Episode 62: Truth v Fiction - How a Forensic Accountant can help in Divorce Matters
In this week's episode of The Investigation Game Podcast, Leah and Megan discuss how a forensic accountant can help in divorce matters. Plus, they address common misconceptions around what sources a forensic accountant can use to find assets and what assets are quantifiable as marital property.
This information packed episode is the third and final conversations with Megan. It is just a sample of the content found in Leah’s new book: Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations. Coming to stores April 2022. Preorder now on Amazon!
Megan is a PI and CPA. In addition to being the Forensic Accounting Manager at Workman Forensics, Megan serves on the board for Street School Inc., a local nonprofit that combines alternative education and therapeutic counseling to help Tulsa students. Read Megan’s full bio on the Workman Forensics website.
That wraps our 2021 season. Exciting things are happening in 2022—we'll see you there!
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Transcript
Intro:
Welcome to The Investigation Game podcast brought to you by Workman Forensics.
Leah Wietholter:
Hey, everyone, it's Leah. I want to tell you about a project I've been working on that I'm really excited about. Coming in April 2022, the data sleuth process that we use every day when working investigations at Workman Forensics is being made available in my book, Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations. In it, I share stories from my journey, including building Workman Forensics, as well as case stories. But most of all, I lay out the data sleuth process. It's all in the book. When I started Workman Forensics in 2010, I looked everywhere for a reliable process for financial investigations, but I came up short, so I decided to build one. It is possible to have a data driven approach to financial investigations in a team environment. Pre-orders are available now. Check the show notes for details.
Leah Wietholter:
Welcome to The Investigation Game podcast. I'm Leah Wietholter, CEO and Founder of Workman Forensics in Tulsa, Oklahoma. Today, I have with me, Megan Brown. Megan is a CPA and a private investigator, and she's also the forensic accounting manager here at Workman. Megan has experience in both public and corporate accounting for both the private industry and public companies. After receiving a bachelor of science in accounting from Oklahoma State University, she moved to Tulsa and subsequently joined the Workman Forensics team.
Leah Wietholter:
Currently, Megan serves on the board for Street School, Inc, a local nonprofit that combines alternative education and therapeutic counseling to help Tulsa students. She also volunteers as a driver for the American Cancer Society Road To Recovery program and is a member of both the American Institute of Certified Public Accountants and the Oklahoma Society of CPAs. Megan, welcome back.
Megan Brown:
Thanks for having me.
Leah Wietholter:
So, one thing be before we start, I wanted to address, clients like to talk about, I think my spouse is hiding assets or that we're missing money in our estate and things like that. But really, at the end of the day, I don't feel like they completely understand what the purpose is in identifying those assets. But the ultimate goal in a forensic accountant helping on a divorce, primarily, is because sometimes they help on child support, doing a lifestyle analysis for child support, lifestyle analysis for spousal support. But the thing that we see most often is identifying as many, if not all of the marital assets that they acquire during the marriage and finding or helping them find a corresponding value to put it on, what I'm going to call the marital balance sheet. So, the goal is to be able to list a 100% of the assets of the marital balance sheet. And that includes bank accounts, brokerage accounts, retirement accounts, homes, crypto, everything, we're going to put all of those things on this marital balance sheet. And then this allows the attorneys and the clients to look at, "Okay, I'm going to take this piece of land, and in exchange, he's going to take this retirement account." And so, then they start dividing the assets. So, the whole goal of having a forensic accountant on your team is to help you establish, have we identified everything, has everything been revealed and uncovered.
Leah Wietholter:
And then once it has been, how do we get values for these things? Do we need property appraisals? And then something that just recently came up is, are all of the properties that are listed on this balance sheet, have they been appraised? We've found where we had all of the properties identified, because that was easy, but there was a large part that it was excluded in the appraisals. So, whenever this balance sheet was being divided up, there was a good chunk that one spouse hadn't had appraised. So, which under, well, it just caused an imbalance in the calculation. So, we need this whole list of assets so that the spouses can decide, "Okay, I want this, he wants this, she wants this and so forth." And so, that's really where we have created the most value is identifying those types of things and finding bank accounts or businesses that the spouse didn't know about and putting those on the marital balance sheet. It does help a story, but at the end of the day, it's about how do we get these two people... The attorney is looking at how do we get these two people divorced and then how do we split what they acquired during the course of their marriage. But really, at the end of the day, that is what a forensic accountant helps an individual do in divorce.
