Financial Deception: Unveiling the Shadows of Hidden Assets in Divorce

Forensic Accounting is a specialized field of accounting that focuses on investigating financial discrepancies and fraudulent activities.  A forensic accountant is a professional who applies accounting principles, theories, and disciplines to ascertain the accuracy and legality of financial statements and to investigate allegations of fraud or financial misconduct within a business or an individual’s financial records.

The forensic accountant is also a detective of finance who integrates accounting, auditing, and investigative skills to analyze and interpret business and financial data.  They are often involved in legal matters, preparing reports and evidence that can be used in courtrooms, legal proceedings, or dispute resolutions.  Forensic accountants also scrutinize records and transactions to detect and prevent fraudulent activities such as embezzlement, securities fraud, and tax evasion.

The types of forensic accounting investigations I have previously worked on include: (1) Alter Ego, (2) Bankruptcy, (3) Breach of Contract, (4) Fraud, (5) Fraudulent Conveyance, (6) Solvency, (7) Embezzlement, (8) Tax Evasion, (9) Bank Fraud, (10) Mail Fraud,(11) Insolvency, (12) Asset Tracing, (13) Conflict of Interest, (14) Net Worth /Net Income Overstatement or Understatement, (15) Theft of Cash on Hand and on Receipt, (16) Fraudulent Disbursements, (17) Unrecorded Sales, (18) Personal Purchases Made in Business, (19) Mischaracterization of Expenses, (20) Forged Documents, (21) Securities Fraud, (22) Larceny – Purchasing and Receiving.


Manipulation of Income: The Mirage of Lower Earnings

In a family matter or a business divorce, A party to the divorce or a business owner might underreport income or over report expenses in a business to project lower earnings.  This tactic could involve not reporting cash transactions, delaying invoicing, or inflating business expenses.

Forensic Procedures:

Conduct a detailed analysis of business books, focusing on cash transactions and expense reports.

Review the general journal and review for unreported sales or services.

Review financial information for aberrations.

Perform various net worth tests.

Benford ‘s Law

Aberrant travel of boyfriend or girlfriend.

Piotroski F-Score Model

Cash Realization Ratio

Indirect Methods to Determine Unreported Income

Source and Application of Funds (IRM

Sources and Application of Funds, United States v. Johnson,319 U.S. 503 (1943)

Bank Deposit and Cash Expenditures – Glickman v. United States, 80 F.2d 394 (8th Cir 1935)

Markup Method – United States v. Fior D’Italia,1536 U.S.238 ( 2002)

Net Worth Test – United States v Frost 25 F. Cas 1221 (ND.III 1869)

Review contracts and cross-verify with invoices and payment receipts.

Compare the reported income and expenses with industry benchmarks.

Jones Discretionary Accruals Model

Beneish M-Score Model

Dechow-Dichev Model

It’s essential not to take financial statements at face value. Engage in meticulous review and cross-verification processes to unveil the true financial picture.



It’s essential not to take financial statements at face value. Engage in meticulous review and cross-verification processes to unveil the true financial picture.

Forensic accountants hold the key to solving many financial mysteries.  Whether you’re a business owner, attorney, or individual, understanding when and how to employ their skills can mean the difference between clarity and confusion.

If you face any financial ambiguities or suspect foul play, don’t hesitate – enlist the expertise of a forensic accountant to safeguard your interests.  Contact me today. 

I have earned a Master’s Degree in Business Valuations and apply those skills to my everyday business valuations.

Richard Claywell has been valuing closely held companies since 1985.  He has earned two of the highest designations in the business valuation field , the Certified Business Appraiser (“CBA”) and Accredited Senior Appraiser (“ASA”),  Richard is a Certified Public Accountant, has a Master’s in Business Valuation (MBV)  and holds the ASA, CBA, ABV, ICVS, CVA, MAFF, CFD, ABAR, CVGA, ICVS-A credentials.

I hold the Master Analyst in Financial Forensics and the Certified in Fraud Deterrence.  I have taught forensic accounting/fraud courses in the United States, China and Taiwan.

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