The accountant as expert in the family court

The accountant as expert in the family court

Tony Roe of Penningtons Manches Cooper and Robert Holland of James Cowper Kreston discuss the use of accountants in divorce proceedings, principally in valuing businesses.

The accountant as expert in the family court

Divorce and family law matters are not entirely the preserve of lawyers. In matrimonial financial disputes there is often the need for expert evidence in which case accountants have a significant role to play.

In such a dispute before the court the first step is to ascertain what assets, less liabilities, there might be for division. The second step is to value this asset pot. The third step is distribution of the net assets in a settlement.

As part of this first step there is a duty to give full and frank financial disclosure. This duty is not just to the other party but also to the court. It has been likened to a ‘cards on the table exercise’ with those cards face up. This disclosure process is normally carried out by each party completing their own financial statement, called a Form E, which is a thirty or so page form supported by evidential documents. Forms E are employed whether a court application has been made or whether the disclosure is simply voluntary.

In more complex matters a party might ask their accountant to help marshal the documentation needed for the Form E or provide a capital gains tax calculation where the parties own more than one domestic property. Accountants should, however, avoid being fully responsible for completing the Form E without a very considerable input from the party as this might lead them to being held at fault where the Form E is shown subsequently to be incomplete or inaccurate.

Choosing an expert

Experts are needed to value assets unless parties can agree their worth. Accountants’ expertise is required when it comes to valuing a business interest. The court regulates what evidence is introduced hence where one wants such an individual an application must normally be made for the appointment of a single joint expert forensic accountant whose duty is to neither party but to the court. Part 25 of the Family Procedure Rules (FPR) 2010 governs the appointment of experts. Part 25.3 of the FPR states that it is the duty of experts to help the court on matters within their expertise and this duty overrides any obligation to the person from whom experts have received instructions or by whom they are paid.

Typically the solicitor who wants the expert appointed must prepare the application. This involves making enquiries of suitable experts as to their fee estimates, hourly rates, CVs and availability which information accompanies the application. The court would normally consider the application to appoint an expert at the first directions appointment (FDA) and set a timetable with which the parties and expert must comply, and will not necessarily appoint the cheapest expert but cost will be a significant factor.

The court will order the parties to instruct the chosen expert to provide a report on, for example, the value of each party’s shareholding in a company, its liquidity and maintainable earnings and the tax consequences upon a transfer or disposal of a party’s shares in the business, and will direct one party, normally the applicant, to prepare the letter of instruction by a given date for the approval of the respondent and also timetable its dispatch. It would also direct by when the expert’s report should be filed at court. The norm is that the court provides that the costs of the report are met by the parties equally.

It is incumbent on the parties to ensure that they cooperate with the appointed expert in relation to the provision of relevant information or documents so that the timetable is not put in jeopardy as the court will have listed a further hearing, the financial dispute resolution (FDR) appointment.  Unfortunately in practice information or documents can often be delayed.

Expert’s report

When the expert’s report is ready it may be that the parties have questions of its author. The court may provide that the costs incurred of replying to questions shall be met by the party raising such questions. Rule 25.10 provides that written questions must be proportionate and must be put within 10 days of the report being served and be only for the clarification of the report. The answers are treated as part of the expert’s report.

As for the contents of the report, it must comply with Practice Direction (PD) 25B of the FPR. There is no substitute for the expert to read PD25B. Amongst other things, it deals with the content of the report in some detail and sets out that the report must conclude with a statement of truth. Other required reading is the Law Society’s “Standard terms and conditions to accompany a letter of instruction to experts in family proceedings”.

Often the expert’s appointment is accepted by the parties in which case unless there are any questions to deal with the role of the expert is over. However if the matter is fully contested and there is a challenge to the report, the expert must be prepared to attend court, give evidence and be cross-examined as to their findings.

Questions

Can I speak to one party’s solicitor?

You may wish to contact directly the other solicitors or any other professionals/experts in the proceedings in which you are instructed. Please feel free to do so. However, if in your contact with other professionals you discuss any matters of relevance, please inform your lead solicitor of that fact. Please keep a careful written note of all persons participating in the discussion and a summary of the discussion itself. If documents are exchanged with one party, please copy them to all the others.

Do I get to know the outcome of the final hearing?

Within 10 business days after the final hearing, the party who instructed the expert or, in the case of a single joint expert, the party who was responsible for instructing the expert, must inform the expert in writing about the court’s determination and the use made by the court of the expert’s evidence.

Unless the court directs otherwise, the party who instructed the expert or, in the case of the single joint expert, the party who was responsible for instructing the expert, must send to the expert a copy of the court’s final order, any transcript or written record of the court’s decision, and its reasons for reaching its decision, within 10 business days from the date when the party received the order and any such transcript or record.


This article has been co-authored by Tony Roe and Robert Holland.

Tony Roe

Tony is a consultant in the family law team at Penningtons Manches Cooper and a highly experienced solicitor. He regularly advises clients on complex financial and property matters arising from divorce and difficult disputes concerning arrangements for children. A collaborative lawyer and family arbitrator, Tony is widely acknowledged as a practitioner who works hard to find alternatives to the court process.

He was a member of the advisory group to the Law Commission on its work on matrimonial property, needs and agreements and the use of premarital contracts or “prenups”. Shortlisted by LexisNexis Family Law in 2015, 2016 and 2018 as Family Law Commentator of the Year, Tony is asked by the press to provide a legal view on family law issues and has appeared as a family law expert on both television and radio.

With an established reputation built over almost thirty years of practicing family law, Tony has led a well-respected firm and been head of a busy family law department.  A former national committee member of Resolution and chairman of its children committee, Tony remains a member of the organisation. He is a visiting fellow in family law at the University of Reading.

Robert Holland

Robert is the Managing Partner of James Cowper Kreston and acts as an audit partner and specialist share valuer. Robert joined James Cowper Kreston as a partner in Newbury in 2000 and acts for a broad range of family and owner managed businesses.

A substantial part of his share valuation work comprises his acting as an expert witness in legal proceedings.

Robert is a Fellow of the Institute of Chartered Accountants in England and Wales.  He is also a member of TPAC which is the technical committee for the audit faculty of the Institute of Chartered Accountants in England and Wales.

Penningtons Manches Cooper is a leading UK and international law firm which provides high quality legal advice tailored to both businesses and individuals.

With strategically placed offices in the South of England, membership of Kreston International, a global network of independent accountants and business advisers, James Cowper Kreston is ideally placed to provide informed local, national and international advice.

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