Leah Wietholter:
So, today, the purpose of this episode is to expose, debunk some beliefs about financial investigations and forensic accountants. But this time, instead of embezzlements or partnership deputes, we're going to talk about divorce matters. So, today, I'm going to list some common misconceptions that we've experienced on divorce matters and pertaining to the role of a forensic accountant and our process, and I'd really like to get your responses based on your experience.
Megan Brown:
Sounds good. I will add in too, that when I first started working here, I didn't realize divorce was such a big client for us. Divorce. Yeah. So, I wasn't expecting that. And I was surprised.
Leah Wietholter:
It's like a pretty large portion of our revenue every year are divorce cases. Actually, I think surprisingly this year, it hasn't really been the case.
Megan Brown:
No, definitely more partnership disputes this year. But I know when I first started, we were doing a lot of divorce.
Leah Wietholter:
Yeah. And it looks like 2022 may end up being a big divorce year. I don't know why, but who knows what leads into those decisions? So, the first one, a forensic accountant uses a spouse's social security number to identify all financial accounts.
Megan Brown:
This is false. And I do feel like we've mentioned this on the podcast before and on our blog posts, but bank and investment accounts, any kind of financial accounts are private information. There's not some database where they're all located, so you can't just use someone's social security number and look up all the accounts they have. And I think that's a popular misconception is that if someone gives us their spouses social security number, we can just go to some database and tell them all the accounts they have, and that's just not true.
Leah Wietholter:
Right. And we've talked about this before, first of all, we know that it happens though. People do either, whenever I follow other investigators, CFEs, forensic accountants, they will talk about using databases that will identify bank accounts. But we have to ask ourselves, one, how are they getting this information, because it's supposed to be protected? So, either it's being attained through unethical or illegal means, or it's a scam and they actually can't do it, or both, I don't know. Maybe there's some accounts they can get and some accounts that they can't. So, we have to ask that question, I think.
Leah Wietholter:
We know that it's happening, we're not ignorant of that, but we're only going to use the legal means and the things that are admissible in court. And then second of all, flipping it a little bit, whenever our clients do ask us, well, or say, "Here's my spouse's social and their kid's social and all these things, go find all their bank accounts with these in some super secret database." Would they appreciate it if we did that to them?
Megan Brown:
Yeah. That's something you want to turn and say, would you want their attorney and their side looking into all the accounts you have. I mean, I don't want anyone knowing how many bank accounts I have.
Leah Wietholter:
And it's supposed to be protected. So, we just want to honor that all the way around, because if we wouldn't want somebody knowing where all of our financial accounts are, then we shouldn't be able to do that to somebody else just because our client thinks that they're bad or whatever.
Megan Brown:
Well, and we're always going to do what's legal. We're always going to go through legal channels. We're not going to do anything illegal that would get us into trouble.
Leah Wietholter:
And I know that some people have said that they will use these financial account databases that'll find financial accounts to then identify them and then they use that to then use legal methods to go find the actual bank accounts. But I just don't want to dabble in that.
Megan Brown:
Yeah, me either. Rather just stay on the path of the straight and narrow.
Leah Wietholter:
Yeah. Let's just stay out of that all the together and then we have nothing to discuss later. The second one, forensic accountants identify hidden assets from tax returns alone.
Megan Brown:
This is also false. I mean, tax returns are a great place to start. And I know we've discussed this in some earlier podcasts about things you can look for on the tax return to identify possible assets that you don't know of or income coming in, but you don't want to only limit yourself at looking at tax returns. There's several other sources like bank statements and background reports that you can look up to identify if there are other assets.
