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Divorce and forensic accounting, part 2

Forensic accounting is a type of accounting aimed at finding and identifying hidden assets. It is not unique to the divorce setting. But its use is important in divorce cases in which one spouse may have hidden assets from another.

In Illinois and across the nation, couples who are at odds with each other may be tempted to engage in concealing bank accounts, investment funds and other property. This happens in marriages of all types. The sheer amount of money at stake, however, is typically larger in a high-asset divorce.

For many people, the use of the word "forensic" may be associated with television crime dramas. Forensics, in that sense, involves applying scientific techniques to the examination of evidence, especially in criminal cases.

But the word "forensics" also has a broader meaning. It comes from the Latin word for public. Our English word forum, as in public forum, is related to it.

And that is really what forensic accounting does. It makes public assets that, for one reason or another, have been concealed.

Forensic accounting in divorce cases is sometimes necessary to find such assets. Without the transparency this provides, marital property division can be very unfair. After all, when one party fails to disclose all of his or her assets to the other, the other may easily get shortchanged in a property settlement.

The process of forensic accounting in divorce cases usually begins with a thorough inventory of all of the couples' assets. It involves a painstaking review of financial and other records, looking for such things as questionable asset transfers.

When a transfer is made to a divorcing spouse, it is important to make sure it is structured in a way that does entail a gain or loss for tax purposes.


Source: "Tax considerations when dividing property in divorce," Journal of Accountancy, Ray A. Knight and Lee G. Knight, April 2013

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