may hold true; however, for purposes of discovery (when one party issues subpoenas to financial institutions or seeks to obtain financial information from the other party related to the various assets of the business, including bank accounts, etc.), different rules are applicable as to whether privacy concerns for other partners (or third parties) would prevent the disclosure of such information absent some sort of court order compelling the disclosure (and this is oftentimes balanced against the fiduciary duties that a spouse may owe to the other spouse to provide information, but not necessarily at the expense of third parties who are not involved in the proceedings other than by virtue of their involvement with the business). Speaking with an experienced family law attorney prior to either setting up the business or getting a divorce may save you both the headache and financial stress of having to deal with such issues if you ever go through the divorce process. Corporations generally do not have a right of privacy (and information that would otherwise be discoverable generally in a divorce when dealing with corporations may have to be produced, when the same may not necessarily hold true for LLCs and LLPs). Sole-proprietorships on the other hand are generally run by the business owner (as in the case of doctors or lawyers or other service based practitioners) and there may be no any additional owners involved.
Speak with one of our experienced attorneys to determine if a forensic accountant will be necessary or advantageous in your matter.