Leah Wietholter:
Something that actually came up today before we recorded this was, I was talking to another forensic accountant and we were talking about some different issues in divorce cases. And she made a really interesting comment about when a spouse knows that they've been living off of hundreds of thousands of dollars a year, but then has been okay signing and I don't know that they're okay signing these tax returns, but they have signed tax returns that maybe show that their income is $50,000 a year. And then you're doing that, the spouse is doing that or the couple, they're living a life on several hundred thousand dollars a year, they're signing a tax return that shows that they only make 50,000 a year. So, they're doing that in the moment. But then when it's time for some sort of spousal support and it's based on the tax returns, then the out spouse is going, "Wait a second, we've lived on a lot more than this, but yet every year they sign this tax return saying they were living off of 50,000 a year." So, just something to consider for clients who might be listening to this. If that's your situation, sure you can do a lifestyle analysis and you can do all of this, but also at the same time, I mean, you don't want to think about if I end up getting divorced, but maybe think that way just a little bit to go, "Okay, if we were to get divorced and if my spousal support is based on these tax returns, do I want these tax returns showing that we only make X a year when I know that we make four to six times that." So, something to consider.
Megan Brown:
I think it's also important just to try to, I mean, I know tax returns are confusing, but just try to understand what the income is coming in and if you agree with it. Like you said, just to pay attention, because I know of cases too, where people just sign the return, they don't look at it at all. I don't think they look at any kind of income that they're making so they don't have any idea.
Leah Wietholter:
Or how about the cases? Which these don't typically come in. You end up talking to people about this stuff, but then we don't end up really working with them. But where they'll say, "Well, I knew that he received a lot of cash payments over the years," or, "Oh, yeah, a lot of his clients paid him in cash." Well, if that's the history of the marriage, you're going to have a really hard time proving that you are living. I mean, you can do a lifestyle analysis, you can do all of that, but if you're letting your spouse run their business, this cash based business, and you're not tracking anything, then if there is a divorce, that's going to happen. I mean, that's going to work against you then, especially if you're the out spouse.
Megan Brown:
For sure.
Leah Wietholter:
So, just some things to keep in mind. Also, we can't use tax returns to identify those. I mean, we can identify some assets through tax returns, but tax returns are self reporting. With cryptocurrency going on, a lot of people are just opting to not put their crypto assets, I guess, on their tax returns. And they're like, "Oh, I'll just wait to see if I get a notice." So, just using a tax return, that's just the minimum thing that you should provide a forensic accountant. That's the minimum. And if your forensic accountant says that they can identify all these hidden assets from just tax returns, no, they're not wanting to do the real work in my opinion.
Megan Brown:
Yeah, I would agree with that.
Leah Wietholter:
Also, if you suspect that your spouse that handled all the money is hiding things from you, then how likely is it that they told the truth to the government? I mean, it's like the least reliable piece of evidence.
Megan Brown:
Yeah, you're right, because it is self-reporting and unless they get audited, it can go undetected that they're under reporting income.
Leah Wietholter:
Or even disclosing assets that they should or whatever. So many things wrong with just relying on a tax return. All right. The next thing to address, common misconception, a spouse who spends too much in our client's opinion on shopping or gambling or otherwise is committing embezzlement.
Megan Brown:
Well, it's not only considered embezzlement if it's your spouse, because, well, it's kind of like a partnership, it's your assets together, so they're not really stealing it now. I mean, we have had several instances where spouses were shocked that their spouse was spending so much money. But again, we've talked about this, what's important to you may not be important to them. So, one spouse may be all about buying a bunch of clothes and outfitting their kids in the latest fashions, but a husband may think that's frivolous spending, but the wife may think that's not. Or a husband may spend a bunch of money on hunting equipment and a wife thinks that's a dumb thing to spend money on, but it's justified to the husband. So, I mean, it's kind of just your perspective on things, but it's just what's important to you in spending money and what you think is frivolous. It's just in the eye of the beholder.
Leah Wietholter:
Yeah. In marriages, there's typically not an operating agreement that says, okay, this is how much you get to spend on these things and we're going to agree to this. And so, it's usually not that organized.
Megan Brown:
Well, yeah. And I mean, we just find that no one's really paying attention until it comes to the divorce and then they'd start looking and they're like, "Oh my gosh, I just can't believe how much money they're spending." Well, you should have been monitoring that the whole time. And maybe work that kind of thing out before it comes to this.
Leah Wietholter:
I mean, it's similar to running a business and watching where money is being spent in a business by employees or by partners. Because to prevent it or to catch it early on and to be aware of those things is always more efficient than waiting till later to try to claw that stuff back, because when it's gone, it's gone.
