Executive Summary
Spousal support and alimony disputes often hinge on the true income of each party. Forensic accountants help attorneys and courts uncover hidden income and assets, ensuring fair determinations. By tracing bank deposits, analyzing lifestyle expenses and comparing reported income to actual cash flows, they identify underreported earnings and provide impartial analyses.
When this issue arises
This issue typically arises in high‑asset divorces, modifications of support orders, and cases where one party suspects the other is hiding income or diverting assets. It can also occur when complex business interests, trusts or overseas accounts obscure financial realities.
Accepted methods/frameworks
Forensic accountants use several complementary approaches to uncover hidden income:
- Asset tracing and lifestyle analysis: Following the flow of funds through bank, credit‑card and investment accounts to detect undisclosed assets or income.
- Income reconstruction: Comparing reported income and expenses to reconstruct true earnings and support obligations.
- Ratio and reasonableness tests: Evaluating whether reported income supports the lifestyle observed from expenditures and asset growth.
Numeric example: Suppose a business owner reports $60,000 of annual income but bank statements show deposits of $90,000. After accounting for a $10,000 loan and $5,000 in legitimate non‑income transfers, the forensic accountant estimates $15,000 of additional undisclosed earnings available for support.
Documents & Data Checklist
Key documents and data typically requested:
- Tax returns (federal and state) for at least three years
- Bank statements for all personal, joint and business accounts
- Credit‑card statements and loan applications
- Payroll records and employment contracts
- Business financial statements (income statement, balance sheet, cash flow)
- Brokerage and investment account statements
- Real estate records, property deeds and mortgage statements
- Digital payment records (PayPal, Venmo, Zelle) and expense receipts
Pitfalls / Common Errors & Rebuttal Strategies
- Inadequate documentation: Failing to obtain complete bank statements and tax returns can obscure transactions. Rebuttal: issue subpoenas and request third‑party confirmations.
- Misclassifying transfers: Treating loans or capital contributions as income or vice versa can distort conclusions. Rebuttal: trace each deposit to its source and distinguish between loans, gifts and income.
- Ignoring cash transactions: Cash withdrawals and deposits may conceal income. Rebuttal: examine lifestyle spending, credit purchases and receipts to estimate cash usage.
- Overlooking business commingling: Small business owners may pay personal expenses from business accounts. Rebuttal: prepare adjustments separating personal and business transactions.
Frequently Asked Questions
What does a forensic accountant do in support and alimony cases?
They analyze financial records to uncover hidden income and assets, reconstruct cash flows and provide impartial reports to attorneys and courts.
When should I hire a forensic accountant for my support or alimony dispute?
Engage a forensic accountant when you suspect your former spouse is hiding income or assets, or when your case involves complex business interests or significant lifestyle discrepancies.
What methods are used to uncover hidden income?
Forensic accountants trace bank deposits and withdrawals, analyze credit‑card and investment activity, review tax returns and apply ratio tests to compare reported income against lifestyle and asset growth.
How long does a forensic accounting investigation take?
The timeline depends on the volume of records and cooperation; simple cases may take a few weeks, while complex matters can take several months.
What documents should I gather for the forensic accountant?
Provide tax returns, bank and credit‑card statements, payroll records, business financials, real estate records and any documents that detail income and expenses.
Will the forensic accountant testify in court?
Yes. Forensic accountants can serve as
References
- Thomson Reuters – Benford’s Law and forensic accounting – Explains how Benford’s law can identify irregularities in numerical data.
- Journal of Accountancy – Neutral CPAs in divorce cases – Outlines the role of neutral CPAs in divorce cases.
- Association of Certified Fraud Examiners – Fraud resources – Provides guidance on detecting and preventing fraud.
Contact the team at Joey Friedman CPA PA for a confidential consultation to discuss your forensic accounting and divorce litigation financial needs. We serve clients nationwide in litigation, disputes and investigations.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Outcomes depend on specific facts and circumstances.
