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A board-certified family law attorney, Jaime Davis and her guests provide information and tips for getting through a separation and divorce without destroying family relationships or finances. From marriage therapists and financial planners to private investigators and parenting coordinators, learn how to navigate divorce without destruction.
JAMIE: You.
ROBERT: Welcome to a year in a day. I'm Jamie
Davis, board certified family law attorney at
Gaylor Hunt. On this show, I talk with lawyers,
psychologists, and other experts with the goal
of helping you navigate divorce without destruction.
In this episode, I'm talking with forensic accountant
Robert Nordlander. In addition to providing services
for white collar crime investigations, bankruptcy
proceedings, and employment tax disputes, nordlander
CPA Plc ensures that clients achieve the best financial outcomes in divorce proceedings. So today we're
talking about how income and assets are accounted
for, mitigating unpaid tax liabilities, and when
you might need to hire a forensic accountant for
your divorce. Thanks for joining me, Robert.
JAMIE: Thank you. It's a pleasure to be here.
ROBERT: So what is a forensic accountant?
JAMIE: A forensic accountant is an individual
who looks at financial records and financial statements
and is available to testify about them in court. And that's really what it is. Forensic
really means court. So you think about when you
go to a crime scene, you get the blood, you got
the gun, you got the bullets and everything else.
There's a forensic analysis that goes on and talks
about the report, whose blood it was, and they
can testify to that in court because they're qualified to testify about that. It's
the same thing with accounting and financial statements
and accounting records is that there's a professional
that the judge allows. The judge is the gatekeeper
to testify to certain aspects of the accounting
records, and usually it's to help the judge and
to help the jury understand what's going on.
ROBERT: How are your skills different from a typical
CPA?
JAMIE: Well, I would like to say that the CPA,
for the most part, is an individual who can audit
tax returns and understand financial statements.
And there is a certain skill set to that. But
there's also a little niche that if you understand
how to prepare documents for the average person
to understand, like a jury or a judge or an attorney
or maybe a defendant or your client, you should
be able to talk about where the money come from,
where the money go to. It's more of a granular
level type of accounting where we talk about particular
transactions in detail. CPAs are usually our auditors
in many ways, there are auditors, and they will go in and look at the
big picture of a financial statement and give
an opinion about whether or not this financial
statement is correct or not. So people can invest
in the company or lend out money to the company
with some reliance on the financial statements that they are correct? Right. A
financial accountant does not do that. They go
into the granular level. How does this person steal money and what do
they do with it? That type of thing.
ROBERT: Got you. So let's talk a little bit about
how this might apply to a divorce case. How can
a forensic accountant be helpful in a family law
case?
JAMIE: There are really two ways. Number one is
the way that if you look at the typical divorce
is going to be when a spouse one spouse is hiding
money from the other and they go through a divorce
proceedings. Typically it's the male earning the
money and the female is maybe the housewife or
did not earn as much money, that type of thing.
And in many cases it is the husband that's self employed. And so there
is a dispute about how much money one spouse makes
because they're supposed to in court show all
the income and assets and liabilities, what's this marriage have and the income
that each spouse has to figure out the alimony
and the child support. And a forensic accountant
would come in and take a look at that and say,
yes, this financial statement appears to be correct
or not correct. And many times it is the female
in the relationship that will hire a forensic
accountant because they believe that their husband
is not turning over all the records that are supposed
to do so. And so if there's smoke, there's probably
fire. And so when that happens, I would get involved
and look at the financial statements and look
at the records and look at the bank statements
and kind of get an idea to the attorney that's
representing the spouse. This is what I see. This
is where you may want to go down the road. There's
maybe something there or not there. And at the
end of the day, the second thing is that once
that conversation is had, then does that forensic
accountant, is he or she needed to testify in
court about the findings for the lawyer? But almost
always a forensic accountant is hired by an attorney
to assist them and through this process.
ROBERT: So are there certain red flags that a
person should look for if they think their spouse
might be hiding money?
