If you have marital assets, and you are uncertain of where the money went – you should hire a forensic accountant. Just like in the crime scene shows, this professional helps you find the money and assets from your marriage, so you divorce settlement is representative of your financial positions as a married couple.
- Hiring a foresnic accountant is not a waste of money.
- Money leaves a trail.
- The real value that a forensic accountant brings to a divorce is helping to settle it.
OUR GUEST – MICHAEL GOULD
Jessica: Welcome back to another episode of the ExExperts podcast where we give you all kinds of information and tips on everything divorce. You know why? We’ve lived it, so we get it. I’m Jessica.
TH: And I’m TH. Today we’d like to welcome Michael Gould from RotenbergMeril. He’s the Director of Litigation Support and Valuation Services, but more importantly, he was my forensic accountant during my divorce and continues to help me figure out and answer all of my silly questions all these years after. Welcome Mike to the podcast today.
Jessica: Thanks for being here.
Mike: Thank you very much. Thank you for having me.
TH: So let’s start with the word forensic, which is scary because you see that on CSI and every show on every channel about their crime scenes and the forensics. How does forensic come into the world of divorce?
What does it actually mean to be a forensic accountant?
Mike: Well, forensic accountant, actually I like to use that word CSI, we’re the CSIs of accounting. Forensic accountants do a number of different things outside of the divorce field. They may get involved in commercial litigation and government litigation, when it comes to fraud, potential defalcation, theft, and things of that nature, but in the context of divorce, a forensic accountant could get involved in any number of things they’re investigating. Basically, a forensic accountant investigates things as opposed to a financial analyst who would help you manage your assets or help you manage your investments etc. A forensic accountant investigates things. When they’re investigating a divorce, they investigate a claim by one spouse that the other spouse dissipated assets from half whether it be an affair or what happened, but they may be hiding assets or there might be an asset in a foreign bank account, or it’s missing. They think they made millions of dollars, and all of a sudden we have no money in the bank, and now we’re getting a divorce. Was there some divorce planning going on? They may also investigate lifestyles, because when it comes to support, whether it be spousal support or child support, it hinges on what was the marital lifestyle at the time. They’ll investigate all these things. I guess that’s the best way I can define the word forensic for you. They are really more of an investigative kind of person.
Jessica: So Mike, how does someone know if they’re in a situation where it’s necessary to have a forensic accountant?
I did not have one in my first divorce. I was pretty involved with the money and where it was going and that kind of thing. But I wonder, if someone isn’t even sure, and then they get a forensic accountant and it turns out they don’t find anything, then it’s a little bit of a waste of money in that regard? What’s the parameter for whether or not someone should get a forensic accountant?
Mike: First of all, it’s never really a waste of money. Even if you hire a forensic accountant because you feel your spouse dissipated assets or is hiding assets, and the forensic accountant doesn’t find anything or comes back to the conclusion that it is what it is, what’s there is what’s there, and he wasn’t hiding anything, at least it gives you peace of mind that you’re making a reasonable deal and arrangement and that everything has been fair. I wouldn’t say that hiring a forensic accountant is a waste of money. A lot of times in a divorce, and by the way, how do we go about finding out whether their assets have been dissipated or moved offshore? We’ll actually go back, and especially these days all records are digitized, but we can actually go back a number of years and subpoena bank records. Basically, money is traceable, and money leaves a path. You can go back and look at what income was earned during the marriage and trace deposits and what happened to the money. It’s a costly process sometimes because it involves looking at a lot of transactions, and depending on the marriage, maybe a lot of bank accounts.
Jessica: It takes a long time also
Mike: It can be a lengthy and expensive process if it goes that route. But in a divorce, you have two kinds of divorces really, or the parties in a divorce. Sometimes we call them equity/non-equity spouses, because we’ve been involved in divorces where the wife was the breadwinner and the husband was not in a number of those cases. Sometimes the non-equity spouse, non-large-earner in the case, is really financially illiterate or had nothing to do with the finances, and they had no idea. My wife now, I make a point of telling her where everything is just in case, god forbid, I get hit by a Mack truck or something, or my motorcycle goes off the road or something, so she knows what’s going on. But generally, she’s a counselor, and she’s not a financially oriented type of person. You get marriages where one spouse is clueless as to the finances, and you have other marriages where both spouses are very financially capable, knowledgeable, and know exactly what’s going on.
