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

Forensic accountants in Divorce Mediation? How can they help with property division?

*We only have retirement and a house.  Can’t we just divide these equally? How can a forensic accountant help us with identifying what part is dividable community property and what part is separate property?

 

How does a forensic accountant assist in property division? What does a forensic accountant provide? Property division can be complex! So how do you know?  To get the best answers for you, I asked very experienced forensic accountant Nancy Kearson!

Nancy Kearson, CPA, ABV
CVA, CFF, MAFF

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 nkearson@earthlink.net.  In this second installment of our question and answer series, Nancy answers frequent property division questions asked of mediation participants. 

We only have retirement and a house. Can’t we just divide these equally? How can a forensic accountant help us with identifying what part is dividable community property and what part is separate property?    

      Yes, you can divide them equally.  With an IRA, you can rollover one half of the account into a “Rollover IRA” account for the other spouse.  You will need to contact the institution that holds the IRA account and arrange to open the Rollover IRA in the other spouse’s name.  Then you will need to request that the institution transfer the funds from the IRA account into the new Rollover IRA account.  You want to be sure to be careful in the division and transfer of IRA funds to avoid triggering an unwanted taxable event.

        If you have a retirement account related to your employment like a Profit Sharing account, 401(k) account, or a defined benefit pension account, you may need to have a Qualified Domestic Relations Order (QDRD) to divide the funds to the other spouse without triggering a taxable event.  You should contact your pension administrator to discuss how to best accomplish the division of these types of retirement accounts.

       However, if you made contributions to your retirement account before you were married or after you separated you may want the help of a forensic accountant in allocating the earnings or losses to the separate and community contributions as they accumulated over time.  Then you will know what portion of the current balance of the account is dividable community property and what portion is separate property.  

        Many union members and other governmental employees are part of a defined benefit pension plan.  This is a type of retirement plan that pays you a monthly sum beginning at retirement age depending on years of service and the plan’s rules and guidelines.  Check with the plan administrator on how best to determine and divide the community portion of your defined benefit pension plan account.

        If you purchased your house during marriage with marital earnings, made all the mortgage payments from marital earnings, and you both want to sell the house, then you just need to find a broker you agree to, list it and divide the net proceeds one half to each through escrow.  

       However, if one of you wants to continue to own the house then it can be more complicated to reach agreement on how one spouse might buyout the other spouse’s one half of the community interest in the house.  If the house was owned by you prior to marriage or separate property funds were used to make a down payment or mortgage payments, then it also gets complicated.  Calculating the community property interest in a house is a function of the source of funds used to acquire the property, legal responsibility and recourse for mortgages and other secured loans, titling, and other factors.  A forensic accountant can analyze your situation, and make the calculation you need to determine how much of the current equity in the property is dividable community property and how much is separate property.

       You may want to consult with a forensic accountant to help understand the complexities of dividing your house and your retirement accounts as well as calculating the community property interest.  Ultimately you must decide if knowing you fairly assessed and divided your community property going forward is worth the relatively small cost of consulting with a trained marital forensic accountant during your mediation.

        You may want to consult with a forensic accountant to help understand the complexities of dividing your house and your retirement accounts as well as calculating the community property interest.  Ultimately you must decide if knowing you fairly assessed and divided your community property going forward is worth the relatively small cost of consulting with a trained marital forensic accountant during your mediation.