Hidden Assets in Divorce

Thomas E. Hilton, MS, CPA/ABV/CFF, ASA, CVA

There are a number of ways that one spouse may try to undervalue or hide assets from another spouse during a divorce, such as: 

• Collusion with an employer to delay the payment of bonuses, commissions, stock options, or annual raises to salary;
• Failure to disclose retirement accounts;
• Undervaluing personal items, such as artwork, antiques, collections (coins, guns, sports memorabilia, etc…), and hobby equipment;
• Opening custodial accounts in the name of a child;
• Moving assets to an offshore account,
• Skimming cash from a business and/or other unreported income, and
• Placing assets in a safe deposit box.

In order to locate these assets, it is usually necessary to hire a forensic accountant who can gather and review evidence and present his or her findings to the court. Contact me today for more information, 314.655.5500.

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Divorce & The Capital Loss Carry-Forward

Kevin P. Summers, JD, CPA/ABV/CFF, ASA, CVA, CDFA

Due to turmoil in the stock market during 2008, as well as 2000 through 2002, many married couples may have incurred losses on the sale of their stocks.  Due to limitations within the Internal Revenue Code, capital losses in excess of capital gains plus $3,000 result in a capital loss carry-forward which can be used to offset future capital gains.  When married couples get divorced, the capital loss carry-forward is an often overlooked asset within the marital estate.

One question that should arise when dividing the marital estate is how to divide the capital loss carry-forward.  The answer is, as with most things in litigation, it depends.  What it depends on is how the capital loss was originally generated.

For example, if the capital asset which generated the capital loss carry-forward was a separate asset owned by the husband, then the capital loss carry-forward should be allocated to the husband.  Likewise, if the capital asset which generated the capital loss carry-forward was a jointly owned asset, then the capital loss carry-forward should be split between the husband and wife.  The allocation of the capital asset carry-forward is a bit more complicated when there have been capital losses generated for multiple tax years and when the ownership of the capital assets generating the capital loss carry-forward has been mixed (marital vs. separate).

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Intangible Assets #4: Asset Valuation

By: G. William Kennedy, Ph.D., CPA/ABV

U.S. financial accounting standards (Statement of Financial Accounting Standards 141R and 157 for example) provide the guidance for corporations regarding the categories of intangible assets that must be valued and reported on their balance sheets. Additionally, the U.S. accounting standards provide guidance on the standard of value and the valuation methods and approaches for the valuation expert to use when valuing their client’s intangible assets. The valuation expert that serves clients that have significant portfolios of Intangible assets must have substantial depth and breadth of knowledge in both the fields of GAAP financial reporting rules and business valuation. Because of AICPA professional standards, a company’s auditors are prohibited from providing valuation services to their audit clients, specifically valuation services related to the values of the intangible assets reported on the client’s balance sheet. As a result, the corporation and its CPA firm must seek the assistance of an independent qualified valuation expert.

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Intangible Assets #3: Patents

By: G. William Kennedy, Ph.D., CPA/ABV

According to the USPTO, a patent is the grant of a property right to the inventor. The property right specifically granted to the patent holder is “the right to exclude others from making, using, offering for sale, or selling” the invention covered by the patent. This legal protection for the patented invention is potentially a source of value for the patent because the patent confers a legal monopoly for its owner to practice or produce the invention protected by the patent and exclude all others from profiting from the invention unless a specific license is granted by the patent holder to the individual or entity desiring to use the patent claims.

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Intangible Assets #2: IP Assets

By: G. William Kennedy, Ph.D., CPA/ABV

There are several well known categories Intellectual property (”IP”) assets: patents, copyrights, trademarks, and trade secrets. One of the important common characteristics of these assets that contribute to their value is that they are all afforded legal protections that allow them to be used or exploited only by their owners. Patents, copyrights and trademarks are registered with the U.S. Patent and Trademark Office and receive their legal protection from the Federal Law, legal protections for Trade Secrets are provided by state law.

