Monday, May 27, 2019

Divorce Mediation Resources - The First in a new series of interviews! 

Forensic accountants in Divorce Mediation? What do they do?

*Why would we need a forensic accountant if we are mediating our divorce?  

*Aren’t forensic accountants for litigation? 

*Can’t we figure this out on our own? 

*Won’t the mediator be able to tell us the right amounts for support? 

*What does a forensic account do anyway?

These are the questions that I frequently hear from people in mediation.  To get the best answers for you, I asked very experienced forensic accountant Nancy Kearson!
Nancy Kearson, CPA, ABV
Nancy has expert credentials and many years of experience working in divorce. In addition to being a CPA, Nancy is also certified as an ABV (Accredited in Business Valuation), CVA (Certified Valuation Analyst), CFF (Certified in Financial Forensics), and MAFF (Master Analyst in Financial Forensics.) Most importantly, Nancy is a trained mediator and so understands the needs and objectives of parties who are mediating their divorce agreement. If you think there are financial issues in your divorce or family law mediation that need the input from a forensic accountant, let’s talk about it at the next mediation session!  Nancy can be reached directly at  Here is the first part of our question and answer series. 

"What is a forensic accountant?" Here is Nancy's answer:

I hear client’s saying, "Part of the reason we came to mediation was to avoid all the additional expensive costs of litigating a divorce, why do we need a forensic accountant?  Isn’t that just an additional cost?  We have a CPA for our taxes that we know; can’t he/she help us?”

Dividing property and determining the best amounts for support can be very challenging.  There may be questions your mediator or CPA can’t answer and even some very important things you may not have thought of. 

A forensic accountant working in Divorce should be knowledgeable about all types of income being considered for support payment calculations.  Some types of income may not be taxable or even reportable, but are considered income available for support purposes.  As an example, matching amounts contributed by an employer to a 401(k) or similar retirement plan don’t appear on a W2, but are in substance additional income available for support.  You might need a forensic accountant to go over all of the items listed on a W2 and a year end pay stub to accurately include all the income for support calculations.

You might want a forensic accountant to go through expenses from your small business to identify any business expenses that might have some “personal” component that is considered income (even though they are legitimate tax deductions.)  Maybe you simply have a discussion with the forensic accountant about what you have identified yourselves that could be income, but you are not sure.

You might need a forensic accountant to help you reach a value for a small business.  While a small business might not have a market value and not be sellable, in a divorce there is often an"intangible" community property value.  This value is due to the anticipated continuing income stream it provides to the person who will continue to own and run the business going forward.  The forensic accountant can help calculate this intangible value.

You might need a forensic accountant to help you identify the pre marriage contributions to a retirement plan, the marital contributions to a retirement plan, and the post marriage contributions to a retirement plan, and what each of these portions of the account earned from the investment so you can divide only the portion that is the community property contributions and earnings.

These are just a few examples of the ways a forensic accountant experienced in divorce can provide you with guidance and calculations for an informed mediation. 
Your CPA may be well skilled in accounting and tax preparation, but typically has no experience in these types of calculations for divorce mediation.

At the very least, you may wish to consult with a forensic accountant regarding the types of property and income you have to calculate and divide, and perhaps formulate a game plan to cost effectively get to the information you need.

In mediation, where ever you can reach agreement you are comfortable with, you have the best opportunity to clear a path to move forward with your lives.  Consulting a forensic accountant may well be a valuable tool in reaching this goal in your mediation.
This article does not constitute legal or tax advice or specific advice of any sort. Be sure to consult with your family law attorney and other appropriate professionals as each situation is different.