Jessica: What goes into it exactly from someone on our side of things?
Someone’s getting divorced, they’re thinking about getting divorced, and they want to get all their ducks in a row. They’re thinking, I would like to know where all the money is, and I want to make sure that nothing has disappeared at some point in the marriage. What do people have to do to prepare themselves for the process?
Mike: Well, both of you have gone through the process at least once.
Jessica: I haven’t gone through a forensic accounting process, so what would I do to have to prepare myself if that was a road I wanted to take?
Mike: First of all, you start with it when you get involved in divorce, whether it be in New York, in New Jersey, or in most states, in your state actually, in New Jersey, it’s called the CIS, Case Information Statement. In New York it’s called the Net Worth Statement. Those forms that you fill out basically are two things. They are what are your assets and liabilities and what you believe, you as one party, believe they are. The other party is filling it out independently. There’s also an income statement, what do you earn, what do you think you earn, and what are your expenses, if you know? That kind of forces you into becoming knowledgeable about the family finances. Sometimes when we get involved in divorce, we always ask for the Case Information Statements or Net Worth Statements from both parties, not to compare them, to see whether there’s a big disparity between the two.
Jessica: How often do you see something where if the wife is the non-monied spouse, and then you look at the financial statements from both of them, and she writes that the husband makes $2m a year, and the husband writes he makes a million dollars a year. How often do you see a giant disparity between what the non-monied person is telling you about the other person’s income vs. what they’re saying?
Mike: The majority of the time. [Laughs]
Jessica: Like, major disparity?
Jessica: People are such idiots.
TH: Don’t be so mean, Jessica.
Jessica: No, I mean, for the monied-person to try to make it like they make so much less.
TH: Right. Well, I have a question after so let Mike go ahead.
Mike: Very often, I wouldn’t say the majority of times, but often there is a big disparity when the non- equity spouse, or the non-monied spouse, really is not knowledgeable about what’s going on. They have an idea of what the family lives on, so if financials were never an issue in a marriage, and a non-monied spouse has credit cards that he or she uses at will without any restrictions, they may have the idea that they’ve got all kinds of money. They may not have even looked at a tax return. The tax return may be shoved under the non-monied spouse’s nose every year to just sign here and they sign the second page where there’s no numbers on it. They sign the file authorization forms that have no one numbers on it, and they don’t know what they’re signing so they really have no idea.
TH: I think it would be helpful for there to be a quick learning on the basic tax return. I mean, mine were not basic, but really so you understand what each line means that if you look at it, you do know what you’re looking at. I definitely just signed my name, even though I was employed and I worked, I understood the semantics of it all, but I didn’t get in depth on it. I wasn’t looking so closely at capital gains, and that was even before I got divorced, and it became way more complicated. But I would also ask, what about cash? I would think that if someone was planning for their divorce, that they may put stuff away in cash. How can you find cash?
Jessica: It had to have come from somewhere, no?
TH: It could have been spent.
Mike: Money leaves a trail. However, if the monied spouse who’s in a business where he just gets a W-2, it’s not a cash business, and he’s employed and he may be working for a big private equity firm, and he gets checks, he’s got to deposit those checks somewhere. All of that money from these firms and employers are reported, so it’s very simple to trace the money coming in and look to see where the money is. It’s got to go into a bank account, and it’s got to tie into the tax forms that were reported. Once that’s done, then when you look at the bank statements to see where the money left the bank account. Where did it go? If he’s accumulating cash on his side, that’s the easiest scenario to trace cash. Very often when you have a business, like right now we have a business, we have a divorce with two doctors, and there is a certain amount of cash that comes in to those practices. It’s very difficult. It’s probably the toughest thing when you have parties that are in a cash business, a retail business, a bar, or restaurant, and things that need to be paid in cash. It is very difficult to be able to trace that cash. But one of the questions we ask the non-monied spouse in those situations is when you were an intact family and you were getting along, when you went out to dinner, how did you pay for that dinner? Was it paid in cash or was it paid with a credit card? When you went to Macy’s, Bloomingdale’s, Nordstrom, or wherever you shopped for clothes, did you give them a credit card or would you pay in cash?
