All is fair in love and war – relationship property disputes
Forensic Focus - February 2009
As relationships unceremoniously fall apart, hearts are broken and dreams are shattered, and the amount at stake both emotionally and financially for all parties involved is immense.
Traditionally the role of an accountant in relationship property disputes has focussed on the valuation of assets, particularly businesses.
Increasingly however one party (usually the partner not involved in the business) has concerns that funds have been siphoned out of the business, which in turn understates the total pool of relationship assets in two respects:
- The diverted funds may still be available (e.g. secret bank account)
- The reported profits of the business may be understated, which if undetected will cause the business to be undervalued
If for example Mr X has diverted $100,000 p.a. from the business over three years, this may understate the value of the pool of relationship assets by $800,000, calculated as follows:
|Cash in secret bank account||$300,000|
|Increased value of the business
(additional profit of $100,000 per
annum x discount rate of say 20%)
Clearly there is considerable value for Mrs X in identifying anomalies in the financial reports before the valuations are completed and the relationship property is divided. For this reason many relationship property disputes now require an investigation to be completed before the valuation of the business can be completed.
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