Megan Brown:
In most cases, one spouse is managing the money and the other one is just clueless. Or we've had cases where they put money into a joint account, they have separate accounts and they don't know what they're doing with the joint account. Or they can't believe the other spouse isn't saving their portion of their own money. And it's like, well, if you don't have that conversation with them or look at what they're spending in their own account, then yeah, you're not going to know. I mean, you might be surprised. You may be the type that saves everything, but your spouse doesn't necessarily do that. And so, when you have like separate finances like that, you can't really keep track. And I just think it's important for any spouse who doesn't control the money just to pull up some bank statements every once in a while and see what your balance is, where the money's going. We often hear too, about credit cards that the spouse didn't know about. And just see if you see, look at your bank statements, are there any payments to credit cards that you didn't know about and ask them about it.
Leah Wietholter:
Yeah. And all of these things are not even just to help prepare if there's a divorce sometime in the future, it's just smart and wise to do anyway. Something could always happen to the spouse who controls the finances and then what is the out spouse going to do, what's the person who doesn't control those funds going to do. And so, knowing how to access the bank account, knowing, okay, if something happens to me, here's where everything is, is just a great life plan.
Megan Brown:
If something happens to that spouse who controls the money, you need to know how to ask that stuff and what's going on with your finances, so you can continue forward without them. I mean, we never know what's going to happen. But also, if you guys want to retire by the time you're 60, maybe get on the same savings goals. I mean, there's just certain things like that, I think like, just life in general that you should talk about and know these things because you just never know what's going to happen.
Leah Wietholter:
And then just as like a smart money habit too, every year I run an annual credit report, I think is what it's called. But run the credit report and run it for you and your spouse, I mean, preferably with your spouse's permission, but you both are checking it to make sure that you don't have credit card... Maybe your identity's been stolen, you have credit cards that you didn't know about. Or maybe it leans out there, you didn't know about it. So, tracking that just as a good practice, but then also this lets both parties know, "Oh, my spouse is taking out credit cards I didn't know about," and things like that.
Megan Brown:
That's definitely a good idea. My husband and I do that every year as well, and it's mainly because identity theft is so rampant these days. And especially, during COVID with all of the unemployment, we were hearing about a lot of people whose social security numbers were being used to collect unemployment. So, that was when we started getting that just to double check those things and make sure our numbers weren't being used on something else. So, I think that's a really smart idea.
Leah Wietholter:
Let's look at another common misconception. Forensic accountants can quantify missing gold or silver coins or cash missing from safes and or safe deposit boxes.
Megan Brown:
So, this is a no. Well, I'll state it, if you keep your receipt of the purchases of the coins, all your purchase and sales receipts, then yes, we can quantify that. Especially if one spouse, this happens a lot where they keep the gold or silver and then one spouse is taking it. But if they don't have record of the purchase, then there's no way for us to quantify how much you had. The safe deposit box is kind of the same thing, except there aren't receipts about what goes in there. I mean, there's not an inventory held by the bank of what you keep in your safe deposit box and the value of that. So, say you keep a lot of cash in your safe deposit box, which I do not recommend, because you can account for it, you should really put that in the bank, and your spouse goes one day and takes it all out. Well, there's no record that it was ever in there, other than your word for it. So, we have no way of knowing how much they took, because there's not a record of what was in there. I mean, I think some things like people may keep in there, as in jewelry, they may have an insurance record of like, look, anything you put in there, you should keep your own inventory of what's in there and the value of it. But cash is just like, you're not going to be able to trace it if you put it in the safe deposit box. Whereas if you have it in a bank account and then that spouse comes and takes 50,000 out of your bank account, you have a record of that.
Leah Wietholter:
Going back to what we talked about a little earlier, if your spouse is putting a ton of cash in a safe deposit box, ask why. It's so either shady or ridiculous. I know when we opened our safe deposit box, I mean, this has been several years ago, but I remember them specifically saying, please sign here and state that you will not keep cash in your safe deposit box. It's not what it's for.
Megan Brown:
Yeah. I think it's more, well, from what I have seen, an older generation thing, and maybe they have parents who grew up in the depression and don't trust banks. But you're trusting the bank enough to keep your money in a vault at their building, but not enough to keep it in an account there. And I mean, at least put it in some kind of interest bearing account where you can make money off your money.
