by Fiona Hotston Moore – Forensics partner and Expert Witness – Ensors Chartered Accountants
As a forensic accountant and an accounting expert witness I regularly assist in divorce matters in a variety of roles.
Typically, we may be appointed as the Single Joint Expert and instructed to give an independent view on the valuation of an interest in a business and the
maintainable earnings generated from that business. On the other hand we can be appointed as party expert to advise one party on the value of business assets or the tax consequences of the transfer of assets.
We can also be appointed by one party to investigate suspected fraud such as hidden assets or under declared income.
More recently we have been approached to provide an objective estimate of the likely tax liabilities in cases where, for example, one party has potentially
substantial future tax liabilities arising from investment in film partnerships or other tax schemes.
Divorce and tax:
In our experience most divorce lawyers have a good understanding of tax and larger legal practices may have in-house tax advisers. Unfortunately however, we still come across cases where one party discovers after the divorce is settled that as a result of the way in which assets were transferred or cash extracted from a business they have been left with an unexpected, totally avoidable and often substantial tax bill.
For example, we recently came across an individual who had received his spouse’s interest in the business as part of the financial split and had also agreed to then withdraw a substantial amount of “surplus cash” from the business to provide a cash settlement to his wife. Sadly, in order to meet this commitment he had to either: a) draw the cash as a dividend or salary with substantial personal tax liabilities; or b) wind-up the business.
The sad truth is that the tax could have been avoided completely if the settlement had been arranged to include a share buy back.
In another recent case, where one party claimed very substantial tax liabilities arising on a number of investments in tax schemes over a number of tax years, we were appointed as party adviser. Having reviewed all the relevant documentation and current position on the tax litigation we were able to provide an independent view of the likely future tax payments (which was substantially lower) as well as the worst and best case scenarios.
Divorce and business assets:
Our role in many divorce cases is to give an independent opinion on the valuation of an interest in a business. We will consider the most appropriate valuation method and review financial records, market data and the views of both parties before arriving at our opinion. Valuation is, however, subjective and inevitably one or both parties (and their adviser’s) will not be entirely happy with the outcome.
One frequent point of discussion with divorce lawyers is whether forensic accountants doing business valuations need to be specialists in that business sector. Our view is that generally when valuing an owner managed business it is not necessary to be a specialist in that sector. A typical forensic accountant will be an experienced and professionally qualified accountant who has advised on a great variety of businesses. The principles of valuation are the same for all businesses and the experienced forensic accountant/business valuer will apply those principles to any business they are valuing. Specialist input may be required if the business holds property, complex plant or commodities etc. In these cases these assets will need to be valued by a specialist and the business valuer will rely on this valuation in assessing the overall business value.
Divorce and fraud:
As accounting expert witnesses we may be asked to investigate concerns raised by one of the parties about under declared assets or understated income. Alternatively, in undertaking our role as expert witnesses, we sometimes identify potential fraud on one party.
For example, occasionally when valuing business interests we have come across instances where part or all of the business has been “hidden” perhaps by
transferring part of the trade or customers to what appears to be an unrelated business; by overstating liabilities; or, by understating work in progress. On smaller cases this can pose a challenge in balancing the cost of professional fees against the objective of giving an objective opinion. However, we are always
willing to negotiate a fixed fee which can help with assessing the viability of such instructions.
Through this work we have also often discovered undeclared deferred compensation and forged share transfers.
Recent case studies
by Fiona Hotston Moore
We were engaged as party expert witness on a commercial dispute around a termination of an agency agreement. The agent was claiming a substantial sum under Regulation 8 and Regulation 17 of the Commercial Agents Regulations. Our work involved assessing the potential liabilities under a large number of potential scenarios, depending on which products were deemed to be within the agency and what was concluded to be the appropriate notice period, as well as considering the valuation of the commercial agency.
We were engaged by one party to provide an opinion on the potential liabilities under the earn-out provisions within a Sale and Purchase Agreement relating to the sale of a consultancy business. Unfortunately, the accounting records of the business did not readily facilitate extraction of the information needed to calculate the earn-out in the manner envisaged in the legal agreement. Our work therefore included a full examination of the trading information available to provide the base data required to perform the calculation.
We were engaged by the company to provide an opinion on the loss suffered by the company as a result of the negligence of the reporting accountant in conducting the financial due diligence on the acquisition of a business by the company. In our report we identified the failings in the work of the reporting accountant and the quantification of the losses arsing.
Ensors Forensic Accountants
Led by Fiona Hotston Moore, forensic accountant and experienced expert witness, the Ensors Forensic Accounting team provides a professional, expert service for you and your clients.
We provide authoritative advice on all kinds of litigation and investigations, including commercial disputes, civil and criminal cases, business valuations, professional negligence and personal injury claims.
Our team is responsive and efficient, while maintaining meticulous attention to detail. We combine high-level accountancy expertise with extensive knowledge of current legislation and best practice in the fields of tax, insolvency and corporate finance. We are also acutely sensitive to the stresses and anxieties often experienced by those involved in civil or criminal disputes and are fully transparent, offering a flexible fee structure.
Members of our team are accredited with The Academy of Experts and NIFA (Network of Independent Forensic Accountants) and have experience of giving evidence in Court.
Fiona Hotston Moore
M: 0770 642 491