The Value of a CPA in Divorces
There are many different types of experts that may be necessary in a Divorce cases. Experienced Family Law attorneys who recognize the importance of properly identifying the issues in any contested divorce or legal separation case, may want to retain a Forensic CPA. A CPA is a “Certified Public Accountant.” A CPA who is involved as an expert and testifies in court is known as a “Forensic CPA.” Forensic refers to the ability of a professional to give certain opinions in discharging responsibilities as an expert witness, in court proceedings. In many ways, a Forensic CPA can be utilized as an economist in disputed family law cases.
Certainly any witness who claims a level of expertise is usually a person who has reached a level of competency in that person’s given profession to be recognized by the profession as an “expert.” Forensic CPA’s have extensive experience in accounting, tax regulations and upholding the standards of the profession. This usually requires the person in question to possess a skill level that separates them from others in their profession based upon rigorous and specialized training, education and advanced knowledge.
Where there are financial issues that need to be addressed and analyzed, a Forensic CPA may be appointed by the court so that the CPA can give testimony that reflects his or her expert opinions. The opinions can be made to assist the judge understand the disputes of a particular case. The most common hearing in a Divorce or Legal Separation where an expert CPA would be called upon to testify, would be the Final/Permanent Orders hearing. By assisting the judge, the CPA is called upon to shed light as to the value of the assets and property of the marital estate, the structure and impact of marital debts, complex tax implications, the proper division of retirement/pension accounts or analysis of spousal maintenance issues and many other relevant factors.
Services of a Forensic CPA
Forensic CPA’s are called upon to perform some of the following services:
- Business Valuations: In divorce cases, the parties may have a full or partial ownership in a business. When the business was maintained throughout the marriage and resulted in providing the marriage with income, it will be necessary to determine the “value” of the business. This would apply to “Mom and Pop” business interests or any other kind of business endeavor where the parties are deriving an income. Recently, I hired a CPA to value a auto repair shop. I represented the Wife who was a stay at home mom, while her Husband operated the family auto repair business. The repair shop had generated annual net income of over $280,000 and listed debts of over $100,000. The Husband wanted to “buy out” Wife’s interest in the business as a settlement in their divorce. In addition to the annual net income, the parties jointly own the building and the land outright. The tools and equipment also had a substantial value as did an extensive inventory of parts and tires and a well established customer list. The CPA issued a report that stated the value of the business. Based upon the “Business Valuation” Husband’s offer to buy out the Wife, was accepted and the case was quickly settled at mediation.
- Marital Spreadsheets: In the majority of long term marriages or marriages where the parties have acquired significant property interests, assets, and debts, invested in mutual funds, IRA’s or have considerable retirement or pension accounts, it is extremely helpful to have a Forensic CPA prepare a marital spreadsheet that reflects the “value” of the marital estate. A Spreadsheet listing all of the assets and debts should reveal the value of the estate and how the estate should be divided in a divorce or legal separation. In order for the CPA to properly prepare a spreadsheet, all relevant financial documents and appraisals must be forwarded to the CPA so that the CPA can prepare an accurate spreadsheet. Spreadsheets are helpful in settling divorce cases and are of great assistance to judges who must decide contested divorce cases at trial. Colorado law provides that the Court, “shall divide the marital property, without regard to marital misconduct, in such proportions as the court deems just after considering all relevant factors . . . (See C.R.S. Section 14-10-113).”
- Spousal Maintenance: Colorado law does not use the term, “Alimony” but instead uses the term, “Maintenance” as reflected in Colorado Revised Statutes Section 14-10-114. A Forensic CPA can be helpful when Spousal Maintenance is requested by one of the parties in a divorce proceeding. For example, I recently went to trial on behalf of a woman in a divorce case who we claimed needed maintenance until she could finish her college education and find a job. The CPA conducted an analysis in the case to determine the costs and expenses associated with obtaining the college degree, as well as the range of income to be expected after graduation. Another prime example for an expert CPA in a maintenance case is where a party has no income potential because that spouse has “stayed home” to care for the children. Specific financial information can be analyzed by the CPA so that the judge can understand whether maintenance is needed and if so, in what amount and for how long. A “Financial Plan” is often developed by the CPA so that there is a clear projection of actual costs that the spouse asserting the need for maintenance, will want the judge to have. I have participated in many cases where the value of having a CPA conduct a maintenance analysis has directly led to an out of court settlement.
- Retirement Analysis: Whenever pension or retirement accounts are part of the marital estate, they will need to be divided in the divorce. The CPA can provide expertise as to the manner and method that best suits the parties in dividing any such accounts. There are always tax considerations and regulations that must be factored in to any analysis of how retirement or pension accounts are to be divided. For parties who are attempting to determine the amounts of money that a former spouse will receive when a Military Retirement is involved, a CPA can provide expert opinions on how retired military pay should be divided. Colorado law has a specified method for the division of a military retirement commonly referred to as the “Time Coverture Formula” or known as the Hunt/Gallo formula.
- Taxes: A Certified Public Accountant should be able to greatly assist the parties and the lawyers in a divorce proceeding, with answering a variety of questions that pertain to state and federal taxes. Tax advice is needed in the majority of divorce cases and where parties are entitled to know how the division of the marital estate is going to impact them with respect to tax liabilities. A CPA can provide expert advice and a strategy on how to best shield the parties from future tax problems. Therefore, it is always good practice to have tax advice from a CPA, whether a CPA is appointed as an expert or not.
A Forensic CPA should be someone who has testified in court in the past and is “neutral and impartial.” In this way, the parties can feel comfortable that they will receive accurate advice that will assist them in settlement negotiations or with testimony at the contested hearing. With considerable financial consequences at stake in many divorce cases, the hiring of a Forensic CPA could turn out to be your best investment.
*for those individuals interested in retaining legal counsel and who have the financial means to hire an attorney