Academic journal article Journal of Accountancy

Starting Over: CPAs Can Use Well-Honed Skills to Help Divorcing Individuals Begin a New Chapter on Sound Financial Terms

Academic journal article Journal of Accountancy

Starting Over: CPAs Can Use Well-Honed Skills to Help Divorcing Individuals Begin a New Chapter on Sound Financial Terms

Article excerpt

EXECUTIVE SUMMARY

* CPAs' SPECIALIZED SKILLS put them in a unique position to help divorcing individuals and their attorneys organize financial issues related to property settlements and support awards. Some practitioners are developing a domestic-relations-consulting niche,

* CPAs ANALYZE FINANCIAL DATA according to a range of statutes, regulations, rulings and case law. Local matrimonial statutes and case law are in general less complicated than many regulations practitioners interpret daily.

* IN DIVORCE WORK, CPAs DELVE into a couple's financial records to determine the worth of their domestic and business assets, jointly and individually; whether assets are encumbered; who earns how much; who spends what; and what tax liabilities are incurred under one asset distribution scenario vs. another.

* CPA/ABVs VALUE DIVORCING COUPLES' business interests, and such expertise can be used to assess other financial assets such as notes, mortgages and retirement plans. Divorce case law and local statutes may require specific methods. CPAs can help structure the payout to provide the greatest tax advantage.

* SOMETIMES DIVORCING PARTIES, through error or deception, do not accurately disclose assets in the discovery process. CPAs can use forensic skills to find them.

* A CPA CONSULTING IN A DIVORCE CASE will address tax issues such as the taxability of support, the basis of property to be divided, the impact of the allocation of the dependency exemptions and the timing of the divorce or separation. Knowledge of the divorce provisions in the Internal Revenue Code and how to apply them can help clients find liquidity.

When marriages hit the skids--and in the United States almost 50% of them do--divorcing individuals must position themselves for a radically different future than they envisioned when they vowed to "love and honor." Under tremendous stress, often while angry and grieving for the past, they will make financial decisions affecting the rest of their and their children's lives. Because such emotions tend to crowd out rational self-interest, these folks can benefit from a steadying hand, which CPAs' specialized tax, audit, valuation and forensic skills put them in a unique position to provide. Advising this growing segment of the population and their attorneys about the money issues of ending a marriage is the basis of domestic relations consulting. Here's how what practitioners know can help people undergoing a divorce to organize the in Formation courts use in determining support awards and dividing a marital estate.

QUALIFICATIONS WITH A CAVEAT

In simple terms, dividing a divorcing couple's property involves identifying, valuing and apportioning assets, and CPA tax and audit expertise is a natural foundation for discovering the most relevant information to complete that process. Practitioners routinely determine owners' equity and cash flow, income and the value of any noncash benefits, according to a range of statutes, regulations, rulings and case law. CPAs can't practice law, but they do apply it when analyzing financial data. Local matrimonial statutes and case law are, in general, less difficult to understand than many regulations practitioners interpret daily.

In divorce work, CPAs compile data to determine

* What a couple's personal assets are worth, both jointly and individually.

* What their business holdings are worth, both jointly and individually.

* Whether assets are encumbered (by debt or legal restrictions, for instance).

* Who earns how much.

* Who spends what.

* What tax liabilities are incurred under one asset distribution scenario vs. another.

"Those financial research and interpretive skills are exactly what divorce attorneys and their clients need," says William B. Stewart Jr., CPA/CVA, CFE, of Houston. "Our work in domestic relations is a microcosm of everything we do as CPAs," he says. …

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