Leah Wietholter:
Yeah. And I guess it's probably a perception that if it's in a bank account, it could be seized somehow or hiding it form the government.
Megan Brown:
We've had this with people who even keep cash in a safe at home. We've had cases with that and it's like, "Well, so and so, my sister took out all this money out of my parents' safe." Well, you can't track that, because there's no record. There's no official record of it. Whereas if you put it in a bank account, there's official record of how much was in there and how much was taken out. And if we have any listeners that know more or have dealt with the golden silver coins, we have been asked before if there's a database where... I have not found one to date, but is there some kind of federal database that logs all the gold and silver you purchase? I'm guessing that's also a protected kind of like your bank accounts like protected. But I don't know. I mean, we have had a few cases that have had gold and silver coins and it's generally been a divorce where they've then accused the other spouse of taking them. And it's just hard to know where they ended up and hard to know how much they had without receipts.
Leah Wietholter:
Exactly.
Megan Brown:
So, if any of our listeners know of some kind of database, please share it with us, because that would be interesting to know.
Leah Wietholter:
I think my thought on the whole gold and silver coins or cash in safes, you really just have to think about the likelihood that somebody or the risk of someone walking away with something like that. If you keep your receipts for the gold and silver coins, that really helps, but I have to be okay with the amount that's in a safe somewhere, knowing someone could walk away with it. So, that's what I think needs to be considered. It's not that you can't put cash in the safe, you can do whatever you want. But think about what's the risk if mom and dad pass away, and now sibling who takes care of them knows about the safe and can take that money.
Megan Brown:
Or a spouse who thinks, "Oh, my husband's going to leave me so I'm going to at all these gold coins out of our safe deposit box and keep them to sell later." But then you, as the spouse who bought them, if you don't have those receipts, then there's no way for us to know what you started with.
Leah Wietholter:
I think it's really common, especially in the area of cash, gold coins, jewelry, I'm thinking of when mom and dad have a lot of valuable assets and things like that or I don't know, like dishes and silverware, things like that.
Megan Brown:
Antiques.
Leah Wietholter:
Yeah, antiques. It's perceived that we're going to be able to with a few keystrokes, find these things. So, we try to just emphasize over and over, this isn't magic. This profession doesn't perform magic. We have to find evidence that allows us to say here's what should be here and here's what's not here today.
Megan Brown:
Right. We can't just pull things out of thin air. We're not going to just take our client's word for it either. We need evidence that that asset existed so we can prove it in a court of law. We can't just tell a judge, "Hey, our client said that they had this asset." I mean, you need proper evidence of it.
Leah Wietholter:
And also ways to get around that and to be creative and think about, okay, maybe we can't show that the asset existed, and the client is saying, "Oh, yeah, my spouse went and sold this," well, maybe we could find evidence of the sale. Because then the evidence of the sale would then show, "Oh, the did own this at one point," those types of things. We can think through finding that evidence. But if we cannot identify some best evidence to support somebody's claim, then we're probably not going to be able to testify to it or include it in our report or show it as missing or part of a loss.
Megan Brown:
Exactly.
Leah Wietholter:
All right. Here's our last one, a spouse's inheritance is marital property. And I want to be careful when we talk about this because our cases involving this have only been in Oklahoma. So, if somebody else's state is different, they'll need to consult. And we're not attorneys even in the state of Oklahoma. But we're going to answer this based on our experience with inheritances in property settlements, in Oklahoma.
Megan Brown:
In the state of Oklahoma, your inheritance is not considered marital property, it's considered yours. Now, it may come into factor, and you've probably dealt with this more, but say you're a deed at a house and then you put your spouse on it. I mean, if you can trace it back though, that that house was just inherited to you, it's your house. You don't necessarily have to split it with your spouse.
Leah Wietholter:
And maybe improvements or any appreciation has to be split with the spouse. I know we've worked cases before where somebody had retirement accounts or investment accounts prior to marriage and both of them did. And then after they got married, there's some sort of apportionment, okay, this much was pre-marital, this much is marital. So, those types of things can be separated. And when it's an inheritance, that kind of approach is also taken. This was yours, but then you took marital money and improved the inheritance. And so, kind of dividing that up between the two.
