Divorce and Equitable Division of Hidden and Unknown

Divorce and Equitable Division of Hidden and

Unknown Assets: Best Practices and Strategies

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.

TUESDAY, MARCH 23, 2021

Presenting a live 90-minute webinar with interactive Q&A

Katie Ehrlich, Attorney, Kessler & Solomiany, LLC, Atlanta

Anthony Rao, Attorney, Kessler & Solomiany, LLC, Atlanta

Tips for Optimal Quality

Sound Quality

If you are listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, you may listen via the phone: dial

1-877-447-0294 and enter your Conference ID and PIN when prompted.

Otherwise, please send us a chat or e-mail [email protected] immediately

so we can address the problem.

If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Quality

To maximize your screen, press the ‘Full Screen’ symbol located on the bottom

right of the slides. To exit full screen, press the Esc button.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your

participation in this webinar by completing and submitting the Attendance

Affirmation/Evaluation after the webinar.

A link to the Attendance Affirmation/Evaluation will be in the thank you email

that you will receive immediately following the program.

For additional information about continuing education, call us at 1-800-926-7926

ext. 2.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please

complete the following steps:

• Click on the link to the PDF of the slides for today’s program, which is located

to the right of the slides, just above the Q&A box.

• The PDF will open a separate tab/window. Print the slides by clicking on the

printer icon.

FOR LIVE EVENT ONLY

EQUITABLE DIVISION OF HIDDEN & UNKNOWN ASSETS:

BEST PRACTICES & STRATEGIES

Katie Ehrlich, Esq. Tony Rao, Esq.

Kessler & Solomiany, LLCAtlanta, GeorgiaKSfamilylaw.com

THE EVOLUTION OF EQUITABLE DIVISION IN GEORGIA

DEFINITION OF SEPARATE PROPERTYStokes v. Stokes, 273 S.E.2d 169, 171 (Ga. 1980). • Property acquired during the marriage, regardless of title, is

“marital” property unless the property meets the definition of“separate” property - property received by one party to themarriage by gift, inheritance, or devise.


THE SOURCE OF FUNDS RULEThomas v. Thomas, 377 S.E.2d 666 (Ga. 1989). • A spouse contributing non-marital property is entitled to an

interest in the property in the ratio of the non-maritalinvestment to the total non-marital and marital investment inthe property.

• The remaining property is characterized as marital propertyand its value is subject to equitable distribution.

• Thus, the spouse who contributed to the non-marital funds,and the marital unit that contributed marital funds, eachreceive a proportionate and fair return on their investment


GIFTS Lerch v Lerch, 278 Ga. 885 (2005)• In Lerch, the husband deeded the home to both his wife and himselfto be held as “tenants in common” with the right of survivorship. Inso doing, Husband manifested an intent to transform his own separateproperty into marital property. Once Husband deeded the property tothe marital couple, the property ceased to qualify as his separateproperty.

• A gift made to one of the spouses is the separate property of thatspouse.

• When an item that was once separate property is given to the coupleas a gift, the item becomes marital property, unless the spousecontesting the marital status has shown contrary intent by the donor.


TRANSMUTATIONShaw v. Shaw, 290 Ga. 354, (2012)• Husband opened two investment accounts for the purpose ofreceiving assets he had just inherited from his mother. From theoutset, he established both accounts in his and his wife’s name to beheld as joint tenants with right of survivorship. The court held that inso doing, the husband manifested an intent to transform what was hisown separate property from an inheritance into marital property.

• Additionally, there was inherited, unimproved Florida real estate thatthe Husband deeded to him and his wife as tenants in common,giving each party an undivided one-half interest in the property. Thisaction transformed the property into a marital asset.


Shaw v. Shaw, 290 Ga. 354, (2012)• While property inherited by one spouse during the course of

the marriage begins as separate property, that property maybe converted into a marital asset by the actions of therecipient spouse, such as the recipient spouse transferringfull, partial, or joint ownership in the property to his spouse.See Miller v. Miller, supra; Coe v. Coe, supra; Lerch v. Lerch,278 Ga. 885, 886 (1) (608 SE2d 223) (2005).


Shaw v. Shaw, 290 Ga. 354, (2012)• Shaw echoes the definition of marital property found in

Lerch. The Supreme Court relied upon whether there was“manifested intent” by the recipient spouse to transfer thenon-marital property to the other spouse, even if the propertywas originally gifted to only one spouse.

