This process starts with the forensic accountant reviewing some very important documentation for both spouses, including the following:
• Education and employment histories
• Bank account data
• Sources of income
• Regular expenses, both now and in the past
• Personal and business relationships resulting in accumulated assets
These documents provide a strong starting point for the forensic accountant, who then begins the discovery process in earnest. In order to ensure the accuracy of all financial data and account for possible hidden assets, the forensic accountant may use a number of methods:
• Review of expenditures. This technique allows the accountant to find hidden money by connecting income with expenses over a certain period of time, and then making sure they reasonably correlate. To do this, the forensic accountant may use tax returns and various financial statements.
• Net worth analysis. The forensic accountant may compare the net worth of an individual at one point in time (such as the beginning of the year) to another point later on. Any increases or decreases in net worth are then cross-referenced with other income and financial data to determine the likelihood of hidden assets.
• Examination of bank deposits. By thoroughly reviewing bank deposits and investment activity, the forensic accountant can find out if one or both spouses have transferred money from one location to another. It is particularly suspicious if there are many deposits on record, but not a large volume of money deposited overall.
One of the most complex aspects of a divorce is determining what does and does not constitute marital property. A forensic accountant can help with this process by tracing certain assets to when and how they were originally acquired. To do this, the forensic accountant reviews documents that existed at the time of marriage, including any premarital agreements established. This might include examining estate tax returns to find out if any property was received as a gift or through inheritance, which would make it a non-marital, or separate asset.
There is also the issue of what constitutes transmuted property, which is property that started out as separate and then was transferred to become shared property between the spouses.