Divorce and the Role of the Accountant
Author:
Naomi McGloin
Increasingly, practitioners find themselves asked for advice when clients separate or divorce. Brian Hyland and Naomi McGloin outline the problematic areas.
Since divorce was legalised in 1997 the number of people being granted divorces or judicial separations has continually risen. Between 2000 and 2006, over 21,000 divorces plus a further 7,600 judicial separations were granted. The national census shows that 107,263 people classified themselves as separated in Ireland in 2006. Limited court resources combined with an ever-increasing volume of proceedings means that many cases take several years to finalise. This can place enormous stress and pressure on all parties involved.
Given the vast increase in wealth in Irish society in recent times, family law matters have become increasingly complex, often encompassing wideranging issues including trusts, taxation issues and business valuations. The family law court has extensive and discretionary authority when dealing with all matters pertaining to the net assets of a couple, including those owned outside the state or those held through trusts.
In fact, one judge presiding over a recent case has noted that in the settlement of family affairs in order to make full and proper provision the court can order the sale or restructure of a company against the wishes of the owner.
The financial issues typically encountered in a family breakdown situation include:
- Non disclosure of assets / income by one party
- Reluctance / refusal by one party to provide information as required by the Courts Practice and Procedure.
- Variations in valuations of business interests / companies
- Lifestyle not matching reported income
- Unreasonable salary levels
- Unreported cash transactions
- Excessive queries issued on behalf of one party
Increasingly one of the most contentious areas in separation proceedings is the valuation of businesses held by either party. Given the subjectivity of valuations, it is not uncommon for one side to produce a significantly higher valuation than the other side. I have come across many situations where a business has been owned by both parties prior to the separation and the auditor has become embroiled in the conflict by attempting to assist one or other of the parties.
In addition to the financial complexity, a primary reason for prolonged and costly court proceedings is the lack of cooperation between both parties. The more acrimonious the break-up, the more likely it is that clients become uncooperative refusing to provide required information or to disclose assets to the other side. The courts have clearly set out the information both sides are entitled to discover and the courts will grant motions for discovery against any party not in compliance. This can escalate acrimony and rarely benefits theparty withholding the information.
A forensic accountant can play a useful role working with the client to calculate the net assets of both parties after the deduction of applicable taxes. The financial report includes all properties, mortgages/loans, businesses/companies, bank accounts, investments, pensions, life assurance and income/expenditure. This report provides both parties with
independent assurance of how much is available for division between them, which helps reduce the time needed in court (and the associated costs) as well as facilitating settlement negotiations.
During the settlement negotiations it is important that clients understand the long-term implications of the agreement reached. The courts are making it more and more difficult for people to return for a ‘second bite of the cherry’ so it is vital that both parties are aware of the consequences of any agreement.
Many clients find themselves in an unfamiliar situation after a separation. Typically, they will find themselves in a position of greatly diminished assets and income. Where once there was one mortgage and one set of bills, now there are two. During the separation proceedings, it is important that clients understand the level of income they will need to live on and the level of maintenance payments they can afford to pay or need to receive in order to be adequately and appropriately provided for in the future.
Naomi McGloin is a Forensic Consultant and Brian Hyland is Consulting Partner with Baker Tilly Ryan Glennon. Email: NMcGloin@Bakertillyrg.ie or BHyland@Bakertillyrg.ie
Recent Comments:
At
1/26/2009 11:51:37 AM
M Farrell
said:
My x is a garda and has the advantage of being familiar with court proceedings.Our divorce is looming but I do not trust the system. He is the type who takes them to rugby for a few hours on a sat and delivers the dirty clothes with the kidsHe pays 53 euro p/c and got away with that so I dread the next/final phase.
Marie