A forensic accountant has a number of functions. If they are the single joint expert (SJE) in the context of divorce proceedings, their job is usually going to be to value one or more of the parties’ business assets.
In other circumstances, a forensic accountant may be engaged by one party alone, but as noted below it is usually preferable to have an SJE, as approved by the court.
Other matters a forensic accountant might be asked about include the consideration of tax implications associated with the valuation and disposal of jointly held assets or to look into suspicions that financial assets may have been hidden by one or both parties (asset tracing).
To enable a judge to consider what will be a fair division of the assets, he or she must know the true value of those assets. If one party requests an expert valuation, in most cases his or her application will be granted and the court will order a single joint expert be instructed. It may well be possible that one party retains the business, and ordinarily if it is affordable that will be the outcome – practically it is often difficult for both parties to maintain an interest after the divorce, particularly as usually it is the income stream for one party.
It is useful to obtain an expert valuation from an independent third party, whether you and your spouse are in court proceedings about your matrimonial finances or discussing matters between yourselves, with or without the assistance of a mediator, collaborative lawyer or arbitrator. This is because either of the parties may inflate or deflate the value of a business asset, knowingly or otherwise.
You are not able to file any expert evidence without first obtaining permission from the court. The Family Procedure Rules provide that wherever possible one single expert is to be jointly instructed by both parties. This has clear benefits – there is transparency in respect of the information the expert receives, as the letter of instruction must be agreed and signed by both parties and all communications with the expert must be copied to both sides. It narrows the scope for either party challenging the report if both parties are jointly responsible for the instruction.
When valuing a business a forensic accountant may consider a variety of matters such as the history of the business, its particular sector and circumstances, and also projections for the future. Depending on whether the business leans more heavily to being a trading business, or an investment business, the forensic accountant will assess the extent to which the net value of the assets or the trading profitability should be balanced against each other when valuing the business as a whole.
The forensic accountant will then undertake research specific to that business in order to apply a 'multiple' that might be appropriate to the business’s size, location, sector and circumstances. The forensic accountant will also consider whether the percentage held in the business, by one or both spouses, should be 'discounted' to reflect the level of influence that the holding might have over the business in question. The judge can decide if a further discount is required, because the business amounts to what is a quasi-partnership; this is a question of fact for the court.
Yes, but only in so far as it will impact on the value for the purposes of determining a fair divorce settlement. It is not a witch hunt, and the forensic accountant is not there to look for ‘wrong-doing’ or non-compliance.
In the case of a business valuation, whilst it might be possible, uncovering hidden assets is not likely.
The forensic accountant will be relying on the documentation provided. In the main these will be associated with the structure and performance of the business. The forensic accountant will generally act under the assumption that the documentation provided to them is accurate. In the case of an SJE who will have been approved by the court, if the information provided to the expert is false or misleading, the provider is essentially lying to the court (explained in point 7 below).
That said, if the expert identifies particular inconsistencies, unexplained variances or trends which they need to clarify in order to provide an opinion on the valuation of the business, this could in turn raise questions for the representing lawyers to consider and possibly allow the lawyers to pursue these questions and enquire into potential hidden assets.
In matters of asset tracing, the forensic accountant will be following the trail of particular transactions to identify how funds and financial assets have been obtained and disposed of over time. The forensic accountant will not have the power to obtain information from banks (or other third parties) directly, but they will be able to provide details of their findings and the areas they identify for further enquiry. The questions then raised by the forensic accountant can then be followed up by the lawyers who may apply to the court for an order that additional information be provided by one party or another.
The duty of full and frank disclosure is a duty to the court and breach of that duty is therefore very serious. The duty of full and frank disclosure is an ongoing one, which means that it is not the case that, after filling in your Form E, you do not have to tell your spouse or the court if your financial position changes; the duty is continuous throughout the proceedings. If there is non-disclosure, the action the court will take depends on the individual facts of the case – there are a variety of sanctions that can be imposed, inferences can be drawn, and in some extreme case it is possible to re-open the settlement.