JAMIE: Yes, there is. One of them is a cash lifestyle
where one spouse always has cash, but yet the
other spouse doesn't have any because of the control
issue is what it is. Unusual spending would be
another one, for example. And this quite happens
quite often. I'll look through some financial
documents and I'll ask, hey, this jewelry store
for $3,000, what was that for? What? Jewelry store
purchase.
ROBERT: Right. The wife didn't get the gift, right?
JAMIE: Yeah, she didn't get the gift. Yeah. And
they're like, oh, okay. So there's probably another
person in this picture that has received some
of the marital benefits or assets that the wife
did not get. So that's another thing. It's unusual
expenditures type of thing.
ROBERT: Okay.
JAMIE: But cash lifestyle and unusual expenditures,
usually those are the two main ones that I see
in a divorce proceedings.
ROBERT: So other than finding hidden money or
assets, are there other ways that a forensic accountant
can be helpful in a divorce case?
JAMIE: There is many forensic accountants. Some
of them have the skill set of taxes and as well
as trying to figure out, okay, if you're going
to split the assets, what is the best way to split
it to where it's equitable tax wise? Because not all assets have the
same equity. When it comes to taxes, for example,
the equity in a house is tax free, but the equity
in an IRA, what's in the IRA would not be. So
if you start splitting up the house, I get the house and he gets the IRA. Well, when it comes to taxes,
that IRA is not really $100,000. By the time you
pay tax on it, it's probably $70,000. But this
house equity, $100,000, equals $100,000. So you
have to make some type of considerations that
if one spouse gets one asset versus the other,
are you taking the taxes into consideration? That's
really the biggest thing that I see, is to make
sure that both parties are getting a fair shake,
right.
ROBERT: Just making sure it's apples to apples
and that it truly is an equitable distribution.
JAMIE: Correct. Another thing is that there's
times where a forensic accountant can look at
some assets and also help out finding the income that is not necessarily on
a financial statement or on a bank statement.
I'll give you an example. A CPA and attorney should
be able to get access to some tax records because the IRS is a huge vacuum of information.
And if you can get access to tax records that
maybe show you where the hidden bank accounts
are at, or maybe there's an extra house out there
or some type of mortgage interest or some other
activity out there that was not known at the time,
that somehow is hidden from the marital bank statements.
ROBERT: So an issue that I've seen in my cases,
and it sounds like a forensic accountant might
be helpful here, too, is that if you have a small
business owner and let's say my client is not
the business owner, and she really can't get a
handle on her expenses because a lot of the expenses
are being paid through the business, Some of the
personal expenses. Is that something a forensic
accountant can help with as well?
JAMIE: Yeah, they can separate out what is truly
a personal expense versus a business expense,
because you're right, and many times these small
business operators will. I'll give you a small example. The cell phones, the family cell phone is always
paid by the company. They shouldn't be doing it,
but they do it. But yet when it comes to the cell
phone bill, when it starts separating the assets
and income, the expenses, we got to start splitting some of that stuff out, saying,
yes, this is really what the true cost is. Or
maybe example, the business is paying for the
child education, right. But it's not going through
the marital checking account per se. And then
you have to start splitting some of that stuff
up. So like you said before, it's trying to find
apples and apples and oranges and oranges to compare
it to make sure that when there is a split, that
all the information is known and everything has
been split properly.
ROBERT: So through asset and income tracing you
can find hidden assets or income. How does that
process work?
JAMIE: Well, the first thing you have to do is
number one, from a practical standpoint, what
we do is what do you have now at your disposal,
which is the bank statements and typically the
credit cards. What cars do you have, what houses
do you have? A lot of these known things. And what we'll do is it's, for instance, accountant. We'll look through
that and then we'll start pulling threads about,
okay, money went over here. That doesn't look
normal, let's go down that road. Maybe there's
another bank account. And I've seen this plenty
of times where I get the documents and I look
at it going, okay, there's some money that transferred
to a savings account. Really? Yes, there's a money
transfer. So we got to go down that road to get that savings account information to
find out what's going on. That's really the big
thing. Or if there is a car, but I don't see any
car payments coming out of that checking account.
