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Forensic Accounting

When parties are trying to resolve their finances upon divorce (or at the end of a Civil Partnership) they will be required to make disclosure of their individual financial circumstances and to share that information with the other party.  The aim is for both parties to approach disclosure in an honest and transparent way so that productive negotiations can take place, either via mediation or solicitors, but sometime with the assistance of the court.

When disclosure is made, evidence will be required to support the information given, including any suggested asset valuations and sources of income, reasons for expenditure, etc.  A solicitor will spend time reviewing this information and will look for any potential issues over and above anything identified by the client. Sometimes expert assistance is required, particularly where substantial business interests exist. In those cases, it may be necessary to instruct an accountant to not only value the business but also identify options available to the parties to deal with that particular asset as part of the financial settlement.  In most cases a single expert will be appointed to prepare an objective report for the court and the parties will share the cost.

However, some cases are more complex than others and the level of trust between parties can vary greatly, meaning that disclosure is not always straightforward.  A party may have existing concerns (based on conduct prior to the breakdown of the relationship) or suspicions may subsequently arise - often once the disclosure process has commenced.

Occasionally, it may be necessary to instruct a forensic accountant, to carry out a more thorough investigation of the assets.  Forensic accountants are financial ‘detectives’ qualified to investigate financial discrepancies, fraud, financial misrepresentation and/or financial misconduct.  They can often help to locate undisclosed assets, hidden wealth and highlight false information and lies told by the other side.

A party can instruct a forensic accountant to prepare a report at any stage but it is important to remember than no evidence can be relied up during the court process without the court’s permission.  Ideally, therefore, the need for a forensic accountant should be identified as early as possible so that a request can be made to the court at the first hearing.  This is not always possible and so a request can be at a later stage, when further information comes to light, but may require a separate application and further fee.

Any application for a forensic accountant will need to be fully justified as the court will not permit ‘fishing expeditions’ based on mere suspicion.  The expert’s involvement will need to be proportionate (considering the value of the case and the delay / costs that will arise) and necessary to enable the court to resolve the proceedings and so it is not guaranteed that a request (particularly a late request) will be granted.  In addition, the other side may raise objections hence the need for careful preparation and drafting of any potential request.

A forensic accountant’s charges can be substantial, but will depend on the level of work required and complexity of the case.  If permission is granted by the court then a direction will be made confirming who will be responsible for the expert’s costs.  If a report is commissioned at an earlier stage, without the court’s prior permission, then the costs will have to be borne initially by the party instructing the expert.