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The role of forensic accounting when business owners divorce

On Behalf of | Sep 2, 2022 | Divorce

Business owners in Washington state face a complex financial situation should they decide to divorce. Issues surrounding valuation, asset liquidity, and fair compensation for a spouse’s labor frequently arise. These thorny financial questions usually call for the services of a forensic accountant.

What a forensic accountant can do

When you hear that a forensic accountant is involved in a divorce, you may associate that with someone trying to hide assets. However, the investigative skills of a forensic accountant fulfill another purpose, which is to establish the current financial status of the business and the splitting spouses’ share of the value.

Forensic accounting services include:

-Calculating a fair market salary for an owner’s labor

-Figuring out which assets are personal or business

-Providing expert testimony in court

-Subtracting pre-marriage asset values from the current total

-Establishing the business’s value so that the divorce terms can be negotiated

Divorce could threaten a business’s future

Although a business may have a high value on paper, that value is not necessarily liquid. The funds necessary to settle a divorce may not be on hand, which could force a total liquidation of the business.

Reasons a spouse may deserve a share of a business’s value:

-The spouse helped to found the business and owns a share

-The spouse worked at the business as an employee

-The spouse gave up other opportunities to support the business owner’s success

Searching for solutions

You may need to go through several rounds of negotiations to find a workable solution that settles the divorce and allows the business to continue, if possible. Solutions may present themselves in the form of exchanging personal assets for business assets or a payment plan instead of an immediate buyout.