Megan Brown:
Or if you had inheritance money, invest it in a joint brokerage account. We've done, like you said, where we've a portion of the appreciation on that account would be marital, but the basis would be non marital. But any appreciation that that account has in your marital account, half of it would belong to you. So, yeah, it's definitely something you want to consult with an attorney in your own state because it's probably different in different states and we're just attesting to Oklahoma. But generally speaking or not, it's your property, not marital property when it's inherited.
Leah Wietholter:
Yeah. And that's always so disappointing to tell a spouse that whenever their spouse received an inheritance and maybe they didn't, that's a really difficult conversation, but it is something to know, I think. If you don't have an inheritance, you need to know that.
Megan Brown:
But I think it's also good to know that if your spouse is claiming not to have any money or maybe they've spent all the inheritance, if you can prove that they did receive this inheritance, I mean, you're obviously not going to have it, but it would go to help prove that they had it at one time and maybe they spent it all, which is they don't have good financial habits or they gambled it or something. But just to prove, "Well, hey, at one time they burned through this money in two years." I mean, you're not going to get it, but I think it would help your case to show that they actually have assets that they're not reporting or saying they have.
Leah Wietholter:
Yeah. It wouldn't necessarily be something that needs to land on the marital balance sheet, but it would be something to show like, hey, this person does actually have some assets and they're just not talking about it.
Megan Brown:
Yeah. Because a lot of people, I feel like they'll claim they don't have anything. And it's like, well, you inherited a million dollars. That's not nothing. So, it could adjust your spousal support calculation, something like that.
Leah Wietholter:
Yeah. There are so many factors that go into these things. So, I just want to add another disclaimer to that, that we've seen success with this, but it's not necessarily true in every case because there's lots of different things to consider, but it never hurts to ask the attorney if it applies to your situation.
Megan Brown:
I would agree with that.
Leah Wietholter:
So, Megan, what are the documents that a forensic accountant needs to accomplish this goal of making sure that the marital balance sheet is as complete as possible for property settlement?
Megan Brown:
You want bank statements, credit card statements, any kind of brokerage or investment accounts. And then pay stubs, not just W2s, but you want to see the pay stubs because if they were direct depositing into account or multiple accounts, you want to identify those accounts and see that they were in accounts you don't know about, or didn't that you knew about and identified some you might not know about. Any kind of land or property records, mortgage statements, any kind of loan history statements, your tax returns, wills, or trusts. If you and your spouse have a will, it may already list a bunch of your assets. So, do you still own it? Is it still on your marital balance sheet and things like that? I think another thing with the bank statements is if you see transfers to a unknown account or the brokerage or investment statements, that could identify further accounts that you maybe didn't know about.
Leah Wietholter:
And by looking at bank statements, brokerage accounts, and even credit card statements, because some people pay their utilities and stuff on credit cards. By looking at that activity, it will also identify are there homes maybe you didn't know about, are there maybe partnerships that were set up that you didn't know about. And so, all of that tracing and identifying, the whole purpose is to say, okay, we just found more things that we didn't know existed and we want to make sure that we put them on this balance sheet and that somehow these get valued. And it does include gold coins, because that seems popular lately.
Megan Brown:
I know. Well, and yeah, any assets that are worth money. I mean, some people are collectors of art or antiquities. I mean, you want to get appraisals of those.
Leah Wietholter:
Jewelry, even cars, that can happen, and the debt associated with all of these. Because that balance sheet actually reflects the assets and the corresponding debt. Yep, great stuff. Well, thank you so much for your help in explaining some of these common misconceptions. And hopefully, we've helped some individuals who may be going through this themselves or other forensic accountants or investigators like us to know that, no, you're not crazy. I know you keep hearing that you should be able to do these things, but no, it's not a thing. So, thanks for joining me today, Megan.
Megan Brown:
Thanks for having me.
Outro:
Thank you for listening to the Investigation Game. For more information on any of the topics brought up on this show, visit workmanforensics.com. If you enjoyed our show, be sure to subscribe and leave a review. You can also connect with us on any social media platform by searching Workman Forensics. If you have any questions or topic ideas, please email us at podcast@workmanforensics.com. Thank you.