Editor’s Note: This article was originally posted on June 29, 2020, on Forbes.com, and was written by Kelly Frawley and Emily Pollock.
When it comes to divorce, you count on your attorney to quarterback the effort with knowledge and finesse. Under certain circumstances, though, he or she may advise you to bring in additional expertise — advisors with specialized insight who are qualified to testify in court on matters of consequence to the proceedings.
When might you need this type of expert? In general, there are three financial areas where an expert may be helpful:
1. Valuing assets. Before assets can be divided, their value must be established. You may need an appraiser to do a valuation of your business; real estate; furniture, artwork, antiques, jewelry, clothing, handbags, wine collections or other personal property; or other assets. In certain cases, you may need to determine the value of deferred compensation you’ve earned, since it may not have a present value.
Your attorney can help identify certified appraisers for each asset category. These appraisers are likely to be forensic accountants who specialize in certain areas — one may be qualified to appraise intellectual property for an artist, while another is experienced in valuing a doctor’s practice, for example. In some cases, the specialization may need to be even more targeted. Let’s say you have an extensive art collection: You’d bring in an expert who is equipped to do a survey of the overall collection and then appoint appraisers with the appropriate specialization for each category or item. For real property, the ideal expert often has experience not only as a real estate appraiser but also as a broker. Some specialize in commercial; others residential. Any real estate appraiser you use should be familiar with the market in the geographical area where the property is located.
2. Identifying and analyzing income stream and lifestyle expenses. Not everyone’s cash flow or actual income is immediately identifiable by looking at their income tax returns and forms. Sometimes you need to engage an expert to determine how much cash has been available to the family to pay expenses, and what the sources for that cash were. This expert can look more deeply into the records, since taxable income often doesn’t match the actual funds a family has for paying expenses or in savings. Certain experts can also evaluate what tax benefits and liabilities, such as net operating losses and carry forwards, the family has to be distributed. In terms of expenses, you may need an expert to help examine the spending of you and your spouse. This will give you a better picture of your respective lifestyles to help determine appropriate support amounts, if any.
As discussed below, if you are in litigation with your divorce, then you will likely want to hire a forensic accountant who has previously been qualified as an expert in their field and testified in Court to handle these tasks. If you are resolving your divorce without litigation, then your own accountant may be able to provide the level of expertise you need to assess your income stream.
3. Tracing cash flow. In every jurisdiction, there are different types of property: property accumulated during the marriage (marital) and property accumulated before the marriage that you still own (premarital). Some property a spouse acquires during the marriage may also be his or her separate property, depending on the source. Depending on the source of that property and when it was accumulated, you might be able to exclude it from the distribution of assets and liabilities. To do this, you must demonstrate that you acquired it prior to the marriage or from a source that was specific to you. This can require tracing.
For example, if your aunt passed away in New York, leaving you $1 million, and then you put that money into a new brokerage account and started trading shares — selling some shares and depositing the proceeds into a bank account that you later used to purchase a house, perhaps — you’d want an expert to prepare a tracing report that follows the money all the way back to your aunt’s estate. Arguably, in a situation such as this, you could be entitled to receive a separate property credit for the $1 million (and possibly even the appreciation attributable to that $1 million) before distributing the remainder of the equity in that house as marital.
Choosing the Right Expert
To be clear, if you and your spouse agree on how assets will be split, you won’t have this need for expert valuations or tracing. If you can’t agree, however, and you seek the court’s assistance in determining and dividing the marital assets and liabilities, you will need reliable values to inform a fair division. So, in whichever area of expertise you may need help, you should look for someone who has experience as an expert witness in the particular area in which they claim expertise.
Your attorney should be able to offer appropriate experts from which to choose. In some cases, an expert may be able to serve multiple functions, which could save you money and time. A specific business evaluator or forensic accountant, for example, may be able to value your business, analyze your tax returns and trace assets as needed. Ask your lawyer to make recommendations, understand why he or she is recommending that particular expert, and then do your own research. Once you’ve identified an expert (or experts) to support your case and work with your attorney, you can breathe a little easier knowing that your financial circumstances will be fairly presented.