How is the car payments being made? So you go back and say, okay, how do we figure that out? And in
many times it can be a slow process because as
a forensic accountant, I do not have access to
records. I can only look at what I receive and
it either has to come from one of the spouses
or the attorney has to go back to court and demand
more records for me to look at. And it's really
just pulling the various threads and getting a
big picture. It's sort of like you do a puzzle,
you get the edges first, right? You start separating out colors and things of that nature and kind of put
the pieces of the puzzle together. It's kind of
the same way where you start looking at various
things that just don't fit or things that fit
in a certain category. Like, okay, we'll look
at that and we'll go down that road sooner later
on.
ROBERT: So it sounds like as long as there is
a paper trail and folks are using accounts that
have statements, there is a way to trace and follow
the money. But cash is probably a lot harder.
I mean, how do you deal with it if there are just
a lot of cash transactions? Is it really possible
to track that stuff down?
JAMIE: It is very difficult, to be honest with
you. If one spouse is taking money out of the
ATM machine and going out to the strip club, there's
no way to know about this stuff type of stuff.
Only the large purchases of cash like buying a
car or buying maybe expensive piece of jewelry
or buying a motorcycle or buying a boat. Can you
really know where the money went to? There are
occasions where cash has been taken out, and then
later on you find there's a safety deposit box
somewhere, and then the cash is stored there.
But most of the time, people who take out cash
out of a checking account are spending it somehow,
some way, going out to eat, buying stuff, maybe
taking a trip somewhere, and it's really gone.
It's not invested somewhere to where you can say,
oh, he bought this or she bought that, and now
we can sell it. There's probably nothing sellable
to actually get back.
ROBERT: So more likely than not, it's just gone.
JAMIE: It's gone. Right. And I'll give an example.
If someone is in the construction business, they
take out cash out of the bank account every now
and then. As a forensic accountant, I would say,
okay, who are you paying, the contractor or what
are you buying the stuff from? And he'll say,
oh, I bought some wood at the local Lowe's. There's
no way that I would know if that's true or not.
It's just not. That's just the way it works. Cash
is in many ways, it's untraceable, and it can
be difficult.
ROBERT: Yeah, I have to have that tough talk with
my clients sometime when they tell me that their
husband has a mainly cash business and they want
to be able to try to track that down. And I'm
like, well, if there's not a document to prove
it, I don't know that we're going to be able to
do that.
JAMIE: Well, that is true, but on the revenue
side of things, let's just talk about the revenue
side of things. If you have a small business owner,
like a bar or a restaurant, right. There should
be some type of receipts that give you a general
idea of the volume of dollars that are coming
into the business even though it's not deposited.
Okay. Now, the expenses for a restaurant, there
may be a few things here and there, but for the
most part, we are coming away from a cash society
and into the debit card world to where I have
cash in my pocket, but not as much as I did five years ago. It's a lot easier to just tap
that machine and be done with it, which makes
my life as a prince account a lot easier. It really
does.
ROBERT: So many things large and small, as you
know, are contested when spouses begin dividing
up their property. How do you differentiate between
marital and nonmarital assets?
JAMIE: Well, for the most part, attorneys would
probably say, and I'm not a lawyer. You're the
lawyer. I'm not the lawyer that whatever the marriage
received or earned or the assets that were purchased
during the marriage is the marriage assets, whether
it's in his name or her name. Let's just face
it, it's all one big pot. What I have seen is
there are times where and then we consider that
marital property. What I have seen would consider non marital property is property
that was brought into the marriage beforehand.
Like, maybe you had a small business that you
own, or maybe you had a car or a house or a vacation
house and that type of thing before you got into
the marriage. I think the courts, and I'm not
a lawyer, would say that'd be non marital property,
which means that was there before the marriage
happened. So therefore there's going to be some
type of consideration that it was there beforehand. So it's not really part of
the split.
ROBERT: Yeah. We run into issues a lot where someone
has come into the marriage with a certain amount
of money, and they make the mistake of putting
it in a jointly titled bank account, and money
is going in and out of the bank account. And then
as the lawyer, we need to figure out, okay, is
any of this premarital separate money left in
this account, or is it now all marital because
of all the ins and outs and the transactions that
have occurred?