• The Supreme Court relied upon the manner in which theproperty and the investment accounts were titled. Shawillustrates the Court’s focus on the spouse’s intent andactions rather than the value contribution through thecomingling of funds.


• Even though divorce requires both parties to identifymarital property vs. separate property, and value assetsand debts, not all parties in divorce cases will be openand forthcoming with this financial information.

• Therefore, you must be thorough and persistent chasingdown critical financial information.

WHY USE A FORENSIC ACCOUNTANT?• Family Law accounting and valuation issues can be

challenging when the parties have complex financialportfolios. A complex financial portfolio may involve aclosely held company or trust.

• For most clients, their divorce is the largest financialtransaction of their lifetime.

• Access to a knowledgeable and experienced financial expertis important to achieving the best result for your client.

• Forensic accountants specialize in examining financial andbusiness valuation matters to assist in determining a fair andaccurate measurement of the parties’ true financial picture.

• When there is a full understanding of the financial facts, it ismuch easier to negotiate a fair settlement.

WHY USE A FORENSIC ACCOUNTANT?

• Therefore, the family law attorney must immediatelyrecognize the level of financial complexity present in thecase.

• The skilled efforts of a forensic accountant can uncover thebelow unethical practices:• padding payroll• underreporting income• overpaying creditors• creating fake debt• transferring assets to dummy corporations• purchasing expensive items with secreted cash• Dissipation of marital assets


A forensic accountant can be particularly helpful if your casegoes to trial.• If a divorcing client must go to trial over complex assets,

income determination, or some other financial issue, aforensic accountant can often testify on behalf of the partyabout particular financial issues.

• The forensic accountant will also help the family lawattorney prepare cross examination questions to ask theopposing party’s forensic accountant.


Forensic Accounting• Domestic Relations Financial Affidavits• Child Support Worksheets – self employment income• Lifestyle Analysis• Asset Tracing (Separate v. Marital)• Proposed Asset Division and Marital Balance Sheet• Proposed Support Calculations

o Alimonyo Child Support

Services


Litigation Support• Pre-divorce planning• Document Requests• Document production• Drafting interrogatories• Deposition questions• Expert Witness deposition and

trial testimony• Drafting cross of Opposing Expert• Post-divorce planning and

budgeting

Services

Valuation Services• Business Valuation• Stock Options• Pensions

WHEN TO ENGAGE A FORENSIC ACCOUNTANT?

The earlier the better:• The forensic account can help with discovery, interrogatories,

request for production of documents, and ensure you areasking for the right documents based on the facts of the case.o Example: with a self-employed person or with small

businesses, the forensic accountant will want to see the.qbw or quickbook file the business uses for itsaccounting.

o The forensic accountant will investigate how theaccounting is done, the audit trail, and personal expensesthat are being deducted.

WHEN TO ENGAGE A FORENSIC ACCOUNTANT?

As part of this determination:• A family law attorney’s due diligence should include, a review

of the marital estate, including investment portfolios. Thispreliminary due diligence should identify any potentiallycomplex or red flag issues requiring the expertise of a forensicaccountant.

• This will also include an evaluation of your client’s financialsto retain and hire a forensic accountant. This will inform yourdecision on which forensic accountant you refer to your client.

• You must bear in mind what services your client will need,and whether the forensic accountant might be called on totestify at trial if there is no settlement.

BADGES OF FRAUD & RED FLAGS• The lifestyle of the parties versus what they report as income• Amount of overall cash, relative to living expenses and size

of assets• Privately held businesses • Real estate, including evaluations of the interest rate of the

mortgage• Spending of the parties versus bank accounts • When one party has no knowledge of the parties’ finances• Skimming money out of a business • No W2• Debts and all liabilities • Either party is known to be a liar or cheater• Obfuscation tactics: disordered discovery

DISCOVERY PROCESS Request all immediately available documents:• Financial statements• Stock options• Brokerage account statement• Pension/retirement plans• Income tax returns• Pay statements and employment agreements• Bank account information• Business ownership records, and business and personal credit

card statements should be scoured• Real estate and mortgage information• Wills and estate planning documents

FORMAL DISCOVERY PROCESS

If you don’t ask for the right documents, you may not get the right answers.• The forensic accountant will assist the attorney in preparing documentrequests of the other party, as well as interrogatories, or deposition andtrial questions.

• The opposing party’s documents can be just as important as the client’sdocuments.

• A forensic accountant will know what documents to ask for in addition tothe tax returns, financial statements, and loan applications.

