During the divorce process, a fraud examination may take place to ensure either spouse is not hiding assets from each other. When filing for a divorce, there are many laws and procedures in place to protect those against fraudulent activity committed by a spouse. Usually, both spouses will provide declarations about their respective bank accounts, business interests, and expenses. A spouse may wish to undervalue their holdings to reduce the amount of child support or alimony paid (or received). Often, a forensic accountant is employed to fully investigate the finances, especially if there is an allegation or complaint by a spouse of potential financial fraud.

The purpose of the forensic accountant’s engagement is to find evidence that supports or refutes the allegations that financial fraud or misconduct has taken place. The accountant will conduct a thorough investigation, review the information available, conduct a financial analysis, and present their findings to the client, the attorney, and possibly the Court, if the case is not settled before trial.

The Investigation

A full credit check is an effective way for forensic auditors or accountants to begin their investigation. Credit reports can help financial investigators find second mortgages, properties, credit cards, hidden loans, and a person’s spending history. This information can be useful in the investigative process because it leads to the underlying source documents, such as the bank account statements, the credit card statements, mortgage and property records, business holdings, and other valuable evidence.

Tracey Coenen, CPA, CFF is a forensic accountant who specializes in working on divorce and family law cases, in addition to fraud and other financial investigations. Her website has a great deal of information about these cases, including some “red flags” that may indicate a spouse is concealing assets or has other financial accounts they have not revealed. Coenen separates red flags into three different categories: behavioral, documentation, and personal financial. In each category, there are different indicators that seek out financial fraud. For example, a spouses excessive control in handling the couples finances, a spouses refusal of providing financial documents, and high quantity of cash transactions. These indicators or “red flags” are important to know and identify because they often lead an investigator to fraudulent activity.

Coenen’s website also has blog entries about how tax returns are useful evidence and can show a couples sources of income, yearly earnings, and assists during divorce procedures. She also explains that bank account statements are crucial evidence and their analysis is often the way that cases are resolved before trial. If a partner is potentially committing fraud, bank statements during an investigation create a “financial picture.” Bank and credit card statements can reveal a persons spending habits, sources of income, and if there are any hidden assets and incomes in the marriage. Overall, bank statements are useful in finding financially relevant information and statements are supporting documentation in fraud cases.

Case in Point

A recent Michigan case illustrates some of the contentious financial issues that could surface during a divorce. A woman filed for divorce, then six months later discovered her husband was transferring large sums of money out of their personal and business accounts. She sought a restraining order to halt the fraud. The couple owned multiple businesses, some in the U.S. and some overseas; some businesses were run together and some separately by the couple. During this investigation, both parties’ accounts were frozen Evidence was found that the the husband emailed the wife’s bank, requesting an audit on the account because he believed there was fraudulent activity. As the husband was not on the account and inquired about information after the court’s order, the court found him in contempt and served him jail time for violating the restraining order. The Court of Appeals ultimately sided with the trial court, starting that there was ample evidence to support the husband’s role in evading the restraining order and upheld the findings of the trial court.

When analyzing evidence in the mentioned case, there are many correlatives found between the investigation process and the evidence presented. The husband and wife accused each other of conducting fraudulent behaviors and there was enough evidence to prove capability because each of them was self-employed, managing their own business, and keeping separate banking accounts. In other words, both the wife and husband had motive, opportunity, and rationalization for committing fraud against one another. The financial evidence was critical to the investigation of the fraud.

About the Author

Kayla Delpo, from Columbia Maryland, graduated from Stevenson University in May 2016, with a Bachelor’s of Science in Psychology and minored in Art and Criminal Justice. Currently, Kayla is completing her Master of Science in Forensic Studies, Investigation track. Kayla was recently accepted at Pace University in New York to purse her Juris Doctorate and plans on pursing Child Advocacy and Family Law.

Editor’s Note: This blog is adapted from a paper written in FSINV605 Physical & Documentary Evidence.

Forensics, Law, & Criminal Justice