Business Valuations & Complex Financial Problems in DivorceShow Video Details ↓ [silence] … …Pete Cordelli: [silence] Hello, this is Pete Cordelli. I'm speaking with Miles Mason, Senior of the Crone and Mason family law practice group. Miles Mason is uniquely qualified to represent clients in complex financial divorce cases. Miles is a former CPA and a member of the American Association of Attorney Certified Public Accountants. Miles has presented at countless conferences, spoken to the media and published articles on business valuation, complex financial situations in divorces, forensic accounting, and using tax returns to uncover hidden assets. Miles, can you tell us why financially complex divorces require experience and uncommon expertise such as yours? Miles Mason: Well many times, Pete, in a divorce, you have to value pensions, stock options, or other types of benefits provided to highly compensated employees. Many times those assets can comprise a large percentage of the net marital estate. Also, you have situations where businesses need to be valued. One of the spouses owns a business or the business has appreciated during the marriage. And that can be very very complicated. And then the final and other type of difficult case is where one spouse suspects the other of either hiding assets or understating income. And that's where the forensic accountants get involved and the concepts and the questions and the issues and evidence can be very, very complicated. Pete Cordelli: What would be the best way for a person with a case such as this to protect the assets they have at stake or are entitled to during a divorce? Miles Mason: Well first you got to get a plan. You have to meet with an attorney, spend some time talking about what the key issues are and look at the marital estate asset by asset. First you worry about cash for obvious reasons. Cash is very easy to move. Second, you're looking at valuation of assets. Then you're also looking at identifying assets. And then, finally, you've got to classify assets as marital or separate. And that can take some time and take some effort. But along the way, the first and foremost, you've got to plan your work before you work your plan. Pete Cordelli: Prior to becoming a family law attorney, didn't you obtain your license as a Certified Public Accountant? Miles Mason: Yes, I did. Pete Cordelli: How is this an advantage for you and your clients in complex financial divorce cases? Miles Mason: In the practice as a CPA, we have to know accounting, financial analysis. Key concepts that are very, very important in divorce. What I'm able to do is take that information and share it with the team because a lot of times one of the most important people involved in a divorce is the paralegal. And the paralegals have to have a certain amount of financial acumen in order to do their job excellently. And that's what we try to focus on here. Pete Cordelli: That's why the term "family law practice group". It is a team, but you're trying to make improvement on a daily basis which reminds us of the story of Kaizen, which is the Japanese theory of improvement daily. And it seems like that's what you're trying to do here at Crone and Mason family law practice group. Miles Mason: Absolutely. We have an internal training program. We try to take our paralegals to some of the best continuing legal education that's out there. We try to have the best reference material we can. Because all we do is practice family law. We've got to get better and better at doing the simple things every day. And many times that relates to handling complex financial assets. Whether they be pensions, stock options, 401ks, and their division, and helping clients get it right the first time. Pete Cordelli: So you are basically the head coach and you have a game plan but it's improvement daily for your team which obviously helps your clients in the end. Miles Mason: We hope so. Pete Cordelli: Miles, for those of us who don't know, what is forensic accounting and how is it used to help in financially complex divorces? Miles Mason: There is a lot of different things a forensic accountant can do. First, usually we use them to value pensions. Could be used to value stock options, help us understand complex assets, especially compensation structures for highly compensated employees and people that aren't highly compensated. They could also possibly be a business valuation expert but many times we also use them to help us analyze lifestyle and help us figure out what reasonable offer or counter-offer might be in terms of an alimony determination. How much should be paid for how much overtime. How should we structure it? And then also what are the tax implications? All these things come into play in a divorce settlement, whether it's a 20 year marriage, 25 year marriage or 10 year marriage, these issues can crop up and it's important to get the right advice at the right time for a client and we personally believe that we should bring on a forensic accountant when a forensic accountant is needed as early in the case as possible. Pete Cordelli: Especially in a marriage where both the husband and wife are working and a lot of assets have been accrued? Miles Mason: Absolutely. And what we're trying to do is make sure that we identify all the assets, classify them properly and sometimes a forensic accountant is going to tell us what happened to the appreciation of separate property in terms of what part of that could be marital property subject to division, as well as valuation. Pete Cordelli: What an interesting concept. But your background obviously provides a great advantage for your clients. Miles Mason: We hope so. Pete Cordelli: Miles, in all your years of practice, haven't you developed your own unique tools and tips for finding hidden assets in financially complex divorces? Miles Mason: Absolutely. The first tool that we have is obviously discovery, the interrogatory request for production of documents. But there are some people willing to lie and commit perjury in a divorce. Now the next question is are those people also willing to commit federal income tax fraud? Many times the answer is no, or they've had a CPA help them prepare a tax return and the CPA is not going to help them lie. So sometimes that information, in terms of helping to identify assets, may be located on the tax returns. One of the things that we do here is we take a look at the tax returns and I've created a checklist to go through, item by item, in the tax return and look for some of the more obvious places on tax returns to try to find assets that may not have otherwise been disclosed. Pete Cordelli: So there really is quite a bit at stake and much more complexity in these cases. Let's talk about how some of these assets must be valued in order to split the marital assets in a divorce. Miles, how can owning a business affect the separation of assets during a divorce and does that complicate matters? Miles Mason: It can tremendously. Think about what is property division. In a divorce it is really three things. First you've got to identify assets. Second, you've got to classify them as marital or separate property. And then finally you have to value them. How do you divide up an estate when you don't know what its size is? So valuation can be a tremendously important issue for all assets. But when it's a business, it can be incredibly difficult to value. Pete Cordelli: So how does one know if a valuation by an expert is necessary? Miles Mason: Well you have to sit down, look at the over all estate. When was the business acquired? How much is owned? But in many cases, if there is a business that's owned, whether it's wholly owned or just a minority interest, odds are it's going to have to be valued for 1 party to get their fair share of the value out of that asset. Pete Cordelli: If the other side had it valuated, why should a client pay for another valuation? Isn't there just one legitimate answer to what its value is? Miles Mason: In theory yes, in reality not so much. It's not unusual for one party who has hired a business valuation expert to get a valuation and then the other party if they also have that same asset value, come up with a much different valuation. There is a lot of judgment involved. And although an expert has a ethical duty to be an advocate for his or her value, it's not unusual to see a big difference in a divorce in the valuation, whether it be a majority interest or a minority interest. Pete Cordelli: So miles, how does a business valuation work in practice? Miles Mason: First you have to hire a business valuation expert. There are four different credentials that a business valuation expert can possess. I recommend clients interview two or three business valuation experts, get quotes for the fees because the fees can vary greatly. But finally, we want to hire an expert that the client is most comfortable with. Then the expert will get documents from the business, possibly interview management and then eventually issue a report analyzing the income and assets of the business. Looking at the overall picture, perform some pretty detailed and complicated number crunching and come up with a value of the ownership interest. Pete Cordelli: Miles, it sounds like the family law practice group has all the elements necessary to create or assist a legal team in handling all the aspects of any divorce, even one with complexities such as business ownership or complex finances. Miles, thank you for shedding some light on the resolution of these common issues of highly complex financial situations and divorce. |