Forensic Frenzy: Can Anyone Afford a Forensic Analysis for Support?

I recall vividly the first support case I tried where my opposing counsel attempted to show that my client earned more income than he reported. It was almost 40 years ago, and my client certainly did have a habit of moving money from various bank accounts he and his wife held. My opponent tried to argue the gross deposits each month into all the bank accounts reflected my client’s actual income- a number far higher than shown on the recent income tax returns.

I didn’t see this coming back then and I was ill-prepared. But I soon figured out that my opponent might be the duplicitous one because of the method of his presentation. Let’s assume that my client had three bank accounts for his professional practice. He used account #1 to receive deposits from health insurers. Account #2 was money his clients or patients paid by check or in cash and Account #3 was used to pay the expenses of his practice. Two of these accounts existed to receive payments and the third is the one assigned to pay expenses. Account #3 is necessarily funded by deposits transferred from Accounts #1 & 2 because that’s where the revenue is coming from. What my opponent sought to do at trial was to sum the deposits from all three accounts and contend that was my client’s real income. What he succeeded in doing was to confuse my client (a medical professional) and then argue that his weak response to questioning proved that he was a liar and that a gross deposits analysis should be adopted instead of the tax return.

We all have too many accounts, whether it’s debit cards, credit cards, bank accounts or the like. And the more accounts we have, the more challenging it becomes to figure out an accurate financial picture of income and assets. I once represented the wife of a well-to-do physician. She did not trust banks so she had $500,000 of savings split among 12 different local banks. Another client liked to have one account to pay primary residence expenses; another to pay for the house at the shore; and three separate college savings accounts for her kids. Then there was an account to pay for food, clothing, vacations, cars and entertainment.

The great frustration for any lawyer is the client who comes through the door for the initial interview and reveals that there are seven accounts to pay “bills” in addition to savings plans, retirement plans and brokerage accounts. Then they add that they think their spouse is “up to something” adding the belief that money is being hidden or diverted. A colleague described such an initial interview recently where the prospective client said that perhaps a forensic accountant should be engaged to sort it all out.

This is the equivalent of asking a composer to write a symphony after telling that person he or she will be sending 25,000 musical notes. The composer just needs to put them together in a way that will be entertaining to the audience.

The purpose of engaging a forensic accountant is to try to assess what is the family income and where it is going. In olden times everything was paid by check. Yes, you could take your paycheck to the bank and ask them to give you $200 cash and deposit the rest. Each payday would show up $200 short but when the deposits were compared to W-2 income the cash skim would become evident.

Today, it is crazy complicated. Take my client who liked to take her spouse’s paycheck and split it between house in PA; house in NJ; ordinary expenses and money for three kids. Today, banks won’t do that. Put it in one account then you move to the others via electronic transfers. But even then, how do we know that the money put in eldest child’s college fund isn’t being withdrawn to play Powerball or to fund a drug habit using a debit card. We don’t unless the accountant looks at all of the account statements and confirms this is a “deposit only” account or is being drawn only to pay for the local private school. In addition to these cash accounts most people of means have a 401K account, an IRA or two or more, and any number of savings accounts, certificates of deposit or brokerage accounts. Today we have cryptocurrency accounts so it could be that your spouse is drawing $200 a week from the ATM and walking it to the grocery store to buy Bitcoin. It could be that money is coming out of the account to pay for the shore house expenses or Child #2’s private school tuition.

Then there are the charge, credit card and debit accounts. This writer’s checking statement has tons of PAYPAL withdrawals each month. The bank statement says only that it was a PAYPAL withdrawal. So, was that payment the sweater from Land’s End or school supplies for the Hop Bottom Montessori School lunch account? You will need the data from PAYPAL. Then there is Venmo, Stripe, Square. Was that payment a semester of karate for the 10 year old or a “massage” at a parlor in Essington near the Philadelphia airport. Often you have to look at the accounts of these third parties to see who the actual payee is and there are times when even those statements are more cryptic than illuminating. “Honey what’s this $200 charge on your account?” “Oh, that’s the gymnastic coach.”  “So why is it weekly when he charges $200 monthly and there is an additional $200 charged once a month that would seem to be right for gym?” “Ahhhhhhh, I’ll have to take a look at that.” Indeed.

If you have equipped children with their own cards, that also needs to be teased out. Often parents with substantial income pay almost no attention to how big is the dig coming from kids in college. You see your cash balance looks a bit thin in the one account only to find out that Junior did go on Spring break to Florida hoping you wouldn’t catch it.

Forensic accountants need all of the data to piece this stuff together. You think your spouse is cheating on you with massages in Newark, Delaware only to discover that’s your son at Rutgers  visiting the “House of Joy” in Newark, New Jersey. Once upon a time people got their monthly statements and balanced their accounts. Today, the money flies so fast that while you are at the kitchen table trying to balance your November statement, your spouse or kid just overdrew the account at the local veterinarian where “Bella” is getting cortisone shots for a bad leg.

The other side of the ledger accountants can miss is the debt side. You notice your spouse is now becoming wrinkle-free but you aren’t seeing the local dentist, dermatologist or skin care joint on the list of payees. Is that a credit card you don’t know about? It was worse a couple years ago but most of us can’t open the mail or make a purchase from an on-line retailer without the invitation to sign up for a new card and get cash rewards. Thus, we have seen situations where the bank accounts seem OK but when the divorce is filed one spouse walks into a conference with $30,000 in credit card debt. How did that come about? “My spouse refused to pay for things I needed and were consistent with our lifestyle, so I had to put it on a card.” That sounds absurd but a recent reported case involved a spouse who professed to have no recent income and had to borrow from his parents to just survive. His definition of survival included continued membership in one of the region’s most expensive gold clubs.

A shallow dive into the world of forensic accounting can be a good threat but if you want that expert to go to court, prepare for a ride in the diving bell of accounting expense. Forensic accounting is a jigsaw puzzle and courts want to see all the pieces put together before they start making findings of fraud or prodigal conduct. We live very complex financial lives- a fact that you can confirm with the Doordash guy who just dropped off your pizza, paid for with Venmo.

The tip for the day. Tell your client to collect as much data as possible before any meeting with a forensic accountant and to review it to see what seems suspicious. Then ask your client to tell you where his/her investigation led. If the answer is a weak one everyone needs to ask: “Where is this mission going to land?”