What Judges Want to Hear from Forensic Accountants (and the lawyers who call on them) in Family Court Proceedings by Judge David Young
What Judges Want to Hear from Forensic Accountants (and the lawyers who call on them) in Family Court Proceedings
by Judge David Young
Forensic Accountants serve an important function in many family law cases. This is true whether the case involves a divorce, equitable distribution of assets and liabilities, the award of alimony, the award of child support, or the award of fees and costs. While not all parties can afford the services of an accountant, it is quite helpful to the court when they can.
For example, all parties are mandated to file financial affidavits detailing income and expenses, assets and liabilities. In my experience, many of these affidavits (even the ones using the so-called short form) are simply too complicated for lay people to fill out accurately. Yet in 80% of the cases we see, the parties do not even have lawyers, much less accountants. For those fortunate few, however, accountants can be extremely helpful to make sure the parties’ affidavits are accurate. Financial affidavits prepared by forensic accountants often contain items litigants overlook – such as in-kind payments, business income, dividend distributions disguised as loan advances, foreign sources of income, accurate federal income tax liabilities, and expenses based on an accurate lifestyle analysis. When all of these items are included, you get a much more accurate financial picture.
Florida law also requires the court to value assets and liabilities and determine whether they are marital. Forensic Accountants can help the court place a value on businesses or other possessions tied to specific dates. Forensic accountants typically have special business valuation accreditation and they also have the training to analyze and value complex assets such as stock options, restricted stock, and other intangible assets.
One of the issues frequently litigated in court is the correct amount of a party’s income. Particularly if the party is not a W-2 wage earner, determining their income accurately can become quite complicated. Yet income, which can come in many forms, is the basis for so many decisions in family court cases. Forensic accountants have special training to calculate all types of income and find unreported or hidden income.
When I am asked to award alimony, Florida Statute 61.08 lists ten factors I must consider to determine one party’s need and the other party’s ability to pay. But there is no formula in any statute, or in any case, to calculate exact amounts. Forensic accountants can be quite helpful here when they provide options for the judge to consider. A chart showing the effect of various amounts of alimony on each spouse’s monthly income helps me decide on a reasonable figure.
We see why an accountant is needed. But how can they be most helpful? First, by ensuring their clients’ affidavits are accurate. Financial affidavits are signed under oath. A party can lose credibility about their entire case if they exaggerate their expenses or under-report their income. The best financial affidavits, moreover, contain multiple columns with several options. For example, if a party has not yet found a permanent home after separation, the expenses reported may not accurately reflect that party’s needs. So, an affidavit with two columns, one detailing current expenses and a second detailing what the projected expenses will be after the party obtains stable housing, is quite helpful to the court.
Next, forensic accountants should assist the court by explaining in the simplest terms possible how they calculated someone’s income. Here’s a simple example: for a small business, owners often pay personal expenses out of a business account. These sums might not be reflected as personal income on tax returns, but perhaps they should be used to calculate someone’s true income. Yet if an accountant speaks only of “chargebacks,” without explaining in lay terms exactly what they are, and why they should be treated as income, the point may be lost.
Everyone should understand that accounting is not a required course in law school. And many judges take the bench without having a background in finance or commercial law. It is unfortunately common for accountants to use industry jargon (or even worse, initials) which may be unfamiliar to judges. Judges are by and large quite sophisticated. But only if you speak a language they understand. Forensic Accountants should explain their work in plain English. Before you testify, I suggest you explain every point you want to make to someone with no legal or accounting experience. If they can understand you, then you probably are able to explain it clearly to a judge.
It is essential for a forensic accountant to prepare summaries, charts, and graphs. Accounting issues often rely on thousands of bits of data: deposits and withdraws from bank account statements, charges on credit cards, invoices, receipts, tax returns, income and expense reports, cash flow analyses, profit and loss statements, and other documents. It is not uncommon for the court to have binders with thousands of numbers inside. While the actual documents are important for lawyers to place in evidence, they can be overwhelming for a judge to sift through. Back when we had in-person hearings, I really appreciated when a forensic accountant prepared a binder with copies of documents and a summary up front about a specific issue. The answer I was looking for was almost always in those binders. If a hearing is conducted remotely, the documents can be filed as proposed exhibits, but the summary should still be prepared for the judge. Judges really want to get the right answer, but don’t make them dig for it. Paint the financial picture for the judge. Make it easy for them to follow your point. Better yet, make it easy for them to agree with your point.
Accounting issues can be quite fascinating in family cases. But the way they are presented can become quite dull if all you display are black numbers on a white page. Charts, graphs, colors, tabs, and indexes are all things you should consider using to distinguish your presentation. And my personal favorite is a timeline. Judges and lawyers are schooled in logic. One of the best tools to build a logical argument is to grow it chronologically. A timeline of important events is often quite helpful to drive home a point.
And I cannot oversell the value of graphics. People absorb information in many different ways, often at the same time. Judges are used to hearing testimony and arguments. We take in information through auditory stimuli all the time. But if you want your presentation to stand out, also use a visual format. This is particularly true for forensic accounting issues, which lend themselves quite well to charts and graphs. Enhance your testimony with graphics to highlight your point. Of course, you cannot throw this together at the last minute. You must prepare well in advance to make sure the graphic clearly supports the conclusion you wish the judge to draw.
But always remember to keep it simple, stupid. No disrespect to anyone intended, but your audience is not your client, or even the lawyer who engaged you. Your audience is the judge. Don’t act like a professor, talking down to a student. Instead, explain a complex set of facts to the judge in an organized, common sense way. Win them over, and you have done what your clients hired you to do.