• One very important document can be general ledgers. They can containdetails such as strange transactions, unusual journal entries, questionableloans, and personal rather than business expenses.

WHAT TYPES OF DOCUMENTS?

Most sought after documents:• Tax returns – personal and business • Bank statements• Credit cards: personal and business

o any credit card that is paid by the business. • Canceled checks• Real estate records • Insurance policies • Copies of the expense reports • Loan applications: income is inflated; assets reported• Credit reports

WHAT TYPES OF DOCUMENTS?Most sought after documents:• Tax returns • People have strong incentives to prepare accurate returns,

for the fear of being charged with tax evasion. As a result,tax return entries may reveal clues about assets or incomethat someone is otherwise attempting to conceal.•A forensic accountant will review returns from several

years to identify significant trends. For example, an expertmay note a large increase in interest or dividend incomefrom one year to the next, which may indicate that thetaxpayer sold stocks or other investments.

WHAT TYPES OF DOCUMENTS?Most sought after documents:• Tax returns •Here are a few examples of tax return entries that can lead

an expert to hidden income or assets:o Income from wages may lead to undisclosed business

interests.o W-2 entries may reveal unknown retirement plans.o An examination of real or personal property taxes

may reveal undisclosed assets.o Entries for state and local income taxes may indicate

income or assets in other states.o Self employment income and deductions.

WHAT TYPES OF DOCUMENTS?Examples: • If a business owner is skimming money off the top, it can

depend on whether that money is being deposited into adisclosed bank account. If it never makes it into an account,the forensic accountant can estimate to determine out howmuch money that is.

• Dr. taking cash that patients pay and sticking it in his pocketbefore it goes into the accounting system. The forensicaccountant will discover that amount by reviewing therecords from the billing file.

• Restaurant: point of sales system that records the sales• Landscaper business: side deals and cash business

WHAT TYPES OF DOCUMENTS?Examples: • There may be personal expenses paid through the business

which could impact the business owner’s income.• Records may not reflect the costs of running the business, or

extra assets hidden away.• A forensic accountant will audit these records to uncover the

true data.

HOW TO PICK A FORENSIC ACCOUNTANT?• Reputation!• Their work comes from attorney relationships and they put

their reputations on the line.• The goal of adding a forensic accountant is to add value to

the case.• The value is about being believable• As an attorney, you trust the forensic accountant to take care

of the client in the same manner you would.• If you have previously worked with a forensic accountant

that now represents the other side, you know they aretrustworthy.

• If their services will not be cost effective, the forensicaccountant will say it up front during the consultation.

FORENSIC ACCOUNTANT COSTS

• A standard retainer can be $5,000• But can range up to $10,000• Which can then be modified by scope of the case.• A big case with millions of dollars of assets will of course

cost more.• Depends on the facts and circumstances of the case.• Note: it is cheaper to hire a forensic accountant then having

the attorney perform a similar function.• Neutral forensic accountant v. representing your client

WHAT IF YOUR CLIENT IS HIDING MONEY?

• Forensic accountants must always try to uncover the truthand confirm the traceable.

• That skepticism should be directed at both the opposingparty and client’s information.

• Otherwise, the expert’s independence could be questioned,and the expert could be at risk of having his or her opinionsdiscounted.

WHAT IF YOUR CLIENT IS HIDING MONEY?

• The forensic accountant will notify the client and attorneyand advise the disclosure of that information immediately.o It will help your case and not doing it will hurt your case.

• The forensic accountant will never risk their reputation byhiding any information they discover.

• If something is not disclosed, it will go on the maritalbalance sheet.

• The community of forensic accountants can be small, if yousee a forensic accountant you know representing anopposing party, they will not allow that client to hidefinances.

HOW TO LOCATE HIDDEN ASSETSStrategies:• Forensic accountants apply a different methodology and various

techniques to find assets; it is not a one-size-fits all approach.• Most will first review the documents and load a spreadsheet

with key financial information. • The forensic accountant may list assets, debts, income, and

expenses over the last five to seven years and look for trends.• Do the numbers match known information from the client and

from research into industry trends?

HOW TO LOCATE HIDDEN ASSETSLifestyle analysis• The forensic accountant will analyze a person’s income,

expenses, assets, and liabilities. By looking for discrepancies, aforensic accountant can uncover evidence that a party’s incomeor net worth is not what it appears to be. For example, if aparty’s known income sources and liquid assets are insufficientto support his or her standard of living, it’s likely that he or sheis hiding something.