JAMIE: Do you use the first in, first out method
on that? $1,000 is marital, but anything after
that, so whatever's blast is maybe still the guy's
money from 20 years ago.
ROBERT: It depends on the case. I've heard it
both ways. Sometimes we use first in, first out.
Sometimes we use last in, first out. I really
don't know that there is a general consensus on
which one is right per se.
JAMIE: That's the reason why you make the big
bucks and the lawyers make and the judges make
the big bucks determination. Because every lawyer
says, well, it depends, right? That's the answer.
It depends.
ROBERT: It's all gray.
JAMIE: Yeah.
ROBERT: Well, after you have provided your findings
to an attorney in a divorce case, what happens
next?
JAMIE: In my situations that I've experienced, once I look at the documents,
I can give the attorney who really, frankly, is my client, even though their client pays the bill, I give
them my assessment and where they may need to
look further, because many times I don't get everything.
It's just part of the job. I understand. People
say, oh, you got everything. No, I look through
it. I'm missing half of it because months may
be missing, the counts may be missing. So I have
to go back and forth, back and forth, back and
forth. And then after a while, you get a pretty
good idea of the picture, and I give an opinion
about the attorney. Listen, this is what I'm seeing.
It's reasonable or not reasonable, or there could
be some something down the road down here. Is
this where you want to go? And they'll talk to
the client to figure out it's kind of like choosing
on a venture whether or not they want to spend
more money to go down that road. That may lead
to the pot of gold at the end of the rainbow,
or it could be a dead end. I don't know the answer
to that. And it's just a matter of risk mitigation.
What do you want to do? I've had a situation where
there was millions of dollars involved, and there
was money was just missing, and it was going overseas.
Well, finding money overseas is just difficult,
especially if you're a lawyer in a state court
system, and now you got money over in Swiss banks.
Well, there may be some money out there. How are
we going to get this thing done? And so do we
need to bring in even more professionals who are
specializing in international marital assets?
So that type of thing is what I would recommend
to them. And at the end of the day, if I have
enough evidence to prove that one spouse is not
being fully honest, then most of the time it settles
out of court. But if it needs to happen, then
I can testify in court about what I found and
that the judge can make the determination, then
I'm glad you.
ROBERT: Brought up the offshore accounts. I have
clients often tell me that they think that their
spouse has an account, an offshore account somewhere.
If they suspect that, as the lawyer, what should
I do?
JAMIE: Well, first of all, I'd ask, why do you
think that is, and where is the source of that?
Where do you think the money came from? Did it
come from his business operations? Did it come
from his employment? Did it come from old family
money? Where do you think? In many cases, there
is some type of offshore account. There is some
type of wire. There's something out there that
goes from point A to point B that at least we
can point to and say, okay, that's where you think
the most money is. I would ask the client, do
you have any assets offshore? Do you have any
family that's overseas? Why would he be doing
this? And we would kind of dig down a little bit
to figure out, is there really money out there?
In some cases, you got these multimillionaire
billionaire cases. Yeah, there's probably money out there. And then you'll have to bring in
some type of professional to get international assets. There's a whole new
podcast on that one. But the point being is that
you got to find out if there's any reasonableness
other than just a hunch. Got you. I've seen it
once or twice. He's got money overseas. When I
look at the account, he transferred $5,000 to his mama out in Pakistan. All right. Do you really think
that you want to spend more money trying to chase
down this $5,000 that really, frankly, you get
half, right? So it's $2,500. I don't think it's
worth your while. Sometimes you'd have to cut
your losses and just go on in life. That's just
the way it is sometime in law.
ROBERT: Yeah, that's a great point. And you mentioned
doing the cost benefit of hiring a forensic accountant
to assist with your case. What is the typical
cost for a forensic accountant?
