by Ron J. Anfuso, CPA, ABV, CFF, CDFA, FABFA
Ron’s Corner
Tackling the financial and accounting aspects of a collaborative divorce to gain the best equitable outcome usually requires a CPA who has completed training and gained expertise in several specialized areas of accounting. These include the following:
Accredited in Business Valuation (ABV) and Certified Financial Forensics (CFF) are accreditations granted by the American Institute of Certified Public Accountants. These designations are exclusively for CPAs who have demonstrated their business valuation expertise and forensic accounting experience and have passed a written examination for business valuation.
Earning an ABV certification includes more than 1,500 hours of real-world valuation experience. An ABV holder must also complete continuing education to maintain certification. This training helps boost clients’ confidence that an ABV-certified professional can fairly evaluate a business’s worth. Unlike other accounting credentials, the ABV certification is only offered through theAmerican Institute of CPAs (AICPA), which is the national professional organization for certified public accountants.
The CFF certification is granted exclusively to a CPA who has demonstrated significant experience, knowledge, and skill in forensic accounting and expert witness testimony. To become certified, the forensic accounting professional must have demonstrated the ability to provide sound and reliable forensic accounting services. The accountant must have completed 75 hours of forensic training, have passed a two-part exam, and have completed 1,000 hours of relevant professional experience.
A Certified Divorce Financial Analyst®(CDFA) has received training and certification to serve as a financial expert on divorce cases, has presented powerful data to support legal arguments, and has offered financially sound settlement options.
The CDFA program is designed to prepare the professional as an expert in the financial aspects of divorce. The role of a CDFA professional is to address the special financial issues of divorce with data to help achieve equitable settlements.
Divorce Financial Analysisis the application of the discipline of financial planning to settlement strategies in divorce. The process requires the synthesis of tax, insurance, retirements, and other areas of knowledge with their specific application to divorce. To pass the eligibility requirements requires examination by a board of advisors and reflects that this is not an entry-level designation but an advanced program.
FABFA (Fellow of the American Board of Forensic Accounting) credentials are received by the accountant who has demonstrated knowledge and competence in professional forensic accounting. It is awarded after the FABFA Board has reviewed the application and work history of the applicant, and the individual has demonstrated through professional and academic accomplishments that substantiate that the candidate has mastered the field of forensic accounting. This designation is based on the Board’s analysis as to whether the candidate has successfully completed the due-diligence process and has met continuing educational requirements. Through testing, analysis, and evaluation of the knowledge, skills, and abilities of the applicant, the Board has been entrusted to provide certification and recertification in the field of forensic document examination.
Fellow status is awarded by the American Board of Forensic Accounting (FABFA) to an individual who has completed at least one of the American College of Forensic Examiners International’s credentialing programs and has made professional contributions to the field of forensics. It recognizes achievement and excellence and establishes the Fellow as a distinguished top professional.
If you have any questions about these credentials, I welcome you to contact me.
When couples begin a marital dissolution and choose the collaborative divorce process, we often find that one person is thoroughly knowledgeable about their finances and the other one knows very little.
In such cases, one spouse has paid the bills during the marriage and has been in charge of investments. That person has taken care of all the financial obligations. Suddenly, when the divorce begins, the spouse who has been in the dark about the finances realizes she or he needs more information about the family’s financial situation.
The uninformed spouse often does not have a clue and says, “I trusted my spouse, who took care of it all for us.” Now, that spouse needs to know everything about the finances to be informed as to a fair division of assets as well as to analyze any support issues, which can be a cumbersome task. Such cases are best served by a thoroughly trained and experienced forensic accountant/financial specialist.
Choosing a Qualified Financial Professional
Sometimes, a collaborative team will select a financial professional who is a financial analyst or CPA with Certified Divorce Financial Analyst (CDFA) credentials. A team might consider that this is the only expertise required to achieve the most equitable outcome for both parties. Certainly, a professional with significant experience as a CDFA is an essential component. However, only a fully trained and experienced forensic accountant can provide the complete package of knowledge and skills required in most collaborative divorce cases. At least some of the following frequently need to be addressed:
• Business valuation and determining reasonable compensation
• Pereira apportionment of business interests and Van Camp analysis
• Determining gross cash flow available for support
• Marital standard of living analysis
• Tracing for the purpose of determining post-separation reimbursement
• Family code §2640 reimbursements
• Characterizing property as community or separate
• Valuation and apportionment of restricted stock units
• Allocation of interest in pension plans, and
• Apportioning of interests in real property.
Let us take a look at these potential requirements:
Business valuation and determining reasonable compensation: Two of those areas that require some subjectivity when valuing a business are the determination of reasonable compensation and the risk associated with the business. The means by which to determine how a person is operating a business, and applying surveys and risk factors, are examples of when it requires both objective and subjective judgment.
The valuation expert must consider the amount of risk associated with the operation of the business that is reflected in the capitalization rate, the inverse of which is a capitalization multiple. For example, an investor might willingly accept a lower expected return in exchange for lower risk or no risk. The degree to which an investor is willing to trade risk for return depends on the particular risk tolerance and investment goals of that investor. An example of a risk-free rate is a 20-year Treasury Bill. It is considered risk-free because the United States government has yet to default on a Treasury Bill.
After the risk-free rate is determined, the next step is to add market risk. This is objectively determined from databases subscribed to by business valuation analysts.
The business valuation expert also needs to consider the size risk of the company. The size risk is often included in valuations of smaller companies. These are market-driven and are determined objectively.
Opinion comes into play, however, when the company-specific risk is added. I determine how much risk there is depending on many factors using a worksheet I developed to add weighted percentages. Considerations include the general economic condition of the economy as well as the past results of the company’s operations and of the industry in which the company operates.
(The remaining requirements will be addressed in the next edition of Forensic Accounting Today.)