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Intangible Assets #1: An Overview

By: G. William Kennedy, Ph.D., CPA/ABV

Intangible assets are a broad category of assets that may be easiest to define by stating what they are not; intangible assets generally do not have a physical representation. Inventory, buildings, land, manufacturing equipment, and transportation equipment are all examples of tangible assets, assets that you can see and touch. For financial reporting purposes, there are a number of categories of intangible assets that must be reported on the balance sheets of corporations, those include:

• marketing related intangible assets such as trademarks and tradenames, internet domain names;
• customer related intangible assets including customer lists, customer contracts and production backlog;
• artistic related intangible assets such as plays, books, musical works, pictures and videos; contract based intangible assets such as licensing or royalty agreements, supply contracts, permits, franchise agreements
• Technology related intangible assets such as patented technology, computer software, databases, and trade secrets.

Determining the value of each of these intangible assets so they can be properly reflected on the balance sheet of a corporation that owns such categories of assets requires specialized skills, training and experience of a CPA who is an expert in business valuation.

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Is there an Original Anymore?

By: Thomas E. Hilton, MS, CPA/ABV/CFF, ASA, CVA

Legal discovery is a time consuming and expensive process…..and it’s getting worse. Gone are the days when there was only one original of a document and the records of an entire business were kept in several files cabinets in a corner of the office. Now that we’ve irreversibly moved to an electronic world, the same document can exist in any number of places simultaneously, on a desktop, a laptop, a PDA, or even a jump drive.

The fact that a document can simultaneously exist in an infinite number of locations and worse, can be altered, really causes me heartburn. Why? Because when I request documents to be produced in a given litigation matter, I assume they are accurate and they represent the facts as they existed at that time. As a testifying expert, I put my reputation at stake when I give an opinion in court in reliance upon the documents that were produced in discovery.

Well, what if the other expert produces a different version of the document I relied upon in forming my conclusions? What if that document contradicts my documents? What if that causes my conclusions to be invalid? Which one is real? Are either of them real? It makes me wonder, is there such a thing as an original anymore?

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Standard of Value Must be Identified Before the Value is Determined

By: Michael D. Morhaus, CPA/ABV/CFF, CVA, ASA

Before a valuation analyst can accurately determine the value of a closely held business, he or she needs to identify the proper standard of value.  The term value can mean different things to different people depending on the context.  The standard of value can be thought of as being the type of value sought.  Without a clear understanding of this standard of value, the conclusion of value could be misleading or have no meaning.

The most widely recognized standard of value is Fair Market Value.  Fair Market Value is defined in the Internal Revenue Service’s Revenue Ruling 59-60 as follows:

“…the price at which property would change hands between a willing buyer and a willing seller when the former is not under compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.”
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Litigation Now in Whole New World of Discovery

By: Thomas E. Hilton, MS, CPA/ABV/CFF, ASA, CVA

During the past 10 years or so, American business has converted from a storage system that was predominantly paper to one that is now electronic. We now live in an electronic world. The rules of legal discovery in litigation however, have not advanced at a rate that has kept pace with the changing times, thereby causing uncertainty and disagreement between opposing counsel.

Recently the Federal Rules of Civil Procedure, which govern discovery in litigation, were revised to come more in line with the reality of the business world. These rules create a new term, “electronically stored information”, and consider it to be equivalent to the term “document”, which has pervaded the rules for so many years. Now counsel for each party has the right to request certain data stored in electronic format on the hard drives of a litigant.
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Cash is King in Divorce Settlements

By: Kevin P. Summers, CPA/ABV/CFF, CVA, CDFA 

In a recent survey conducted by the Institute for Divorce Financial Analysts, 33% of respondents said the current economic climate has affected the type of assets their clients wish to receive as part of their divorce settlement.  The most common request now is for liquid assets only: their clients simply want cash.  They want cash more than stocks, investments, real estate, or retirement plans. 

Other recession-related changes found in the survey include: 

• The house is now more desirable than retirement assets
• Many are taking a much harder look at the cost basis of an asset and what the tax implications would be today if it required liquidation
• Insurance-related products, such as annuities and permanent life insurance, are becoming more attractive, and
• Clients are using tax planning more than ever.
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