Jessica: Why does that matter? What are you figuring out from that? For anyone who is listening to this and trying to figure out their own spending habits, what does that tell you?
Mike: Well, that’s actually pretty simple. Because let’s assume that clothing would make the easiest thing to trace. Let’s say that all your clothing is purchased in cash, but we look at the bank statement, and we don’t see any checks or nothing drawn to cash. How did the person get the green cash that they used to pay for the clothes or to pay for the restaurants? Most likely it came from unreported income, because if it didn’t come out of the bank accounts from earnings that were reported, where else did it come from?
TH: Right, unreported.
Mike: Did it come from savings? Possibly, but not likely.
Jessica: So is it a lot of the times that you’re finding these hidden funds places is that it’s mostly coming from unreported income or mostly that people are trying to funnel it one place or another in the hopes that the other spouse won’t ever find it?
Mike: It just so happened that we just wrapped up another case where the non-monied spouse, this was actually a very short term marriage and a lot of what we call ‘gray divorces’ these days. By the way, most of the divorces we’re handling now, really the majority, are ‘gray divorces’, people who have been married sometimes 30-40 years or older people who are married. This particular couple was in a short term marriage, but the monied spouse in this case was in his late 70s and had a business of 50 years. He went to college and he started the business right out of high school. It’s still in business, and it was a very successful business. The spouse of the short term marriage was of the opinion he made millions of dollars. We got involved with it, and we said he’s just not earning millions of dollars. She claimed he’s got all this cash; he always has cash. Well, the kind of business he was in, I really don’t want to give you too much information about it for confidentiality purposes, but in this particular business, the business needed to have cash on hand for the type of business they were in, in terms of doing buying. But it turns out all their sales were totally recorded, totally reported, and totally reported for the IRS in their books and records, who was on the buying side, when they actually needed cash, because they did all their buying in cash. The spouse saw all this cash lying around when she came to the office, so she said this guy’s got hundreds and hundreds to thousands of dollars of unreported income.
TH: He’s loaded.
Jessica: And it turns out no.
Mike: Yeah. Plus what made this particular case very confusing and complicated was the parties, they moved money around like there was no tomorrow. They almost had twenty or thirty bank accounts, and they kept opening and closing accounts. It was crazy.
Jessica: That’s suspicious isn’t it?
Mike: It created a suspicion that there was something funny going on. We really had to spend the time, we ended up spending a lot of time, and it cost a lot of fees, to show everybody that no, these people are just a little bit nuts. They just didn’t trust banks, they did not invest in marketable securities or the stock market or anything, and they just had cash put in savings accounts that went from one bank to another. It was crazy. At the end of the day, it was all there.
TH: We have this question that we were wondering, once you know what the situation is financially, do you then help with the negotiation of the alimony and child support payments or is your role more doing the research to find the funds or to find whether or not there are additional funds?
Mike: Actually, I like to think that the real value that we bring to the table is helping to settle a case. Because there are a number of ways to divide up assets, and there are tax implications to how you divide up assets, so that’s where I think the real value is to our services. Tracing money and asset tracing and things like that, we have bookkeepers that do that for us, but the real work done in terms of fashioning a settlement and putting together scenario analyses as to how best to do it, that’s where we add value added. Now with the new tax law, prior to 2019, alimony was deductible and child support was not deductible to the payer.
Jessica: We’ve discovered it’s not retroactive.
TH: I called Mike right away. I emailed him right away.
Jessica: Now that’s it not retroactive, everything’s changed.
Mike: Well, you can go for a modification.
TH: There’s not much time left. It would be, whatever.
Mike: So now nothing’s deductible. Alimony is not deductible to the payer and it’s not taxable to the payee. How do you take advantage of where you used to have the IRS paying some of this money because we spread the money out among lower tax bracket parties? So now what we do is sometimes there may be an ability to move some assets, some retirement assets, which would be taxable to whoever takes it out. Maybe give the non-monied spouse more of the retirement assets so that you take the retirement assets that are taxable to the non-monied spouse, that lower tax bracket. Is there danger in that? Lawyers hate when I say that because lawyers will tell you that, and it’s true, alimony there’s a contingency in there. It stops on remarriage or death, and equitable distribution, it is what it is. How do you account for the risk that a string of alimony payments that’s going to last 5-10 years, is actually going to get paid over those 5-10 years? That’s something that contingency might come into play where it might terminate the alimony. Child support –
TH: Are there still terms on alimony for cohabitation and stuff like that also? Or did they get rid of that with the tax?
