Dive into the world of PAYE investigations. Uncover the facts, implications, and insights in this informative blog
Financial issues can be one of the most challenging issues to resolve in divorce proceedings, and often requires support from a legal professional.
But the professional does not necessarily have to be a solicitor working alone; there are many reasons why an accountant working side by side with your solicitor may be preferable instead. With expert knowledge, an accountant can play a pivotal role in a divorce, ensuring that you get a fair outcome and that there is full financial disclosure.
Below we take a look at how an accountant can help during divorce proceedings and why their expertise is so crucial.
Why Use an Accountant for Divorce Proceedings?
During the process of divorce, there is an obligation on each party to provide a full and frank disclosure of their financial circumstances. This is typically managed via the completion of Form E which is regarded as the basis for a financial statement.
Although each party is legally compelled to provide all pertinent information, and not to take any actions to disguise any assets, this does not always happen. It is not uncommon for information to be withheld or assets hidden in a bid to get a preferable financial agreement.
As financial experts, chartered accountants are perfectly placed to identify anomalies and to ensure the full facts are properly disclosed and they certainly able to ensure that the right questions are asked of the other side so as to leave no stone unturned.
But before we delve into more detailed information about the various financial solutions which can be utilised, let us first run through the many areas where an accountant can help during a divorce.
At the most basic level, an accountant can help to gather information to calculate an equitable divorce settlement. Both parties will need to complete Form E which should be a full financial disclosure. Unfortunately, there may be items which are “accidentally” missed off the form, or a less than full disclosure made. An accountant will know what information they would expect to see and will ensure that the financial disclosure includes all of the details.
Gathering financial information may sound simple but having knowledge of finance and accounting makes it easier to assimilate the information and to check that everything has been properly provided, including requesting the specific relevant forms for payroll or tax returns or other evidence like proof of tax payments made at the time transactions were claimed.
Also, if your chartered accountant requests via the court for the other party’s accountant to respond to you divorce letter then you have a greater chance of their accountant responding accurately and correctly since they will be aware that you are using a tax specialist who will scrutinise their responses.
Identify Gaps and Inconsistencies
Once all the financial information has been submitted, it may be clear that some details have been omitted. This might be because the box has been left blank, or because the other party is aware of an asset which has not been listed. A lot will depend on how much knowledge both parties have about each other’s finances.
In cases where omissions are not clear or there is little knowledge about each other’s finances, an accountant’s expert eye can be invaluable. They can spot subtle gaps in the information presented, or inconsistencies in the figures. For example, an affluent individual with their own business would be expected to have a healthy pension fund. If this information is not presented, there could be a strong possibility that information is being withheld.
If a lot of financial information is put forward, inconsistencies that suggest income or assets are being disguised are not always easy to identify. But as an accountant is extremely familiar with these types of calculations, they are excellent at homing in on even the smallest signs that something is amiss.
Equally, an accountant can make the parties reduce the contentious aspects if they can independently verify what the other side is presenting and communicate that to you in a way which you understand and can accept is fair to both sides.
Identifying gaps and information which is not accurate is only the first step. To get a balanced settlement and to make a fair calculation, it is necessary to track down the correct figures. If an individual is not forthcoming with these details, asset tracing can be more complex.
Accountants have experience in asset tracing, and have a range of tools at their disposal to find financial data which someone is attempting to hide. There is a whole spectrum of measures individuals might take to disguise assets and income, but an accountant will usually be able to see past a cover story. This might be a separate and new business that has been set up purely to conceal assets. Alternatively, work in progress may be undervalued, or liabilities overstated. An accountant can look through all of the figures to find where assets are being hidden.
Carry Out a Business Valuation
Valuing a business can be a contentious issue, and there may be moves to try and downplay the value to provide a lower financial settlement. To reach a fair settlement it is essential that the business is valued accurately, but this is not always as easy as it sounds.
An accountant has the knowledge to delve deep into the accounts of the business to reach a fair valuation. No single one factor should be used to value the business, and an accountant can check to ensure this is not the basis for any valuation which has been put forward. Having that experience will mean that if the other party is trying to adversely affect the valuation then they will be challenged, including in court if need be.
