Forensic Accountant in Divorce: When Money Is Hidden

Part of: Financial Settlement after Divorce

A forensic accountant in a divorce follows the money when the figures your spouse has disclosed do not add up. They trace where funds went, value a business, and test whether the income they declared could ever have paid for the life the family actually led. Their report reaches the judge only if the court gives permission, and the court will want to know why it is necessary. This guide covers the law in England and Wales.

If you suspect money is missing from the picture, you can book a free initial consultation for initial advice from a specialist, ideally before the first appointment.

What does a forensic accountant do in a divorce?

They turn bank statements, company accounts and tax returns into answers to specific questions the court needs settled. The work usually falls into one or more of these jobs.

• Tracing. Following money through accounts, cash withdrawals and transfers to show where it went and when.
• Valuing a business. What a company or a share in a partnership is worth, and how much cash it could release without damaging the business. Our guide to protecting a family business looks at this from the owner’s side.
• Testing income. Working out what the owner really draws from a business: salary, dividends, money taken through a director’s loan account, and profit the company keeps back.
• Comparing lifestyle with income. Setting what the household spent over several years against the income declared. Where the two do not meet, there is a question to answer.
• Putting a figure on money spent away. If your spouse deliberately wasted money, an accountant’s figure is what an argument to add it back rests on.

Forensic accountants in divorce do not decide anything. Their duty is to help the court on matters within their expertise, so a good report sets out the figures, the assumptions behind them and the documents it could not see. Cryptocurrency raises its own tracing problems, which our guide to cryptocurrency and divorce covers.

Signs a forensic accountant could help in your divorce

A forensic accountant could help when there is a gap between what your spouse says they earn and how the family lived, or between one year’s accounts and the next. These signs can justify asking for one.

• Declared income that could never have paid for the household’s spending, holidays or school fees.
• Business profits, or the owner’s own salary, falling sharply around the time you separated.
• A company that holds on to its profit instead of paying it out, or loans running between the owner and the business.
• Transfers to a new partner, a relative or an account you have never seen, and large or regular cash withdrawals.
• Bank statements with months missing, or accounts you know about that are absent from the disclosure.
• Wallets or exchange accounts for cryptocurrency that nobody has mentioned.

None of these proves anything on its own, but each one is a question to put in writing. Our guide to what a Form E must contain explains the disclosure stage, and divorcing a narcissist who hides money deals with the behaviour that can come with it. If you believe assets are being concealed, our guide to what happens when a spouse hides assets explains how the court can respond, including adding back money spent away.

Each spouse owes a duty of full and frank disclosure to the other and to the court (Sharland, para 21). When the court decides the finances, it must look at the income, earning capacity, property and other financial resources each of you has or is likely to have in the foreseeable future (Matrimonial Causes Act 1973, s.25(2)(a)). If your spouse is moving money to defeat your claim, the court can restrain the transfer or set it aside (s.37).

Do you need a forensic accountant? Divorce red flags to check

When will the court allow a forensic accountant’s evidence?

Only when it is necessary. Rule 25.4 of the Family Procedure Rules says no one may put expert evidence before the court “in any form” without permission. The court may give that permission “only if the court is of the opinion that the expert evidence is necessary to assist the court to resolve the proceedings”. Practice Direction 25D notes that this replaced an older test of evidence “reasonably required” to resolve the proceedings (para 3.1).

When it decides whether a divorce needs a forensic accountant, the court must have regard in particular to five things (r.25.5(2)):

1. The issues the expert evidence would relate to.
2. The questions the court would need the expert to answer.
3. The effect on the case, meaning its timetable, length and conduct.
4. Any failure to apply on time or to follow the court’s directions about experts.
5. The cost of the expert evidence.

The application itself must state the field of expertise, the name of the proposed expert where practicable, the issues the evidence will cover and whether a single joint expert could provide it. A draft order must go with it (r.25.7). That is why a vague worry rarely succeeds. “I think he is hiding money” is not something an accountant can answer. “What income could the company have paid its owner in each of the last three years?” is.

Single joint expert accountant or your own?

When a divorce needs expert accounting evidence, the rules favour one forensic accountant whom you both instruct. Practice Direction 25D sets out the steps to take before anyone goes to court.

1. Names first. The party who wants an expert sends the other a list of one or more suitable accountants (para 2.1).
2. Objections within 10 business days. The other side objects to any name it does not accept and can suggest its own (para 2.2). Each side says whether it has already consulted any of them (para 2.3).
3. Fees agreed in advance. Before applying, you agree how the fee is to be shared, at least at first, and when it is paid (para 2.6).
4. One letter of instruction. The expert’s instructions go in a jointly agreed letter unless the court directs otherwise (r.25.12(1)).

If you cannot agree on a single joint expert accountant, the court can choose from a list you each put forward (r.25.11(2)). Each of you should think carefully before instructing your own expert instead, because of the costs (PD25D, para 2.4). Two experts mean two fees, and the court can direct them to discuss the issues and file a statement of where they agree and disagree (r.25.16).

Paying an accountant to advise you privately

In financial cases you do not need the court’s permission to instruct an expert. You need it only to put their evidence before the court (PD25D, para 2.1). So you can pay a forensic accountant to advise you privately during the divorce, helping you frame the right questions and test the joint expert’s report. Their work stays private unless the court later gives permission to use it. Once you receive the joint report, you can put written questions to the expert, once, within 10 days of service. The questions must be proportionate and only seek to clarify the report (r.25.10).

What a forensic accountant costs against what is at stake

There is no standard fee for forensic accountants in divorce, because the price depends on the questions and the volume of papers. Before the permission hearing, whoever is instructing the expert must get their confirmation that the work is within their expertise, that they can meet the timetable, and what it will cost (PD25D, para 3.4). The application must give the likely cost of the report (para 3.11(g)), and the court weighs that cost as one of its five factors. For a single joint expert, the court can cap the fees before the expert is instructed. Unless it directs otherwise, you are jointly and severally liable for them, so either of you can be asked for the whole fee (r.25.12(5) and (6)).

Whether a forensic accountant is worth it in your divorce comes down to the same test the court applies. Spending heavily to look for a sum smaller than the fee rarely makes sense. When the case involves a business, a large income or a pattern of transfers, though, the report may be the only way the true figures ever reach the judge. If you settle on figures you doubt, undoing the order later is slower and harder than asking the right questions now.

Forensic accountants in divorce: frequently asked questions

General information about the law in England and Wales, not advice on your circumstances.