Using Experts In Divorce – Accountants

by Spencer E. Williams, Cordell & Cordell, PC

Outside of the area of child custody, accountants can play a role in the other major areas of domestic relations litigation.  Accountants are often hired as expert witnesses for a litigant.  Many attorneys have an accountant or group of accountants that they work with on a regular basis.

In relation to maintenance, an accountant can calculate the tax consequences of a maintenance award.  Maintenance is taxable to the recipient and is a tax deduction to the payor.  Further when calculating maintenance the accountant can help establish the needs of the recipient and the ability to pay maintenance of the payor.

Accountants can also play a role in division of marital assets and debts.  Many divorcing parties have pre-tax retirement accounts.  A common mistake that people can make is comparing the pretax asset with a post tax asset without calculating the loss for taxes and penalties for an early withdraw of pretax assets.

For example I have many clients that will talk with their spouse prior to filing for divorce in an attempt to save litigation expense.  Clients will often come in and inform me that they have divided the house and the retirement accounts as each have the same value, for example $100,000 in home equity and $100,000 in a 401k.  Such a division is not close to equal and the person that is taking the 401k is really only taking a $70,000 asset if the tax rate on the 401k is thirty percent.  Further there maybe a 10% penalty for early withdraw.

Finally, it may not be possible to remove the entire retirement until a specific age often close to retirement age.  If the client is in his thirties or forties that is a significant wait.  The accountant will be able to calculate the value of the marital assets to all post tax values. In addition the accountant can perform a “time value of money” calculation to equalize the value of the post tax home equity and the pretax retirement accounts.  When evaluating a property distribution it is necessary to allow the attorney to compare apples to apples.

Further, the accountant can suggest assets distribution schedules that can help reduce (or increase) the exposure of a party to maintenance.  For example, a client maybe facing a potential maintenance claim.  The accountant can calculate his needs as mentioned above and adjust the debt allocation to provide the potential payor with more monthly expenses, the potential maintenance recipient with less expenses reducing her need for maintenance.

These debts can then be offset with assets such that the net distribution to the client is equal.  For example if the parties have $10,000 in marital credit card debt with a monthly payment of $500 per month, the accountant can help calculate if it is beneficial for the client to take that debt in the property distribution and in addition take investment property that is worth $10,000 and has a monthly net income of $200 per month verses the other spouse taking the investment property thereby increasing their income and reducing their need for maintenance and the client could take assets that are non-income producing to offset the credit card debt. Finally, accountants can help calculate the value of items such as pensions and annuities that have monthly payouts but not a quarterly statement of value.

Further, accountants can help determine and calculate income of the self employed or those parties that work for cash such as waitresses or hairdressers.  It can be difficult to believe the tax filings of such workers when trying to calculate child support or maintenance.  The accountant can review the expenses of a party and determine what money is coming into and out of a person’s accounts to help establish an income for a cash based party.

Accountants can also help track down missing and money secreted out of marital accounts.  It is not uncommon for spouses to begin planning their divorce months or even years before the other spouse is aware of the possibility of a divorce.  The planning spouse may begin to funnel funds into separate accounts in their name or even the name of a third party.  If such actions are suspected an accountant can go back to trace the money leaving the marital accounts so such money maybe returned to the marital estate for distribution by the family court in the divorce.

Spencer E. Williams is the Team Leader over St Louis, St Charles, Indianapolis and Jeffco offices of Cordell & Cordell, P.C. where he practices exclusively in the area of domestic relations.