Mike: No, there are still contingencies. The cohabitation issue really needs to be written into the agreement. Death or remarriage is automatic, I think cohabitation, and attorneys might correct me if I’m wrong, you probably need to separate that. That’s actually an interesting topic these days because we see a lot of, very often, divorces of heterosexual couples where one party actually was gay and that’s one of the reasons for the divorce. The cohabitation clause becomes an interesting issue to talk about.
TH: The next podcast we’re going to dig deeper into that.
Jessica: Seriously, no, but that actually is a really good conversation to have about what the contingencies are and making sure that people are really prepared to understand their situation and what it means years down the line.
TH: Right. I think the end game is so important. Everybody has a different scenario, but I wasn’t necessarily thinking of those contingencies when I was getting a divorce. I know that Jessica’s, without revealing details, was less limiting for her personal life. I think we all just get very caught up. Jessica fortunately was able to step back and see it. For me, I was, you know, we were like [yup] scrambling to get this done for so many years. It’s important to think about where you see yourself and are you willing to abide by these restrictions for so many years and limit your personal life. Anyway, that’s another podcast.
Mike: Well, actually, the important point is that very much like we talk about business violations and other situations, the facts and circumstances are unique to each situation. We were involved in a divorce where the monied spouse, the husband in this case, was an alcoholic. He had been to rehab a number of times and he was still drinking. The wife was concerned he just was not going to live. She negotiated for a lump sum buyout of the alimony rather than worry about him paying for 10-15 years.
TH: Right. Take it while you can.
Mike: So it’s a facts and circumstances driven situation. In every divorce there’s a little bit of difference there, some little twist and turns.
TH: That was really smart.
Mike: And age is now, this divorce we just settled, the husband just turned 80 years old. He was still working, but now in New Jersey anyway, there’s a presumption that you can retire. That was another issue that entered into a potential lump sum buyout of alimony. It was a very short term marriage, but the age and health of the party is very important.
Jessica: Yeah. I feel like we probably have so many more questions, but this has all been such great information. For anybody out there listening who has specific questions for you with regards to their own situation, what would be the best way for people to find you?
Mike: They can certainly call me on the phone. I answer my own phone. We don’t charge for phone calls and my direct telephone line to my office is (201) 490-2077 or they can email me. TH knows I’m very responsive that way. You can email me at email@example.com.
Jessica: And we’re going to have all of that contact information on our site as well. Just a quick question though, Mike. For you to be working with someone, do they have to live in New Jersey? Is this a specific state by state situation? If someone lived in California would they be able to call you or would that not be relevant?
Mike: Yes they can. Actually, I’ve testified all over the country. Mine’s all over the country and we happen to have an office in the Helmsley Building in New York as well, which I go to on occasion. My main office is in Saddle Brook, New Jersey, but I’ve testified in Florida, and I have clients all over, globally actually.
Jessica: Okay, all right that’s good to know for anybody out there that Mike is someone you can get in touch with. We really appreciate you bringing all this information to the ExExperts community. It’s such an important conversation to have for people to know what their options are and really be on top of everything with their own situation and their own personal finances when going through this process. It’s arduous anyway, so to just be able to have that peace of mind of knowing that your finances are being handled the right way, is imperative for any divorce. For anybody out there listening, if this conversation would be helpful to anybody that you know out there in your life, please share it because everybody who’s getting divorced needs to be a part of this conversation and know what their options are. Be sure to click and subscribe to the ExExperts podcast on iTunes or wherever you listen to your podcasts. Please follow us on social media. We’re @ExExperts on Instagram, Facebook, and YouTube. Thanks for listening.
TH: Thanks Mike.
Mike: Thank you. Thanks again.
Goodbye: For everyone out there listening, if you know anyone at all who would benefit from what we talked about today please share this episode and everything exExperts. Be sure and click to subscribe to the Podcast on iTunes or wherever you listen to your podcasts and please follow us on social media @exEXPERTS on Instagram and Facebook and YouTube. Thanks for listening!