To get an accurate valuation, an accountant might consider past performance, projected earnings, and asset holdings. Looking at market data available from comparable competitors can also provide useful insights into the accuracy of figures provided.
Once a valuation has been agreed, an accountant may also provide suggestions about a potential restructure for the business. This may be necessary to release the agreed funds for the divorce settlement in a tax efficient manner which may including avoiding taxes altogether if done a certain way. Or there may be ways to use business entities to pay termination payments or pension payments which will get tax relief in the business while also paying to the other party. This tool can be invaluable and seen as a win-win outcome to both parties.
Track Reckless Spending
While the divorce is being processed, both parties will have expenses for living and legal costs. It is not unreasonable to continue paying normal expenses, or even additional, essential expenses, like rent due to leaving the former home, as they crop up. However, if one party is attempting to financially manipulate the other, they may spend more than their fair share of the any funds and thy may have a strategy to try to put pressure on you by racking up legal fees or removing you from accessing your funds to try to force you in to an unfair settlement.
The result of spending money from a shared account is that the ultimate financial settlement will be lower. If one party has purchased something of value that is not declared, they will have the financial benefit of this without it being factored into the calculations.
An accountant will be able to identify deliberate overspending and help with a solution even if there is not an obvious audit trail. This ensures that any reckless overspending does not result in an unfair settlement.
Calculate Child Support
In many cases where there are children involved, one party will need to pay the other a regular amount for child support. This is to ensure the child is not disadvantaged by the change in living circumstances of their parents, and to ensure that both parties contribute equitably to the upkeep of the child/ren.
Child support is typically paid as a regular and ongoing amount, and is based on the income of the parents. Any income which is concealed will result in an unfair amount of child support being awarded. An accountant can apply all their skills and knowledge to the financial affairs of the other party to ensure that there is a proper and full disclosure. An accountant is also very well placed to negotiate a fair amount of child support, based on their calculations.
Providing Advice on Tax
A divorce can change the tax position of both parties, especially if your finances are entwined, for example, by being co-owners in a business. As part of the divorce, you may need to re-evaluate your tax situation, and check that you are not being disadvantaged by any settlement decision whether by having the taxable income ongoing or liabilities which you would likely not be able to afford the upkeep because you did not have ongoing income.
A chartered accountant and tax adviser can assess your circumstances and include tax advice as part of the process. This ensures that any implications from tax are properly considered when reaching a settlement.
Expert Witness and Evidence
Not all cases can be resolved amicably. Even with the best representation, if the other party is not willing to negotiate to reach a mutually acceptable settlement the case may need to be settled through the divorce court.
Where the finances are complex, it can be invaluable to have an accountant already working on your calculations. They will be able to act as an expert witness in court, explaining the calculations succinctly and giving you the best chance of success.
A strong witness can be key in helping the court understand your perspective and how your calculations have been worked out. An accountant will be able to present the facts of your case in the clearest possible terms.
Explaining Financial Options
Financial settlements in divorce are rarely black and white; you might have a number of different options to consider. This means there is no “right” answer and what you choose may depend on your priorities. For example, getting everything resolved quickly might be more important to you than getting the maximum amount of cash/assets, or vice versa.
An accountant will be able to explain all of your options in great detail, helping you to understand what each one means.
Managing Injunctions and Freezing Orders
In some cases, divorce proceedings become so acrimonious that the usual financial negotiations break down completely. In those cases it can be necessary to obtain injunctions and freezing orders, and we are going to look at those in more detail below.
Injunctions and Freezing Orders
When there are substantial and genuine concerns that one party in a divorce may be disposing of assets or moving them, legal action may be required in the form of a freezing order.
A freezing order is a type of injunction which stops a party from concealing assets before they can be suitably distributed. It also stops them disposing of them to reduce the settlement. Put simply, a freezing order presses the pause button on any movement of assets or finances, providing sufficient time for an accurate and fair assessment to be made.
It is not always simple obtaining a freezing order, and you must be able to demonstrate evidence to get the court to agree. This is where an accountant’s expertise is invaluable, because if you are unable to show sufficient grounds for a freezing order it will be refused, and you will be liable for the cost. Therefore, gathering evidence to show why there are such serious concerns is imperative, and an accountant is the best person to be able to do this.