JAMIE: My rates are $300 an hour. It depends on
the level of complexity, and it depends on what you're really looking for. For the most
part, when I'm hired, it's really a peace of mind
for the spouse to think, I think he's got money
out there. And I'll tell him, Listen, I don't
know the answer yes or no. All I can do is look
at the documents. But if you give me 10 hours,
$3,000 10 hours, I will look at what you got,
and I'll tell you what my assessment is, and then
you can decide whether or not you want to go further
down the road. But I'm not going to sell you something
on things that's not true. So I can get it. With
my experience, I can look for 10 hours, look at
someone's documents, and say whether or not there's
something out there, if it's reasonable or unreasonable,
and then get some good guidance, and then they
can determine whether or not they want to go down
this road and hire me to go down further. But
for a couple of $1,000, in my mind, it gives them
peace of mind, because now they know, all right,
I had a forensic expert look at it. They don't
see anything. I'm going to go forward in life
versus spending six months of agony going, I know
he's got money out there. I know he's got money
out you know how it is. People lose sleep over
this stuff and they'll spend themselves in circles. And I was like, Melissa, for $3,000, at the
end of the day, you can have an answer and rest at night knowing that you
did the best you could, and this is where it's at versus worrying about it and threatening over
it.
ROBERT: That's a great point. If you could only
share one piece of advice with someone going through
a divorce, what would it be.
JAMIE: Going through? Divorce can be very contentious.
The biggest thing that I see is hire an attorney
that understand your situation. Also understand
that there is a value to a good attorney and a
good prince accountant, because, listen, if you're
splitting $20,000 worth of assets, it's not really
worth the hassle of trying to split this stuff
up. But let's assume that there's a split and
there's a half a million dollars at play or a million dollars at play. Well, the
way I look at it, I tell them, listen, my clients,
I tell them, listen, at the end of the day, you're
going to be worth, let's say, a million dollars.
Would you rather be worth $980,000 and really know you had a full, complete picture of everything than
just take the million? And sometimes they take
the million, sometimes like, no, you know what?
There may be other millions out there. I'll spend
the extra $20,000 to figure this thing out, but
just realize that there's a cost benefit to all
this. And if someone is going through divorce,
I hate it for them. But the biggest thing I can
tell them is to go hire a good attorney, go hire
a good friends accountant who has some tax background
in my opinion, because they can actually help
because many times in these divorces, maybe go
a little bit off tangent here. Many times in divorces
there is financial problems, which is one of the
problems of divorce, right? It's financial problems.
And if there is a financial problem going on, there's probably some tax problems. And if there's some tax problems going
on, the IRS is going to step in and say, both
of you owe taxes, not just one or the other, even though one earned
the money and earned the taxes, but yet the other
one's now liable for it, which causes a lot of
pain because the IRS doesn't care what your divorce
agreement is. They want their pound of flesh and
they're going to go after both parties and so
making sure that that party that you're representing
doesn't come back six months later and get bitten
in the rear end because we didn't look at all
sides of divorce to make sure this client's okay, whether it's finally split up.
ROBERT: So that is a question I get a lot. Is
there any recourse if you're the spouse who didn't
run the business, didn't really have any knowledge
about what was going on with the taxes, is there
anything that person can do?
JAMIE: Yes there is in my opinion, hired professional to do it. If we're talking
about $5,000, I wouldn't worry too much about
it. It's not going to be worth a while. But if
you're talking 5100 thousand dollars bills, it's going to be worth the while. And CPAs or enrolled agents
or attorneys who are qualified in this can help
out the rules by the IRS. This is kind of interesting.
What makes the IRS so dangerous is because congress
creates the law. And then congress says, all right,
IRS, you have the authority to enforce the tax law, collect the taxes, and, by the way, you
can make your own rules up while you do it, which
causes a headache, because if they screw up, well,
we got to deal with it, because they can make
their own rules. So you have to figure out what
the rules they abide by. But they can change it.
They want to change it, but it's caveat. Whatever
it's necessary to do the job, we can do it. Okay,
fine. And so there are some rules out there called
the innocent spouse or injured spouse that can
assist in this situation to where you have to
articulate once again, it's not a set formula,
but you have to persuade the IRS that you are
truly innocent. You didn't know what's going on.
It wasn't household help. It wasn't your business.
