Divorce is a unique area of fraud that requires specialized attention. Two main reasons are:
- Spouses experiencing the failing of their relationship may improperly deprive one another of assets and income.
- Marriages receive some legal privileges that do not exist in other relationships.
A divorce proceeds after one spouse files a petition with a court of law to dissolve the marriage. After this initial filing, steps for the division of assets and income take place. Valuation of assets, liabilities, and income will begin for the purposes of division and distribution. Often these proceedings occur relatively amicably. At times, however, individuals will purposefully conceal or misrepresent assets to reduce the value of marital assets and understate their income.
The list below shows some methods of concealment that may meet the legal requirement for matrimonial fraud when the marriage involves a closely-held business. These methods generally lower profits or the firm’s value.
- Skimming revenue from the business.
- Exchanging cash earned from customers for products or expenses.
- Delaying revenue by asking customers to delay or hold payments until after the divorce is final.
- Recording cash received as loans rather than revenue.
- Paying fictitious employees.
- Overpaying vendors during the divorce proceedings and requesting credit for future purchases.
- Prepaying business expenses.
In some cases, the expertise of a forensic accountant is needed to discover if fraud has occurred. The usual job of the forensic accountant is to provide objective advice on the distribution of assets, related tax implications, and income available for support. Forensic accounting expertise is important to attorneys especially when preparing for trial but it also plays a role in mediation and other negotiations. Knowledge of the legal process, methods used to value assets and liabilities, and methods for discovering hidden assets are some of the important qualities of forensic accountants.