When Scots gather on Burns Night, they toast the “immortal memory”. When
forensic accountants gather, their toast is to “Mrs White”, the doyen of
divorce. Her case enshrined into English law the principle that in a medium to
long-marriage, the starting point to calculate a divorce settlement is equality
– which means the division of assets on divorce can be increasingly complex.
Prior to the White v White case, the role of accountants in divorces was
limited – an obtuse tax point, an overinflated budget and an annuity were the
only occasions on which accountants were invited in to the mysteries of
ancillary relief claims.
However, the need to apportion the marital assets has created the need to
establish their existence, to ascertain their value, to assess their reliability
and divisibility and to understand how to achieve tax efficient liquidity. And
these are just the basic issues before the need to consider inherited wealth,
special contributions and marital acquests.
It is not too difficult to see that these issues are areas for which family
lawyers have not generally been trained – any more than accountants are
qualified to draft wills or trusts – which is where the expertise of a forensic
accountant comes to the fore.
Call in the experts…
The above considerations are particularly important in cases where either
parties’ future income may alter substantially.
For example, should Ashley and Cheryl Cole divorce and issue financial
proceedings, calculations would need to be made to take account of Ashley’s
time-limited career (particularly in light of his current ankle injury), and his
need to build a fund for the long term. Meanwhile, Cheryl’s career is predicted
to be on the up, with stated plans to break into the US music market. If proven,
this would mean that, while Ashley’s future earnings will decrease Cheryl’s may
dramatically rise. Various projections need to be made to try to achieve
fairness in any settlement.
The accountant often first learns of the demise of his client’s marriage when
he is asked to help complete the notorious ‘Form E’ financial statement. This
form is the bedrock of family law proceedings. The objective is to give the
courts a clear and concise overview of each party’s financial situation. Lawyers
often naively assume that this is simply a matter of setting down the facts.
Accountants, however, know that figures are not necessarily facts; a great deal
depends on how they are applied. This is where the accountant needs to be clear,
from the outset, as to what objective his or her client is trying to achieve in
the divorce proceedings. Are they trying to increase a settlement from their
ex-spouse or are they trying to reduce the amount they themselves will have to
A key way in which solicitors and accountants can further work together is in
the drafting of financial questionnaires for the other party to answer and the
subsequent evaluation of the answers – or indeed incomplete or inadequate
answers. Another is by providing the solicitor with a list of the essential
financial information that needs to be obtained.
Hidden assets are not unusual in ancillary relief cases. If the solicitor can
provide the client’s account of the marital lifestyle, together with evidence of
income, then a broad analysis and reconciliation by the accountant can see if
any assets have slipped over the abyss into a black hole.
Disclosure apart, a key note for the accountant can often be to bring a touch
of commercial and financial reality into the proposed settlement process.
Businesses may be profitable and cashflow positive: this does not necessarily
mean that they are realisable or capable of funding substantial cash payments in
one fell swoop.
Similarly, an all-round familiarity with investment techniques and bespoke
banking arrangements – as well as taxation issues – can provide solicitors with
constructive ideas that they can introduce into their settlement proposals.
Experience suggests that sometimes providing a ‘how to achieve’ methodology may
bring about the desired objective.
The best outcome
When solicitors and accountants work together as a seamless team, the client
The key is for the solicitor to have an early discussion with the accountant
– often with the client present. The accountant will assess the financial
significance of the client, personal statements, the other party’s Form E and
provide the solicitor with a view on the parties’ overall income and capital –
both at the current time and in “the reasonably foreseeable future”.
From the above it can be seen that the accountant’s role almost inevitably is
partisan. No matter how fair-minded the accountant wishes to be, inevitably he
or she will to some extent be an advocate for the client. It is therefore wise
to avoid any attempt to co-opt the accountant to be some form of impartial
expert. That is best reserved to someone truly independent.
Ironically, it is not always the ‘big money’ cases which require the largest
accountancy involvement. Where a family’s wealth is tied up in property,
businesses, financial instruments, pension funds and trusts the issues
surrounding separation and division can be complex. The accountant can provide
the solicitor with a route map through the minefield.
Hints and tips
* Get an overview of the case as soon as possible:
* What sort of case is it?
* What are the key financial drivers?
* Consider statutory and other time limits,
* Avoid valuation “ping-pong”
* Consider materiality
* Remember that investing costs earlier may save costs later.
When is a single joint expert appropriate?
* Where a physical asset, eg. a property or an art collection is being
* Where there may be agreed numbers but differences in relation to taxation
* When both parties are active in the business;
It’s always worth remembering that ‘one may be cheaper than two but three are
Henry Brookman is the founding partner of Brookman Solicitors and Jeffrey
Nedas is the founding partner of Jeffrey Nedas Forensic Accountants
Accountancy Age Jobs is delighted to announce the launch of a brand new look website for finance and accountancy professionals
The UK gender pay gap will not close until 2069 unless action is taken to tackle it now, according to new research by Deloitte
Three former Tesco executives, including the former finance director of Tesco UK, have been charged with fraud by the Serious Fraud Office in relation to a £263m accounting scandal at the retailer.
Deloitte chief executive David Sproul is among 11 chief executives to take part in global executive search firm Odgers Berndtson’s CEO for a Day scheme