• The first step is to develop a comprehensive financial profile ofthe person in question. The accountant reviews bankingtransactions, known income sources and expenditures, andchanges in net worth for signs of unreported income or hiddenassets.

HOW TO LOCATE HIDDEN ASSETS

• Sometimes the forensic accountant can find the money / assets• Retirement accounts, houses, real property records, can be

found. • But when it comes to cash, it is harder to trace so the

Forensic accountant will sometimes put it back on the balance sheet as a marital asset and say the party who took it got it.

• The other party will get another asset to offset that loss.• For example:• An Overseas asset that belongs to H is his so W will

get a larger portion of the house in equitable division.

HOW TO LOCATE HIDDEN ASSETS

Marital Balance Sheet: • Divide each class of assets

o Cash out, hidden, or spent• Forensic accountant puts it back on the balance sheet

in the cash section• For example, W may need extra money out of the

house to make up for this.

USING TRUSTS TO HIDE ASSETS

• It is rare where a party has tried to hide marital assets in atrust or otherwise to reduce the value of the marital estate.

• If a trust was formed in the past with both parties’knowledge – that’s fine. Also, where a party to the divorcecreates a trust but does not retain possession or control of theassets transferred, it will be protected and not subject toequitable division.

• The seminal case in Georgia is Gibson v. Gibson

USING TRUSTS TO HIDE ASSETSGibson v. Gibson• Husband created two trusts, an irrevocable trust, naming his

mother as trustee and Wife, their daughter, and their daughter's descendants as beneficiaries. The terms of the trust gave the trustee the discretion to distribute income and principal to Wife and their daughter during Husband's life and in the event of his death, and stripped Wife of her rights and interests in the trust if Husband and Wife divorced or legally separated. The trust also provided certain rights of withdrawal to the parties’ child or her legal guardian.

• Husband created a second irrevocable trust, again naming his mother as trustee, and naming multiple beneficiaries, including his spouse and his descendants. The trust gave all beneficiaries a right of withdrawal subject to certain limits.

USING TRUSTS TO HIDE ASSETSGibson v. Gibson• Because the husband was not the beneficiary or trustee of the

trusts he created, for equitable division purposes, the transfers ofproperty to the trusts were the equivalent of transfers to thirdparties and would be subject to equitable division only if the wifewas able to show that the transfers were fraudulent.

• Evidence that the husband did not actively conceal the transfersfrom the wife, did not retain possession or control of the assetstransferred, did not transfer substantially all of his assets orbecome insolvent after the transfers, and did not abscond wassufficient to support the conclusion that the creation and fundingof the trusts was not fraudulent.

SETTLEMENTThe forensic accountant’s report:• Represents work performed, limiting conditions, and

opinions formed.• A thorough forensic accountant’s report could deflate the

opposing party and be a catalyst for a favorable settlement.• This report can also be used at mediations or serve as a

blueprint for final depositions.• Although the report itself may technically be hearsay and not

admissible in court, the report can be a critical tool duringdivorce settlement negotiations.

• Waiting until negotiations fail before preparing a report is amissed opportunity for settlement.

PRIOR TO TRIAL• In the event the forensic accountant’s report does not lead to

a settlement, the accountant can be deposed prior to trial.• This is when the forensic accountant explains complicated

financial situations, describes the work performed, the assumptions made, the limiting conditions, and the basis for the overarching opinion.

• Experienced forensic accountants are familiar with this line of questioning and will be prepared to testify.

TRIALDirect examination • Requires forensic accountants to establish their credentials as

experts to have their opinions accepted as evidence. CPAs aretrusted, and their testimony carries great weight. Forensicaccountants will describe the scope of their work, the documentsreviewed, and the forensic accounting methodologies. The expertwitness’ opinion helps the court make tough findings of fact andconclusions of law.

Cross-examination• Or battle of the experts – where your forensic accountant will be

faced with contradictory opinion testimony from the opposingparty’s forensic accountant.

• Courts will look at the methods used by each financial expert tomake its determination.

CONCLUSION1. As a family lawyer, determine whether your client needs a

forensic accountant.2. Select a forensic accountant you trust and what level of

expertise is needed to determine a price point for the client.3. Work together with the forensic accountant during the

discovery process to gather every piece of informationavailable.

4. Use the forensic accountant’s report during settlement talksand mediation and as exhibits for trial.

5. If trial is necessary, the forensic accountant will be yourexpert witness.

www.ksfamilylaw.com

Documents

Divorce and Equitable Division of Hidden and Unknown