Maybe there's some type of abuse, physical abuse
that you add to really a three ring binder to
prove that you really were a victim in all this
and kind of persuade the IRS to let the debt go
by. Now, what happens in that situation is that
the other spouse is going to be notified that
you are doing this because what you're doing is
you're taking one bill instead of splitting among
two parties. Now you're taking the one bill and
claim it's only one person's fault. Well, that
one person also has a right to come in and say,
no, it's a joint liability. So just realize that
there is a lot of persuasion, a lot of back and forth. Now, there is some secrecy where
if there's an injured spouse or an innocent spouse and there's some abuse,
they're not going to turn over the names and addresses
of the injured spouse, of course, but there's
going to be a conversation a professional will
have to articulate why this debt should not be
paid by this one spouse. So there is remedies
out there.
ROBERT: In your experience, how often are people
successful pursuing innocent or injured spouse
relief?
JAMIE: Not very good. And the reason why I say
that is because you can't just put your head in the sand and say, oh, I'm an innocent spouse. I'll give an
example. Let's assume your spouse makes $200,000 a year on their package, right? And the wife it's
typical. The wife is to stay at home, takes care
of the kids, may have a small job here and there,
but she knows that that tax return says she signed.
The tax return says 50. Well, the IRS is going
to step in going, there is no way you're living
in this house with this car, with this lifestyle
and making 50. It's not reasonable for you to
be this way. You got to know something. Then the
burden of proof is back on us as professionals
to sit there and say, well, she was forced to
sign it because of Duress or whatever else it
is, but is it reasonable for someone to live that
lifestyle and not know about the income? That's
really what it comes down to. And so that's another
thing too. And you also have to prove that you
signed the tax return, or maybe the tax return was falsified. That's not my signature. Well, then
as a professional, I have to sit there and say, listen, this is how her signature looks like. This is not
her signature. Blah, blah, blah, blah, blah, blah,
blah. We kind of paint the whole picture. It's
not really just one or two things. It's really
the big picture that they'll look into. But a
lot of times I hate to say this, but spouses put
their head in the sand. Isn't that a fight? I
want to fight today. I'll sign it. And they go
on and they do it for many years and then. The
IRS steps in and says, oh, you owe us a lot of
money. And the spouse says, well, it's not really
my money. Yeah, but you knew, or you had to know.
A reasonable person had to know. We have to go
back to the education. Or you have a fifth grade
education, don't speak English, or you have a doctor's degree in accounting. You have a doctor's degree in accounting.
Forget it. But if you're fifth grade mail order bride, right, you probably have
more of a leg to stand on. So they'll look at
the education level as well of the individual.
ROBERT: So really it sounds like it's just a totality
of the circumstances and whether or not it's reasonable
that you didn't know.
JAMIE: Correct. But they don't just take a look at one or two things and look at the big picture.
ROBERT: Got you. Well, Robert, if one of our listeners
is looking for help from you and their divorce,
what's the best way to get in touch with you?
JAMIE: I have a website, it's called Nordlanderscpa.com
that they can go to. I will let them know that
if they are going through a divorce, their first
conversation should be with their attorney, and
then the attorney then have a conversation with
me afterwards with their attorney. I do not have
attorney client privilege when someone talks to
me, but if I'm hired by the attorney, I would
have attorney client privilege. So anything that's
said, anything that's discovered that may be against
that spouse, at least we are covered to where
they don't say something to me that ultimately
I end up being a witness to. So the best thing
to do is they can go to Northlanderscpa.com, find
out information about me. My address and phone
number and emails are on that website. But the first conversation need to have is with attorney first
and request a forensic accountant. And then if
they want to talk to me, we can talk. But typically
I'm hired by the attorney because of that privilege.
ROBERT: Well, thank you, Robert, for joining me.
This has been great.
JAMIE: Well, thank you, Jamie. I appreciate it.
It's good being with you.
ROBERT: Thanks, Robert, for joining us, and thank
you for listening. If you like this episode, be
sure to follow the show wherever you get your
podcast so you don't miss the next one. While
the information presented is intended to provide
you with general information to navigate divorce
without destruction, this podcast is not legal
advice. This information is specific to the law
in North Carolina. If you have any questions before taking action, consult an attorney who is licensed in your stateroom.