A freezing order can apply to a wide range of assets including money, bank accounts, property or other assets, such as land or vehicles, and intangible assets, such as intellectual property rights. A freezing order is a wide-ranging action and as such, there is an obligation to show there is a very substantial risk of the assets being concealed or moved.
Getting the courts to approve a freezing order
To get a freezing order approved by the court, you must be able to demonstrate the following criteria has been fulfilled:
- Granting the request is “just and right”
- The assets you want to be frozen fall within the court’s jurisdiction
- There is a genuine risk of the assets being dissipated
- You have a strong basis to suspect the risk
You should also consider the possibility that the other party may contest the freezing order. Your accountant will be able to collect evidence of the following which can strengthen your case:
- Proof that the assets are liquid or easily moveable
- Evidence of the other party’s conduct eg/evasive responses or inaccurate information supplied
- Availability of the financial information - difficulties gaining access to the other party’s finances make it much easier for them to hide or move their assets
- Type of assets or business - some types of assets or business make it much easier to disguise or move assets
Gaining a freezing order requires specific grounds for concern, and an accountant can put together your case to give you the strongest possible chance of the court agreeing to your application.
Challenging an order
If you have been the subject of a freezing order and do not believe that it should be granted, advice from an accountant will be critical in helping to successfully mount a challenge. This may be either to prevent the freezing order from being granted, or to ask for it to be discharged.
Whether or not the court agrees to discharge the freezing order is decided on an individual basis, but there are a number of things you can do to help your chances of success. Your accountant can go through the arguments put forward by the other party, and submit counter evidence to show that this is not the case. The longer the other party takes to make a freezing order, the better grounds you have to prove that there is little risk of assets being moved.
Similarly, if you have been in business for a long time and have established accounts which are consistent, this can help to demonstrate the transparency of your financial affairs. The court will recognise that a freezing order represents a significant intrusion, and will only grant it when there are reasonable grounds for concern. To allay these concerns there is an obligation to make a full and frank disclosure of all facts, including those which may not be advantageous to you. An accountant can help you to assimilate the information in the most positive light while still discharging your duty to the court.
If you will suffer a financial loss as a result of the freezing order, the court will take this into account when deciding whether to discharge it. An accountant can help to quantify these losses and provide evidence to the court.
Do I Need an Accountant for Divorce Proceedings?
Many divorces can be managed simply without the need for an accountant. However, there are some circumstances where the use of an accountant should be seriously considered due to the financial risks.
Cases whether there are lots of assets can quickly become complicated. There may be genuine oversights or omissions, or there may be deliberate financial manipulation. An accountant can sort through complex assets and finances to reach a fair settlement.
High net worth individual
If the other party is a high net worth individual, their finances and assets are likely to be more complex. They may also have their own accountant providing advice, so it is a good idea to have your own financial expert to represent your interests.
When you suspect financial irregularities
If you think the other party is either concealing assets or you suspect they may do so, an accountant can help to ensure there is a proper and full disclosure.
Self-employed or contractor
Employed earnings are much more straightforward but self-employed or business earnings of any kind are far easier to manipulate. An accountant can check the information provided to identify if there are any indications of concealed information.
Owning a business
If the other party owns a business, an accountant can carry out a proper valuation of their business which may be based on multiple, complex factors.
If you require mediation, you could consider appointing an accountant as a neutral third party to aid with reaching an amicable settlement agreement.
If either of the parties had significant liabilities which were brought into the marriage, an accountant can help to ascertain whether they should be considered as a marital debt.
How to Choose an Accountant For Divorce Proceedings
If you are considering appointing an accountant for your divorce proceedings, it is important to find one that meets your requirements.
Some of the things to look for include:
- A chartered accountant and tax adviser - this ensures proper qualifications
- Experience in dealing with divorce proceedings
- Competence in any area that’s specific to your needs - e.g., tax
- Reassuring and confident manner - you should be comfortable talking to your accountant
Navigating the legal and financial affairs of a divorce is never easy but with advice and help from an experienced accountant, the whole process will be much smoother.
Talk to us today to find out more about using an accountant for your divorce and how we could help with your circumstances.