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A forensic accountant is generally an accountant with expertise in detecting financial fraud or manipulation in personal and business tax returns, bank accounts, investment accounts, retirement accounts, broker accounts, offshore accounts, cash, cryptocurrency, jewels, art, cars, yachts, airplanes, real estate, life insurance policies, and related financial documents. This financial investigation work is often referred to as tracing, financial tracing, or asset tracing, and generally involves “following the money” by tracing a piece of financial information or data back to its source.

In divorce litigation—and especially in high-asset or high-net-worth divorces in which there is significant marital or community property—any financial manipulation or fraud of personal or business finances may have a significant effect on the marital or community property that is available for division, and on spousal support and child support payment amounts. One or both spouses in a divorce may hire a forensic accountant to discover any hidden assets or manipulated financial documents that may prevent the court from having an accurate accounting of the marital or community property assets and the spouses’ incomes.

In Texas, forensic accounting is a critical tool in divorce litigation, particularly in cases involving high-net-worth individuals or substantial marital assets. Texas is a community property state, meaning that all property acquired during the marriage is presumed to be owned jointly by both spouses and must be divided equitably upon divorce. A forensic accountant's role is to conduct a thorough investigation of the couple's finances to ensure a fair division of assets. This includes identifying any hidden assets, uncovering financial fraud, and tracing funds to their source to provide an accurate representation of each spouse's financial standing. The findings of a forensic accountant can significantly impact the division of marital property, as well as the determination of spousal and child support payments. The use of forensic accountants in divorce proceedings is supported by Texas family law, which aims to achieve a just and right division of community property and ensure that support obligations are based on accurate financial information.

Texas Statutes & Rules

Texas Family Code, Section 7.001 - General Rule of Property Division
This statute is relevant because it establishes the general rule for division of property upon divorce, which can be affected by findings from a forensic accountant's investigation.

Upon divorce, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage. This includes both community property and separate property. A forensic accountant's findings can influence what the court considers 'just and right' by revealing hidden assets or financial discrepancies.

Texas Family Code, Section 7.002 - Division and Disposition of Property Under Special Circumstances
This statute is relevant as it addresses the division of property when fraud on the community estate is found, which is a key area where forensic accountants provide expertise.

If a spouse has disposed of any community property with the intent to defraud the other spouse or the estate, the court may reconstitute the community estate to include the fraudulently disposed of property. The court may also order a division of the reconstituted estate in a manner that the court deems just and right. Forensic accountants play a crucial role in uncovering such fraudulent activities.

Texas Family Code, Section 6.502 - Grounds for Annulment and Void Marriages
This statute is relevant as it outlines circumstances under which a marriage may be annulled or considered void, which can involve financial deception that a forensic accountant might uncover.

A marriage may be annulled if one party used fraud, duress, or force to induce the other party to enter into the marriage, and the other party has not voluntarily cohabited with the party since learning of the fraud or being released from the duress or force. Financial fraud discovered by a forensic accountant could potentially be grounds for annulment if it influenced the decision to marry.

Texas Family Code, Section 7.009 - Fraud on the Community
This statute is relevant as it specifically addresses fraud on the community estate, which is a primary concern in asset tracing by forensic accountants in divorce cases.

A court may grant a judgment to a spouse against the other spouse if the other spouse has committed actual or constructive fraud on the community. The judgment awarded may include the value of the reconstituted estate, which can be significantly impacted by a forensic accountant's findings of hidden or undisclosed assets.

Texas Family Code, Section 7.003 - Division of Future Property
This statute is relevant as it allows for the division of property not in existence at the time of divorce, which may be identified through forensic accounting.

The court may provide for the division of future property, including income, bonuses, and property to be acquired after the divorce, in a manner that the court deems just and right. Forensic accountants may uncover future financial interests or expected assets that should be considered in the division.

Texas Family Code, Section 7.006 - Agreement Incident to Divorce or Annulment
This statute is relevant as it allows spouses to enter into binding agreements regarding property division, which can be informed by a forensic accountant's findings.

Spouses may enter into a written agreement concerning the division of the property and the liabilities of the spouses and maintenance of either spouse. The agreement is binding on the court unless it finds the agreement to be unconscionable. A forensic accountant's report can provide the necessary financial clarity to ensure the agreement is fair and equitable.

Federal Statutes & Rules

Bank Secrecy Act (BSA) - 31 U.S.C. §§ 5311-5330
The BSA is relevant because it requires financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, or regulatory matters, including those that may involve financial fraud or manipulation.

The Bank Secrecy Act mandates that financial institutions in the United States help government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Forensic accountants may use the records and reports generated in compliance with the BSA to trace financial transactions and uncover hidden assets or financial manipulations.

Internal Revenue Code (IRC) - 26 U.S.C. §§ 1 et seq.
The IRC is relevant because it governs all aspects of taxation in the United States, and forensic accountants may use it to identify discrepancies in reported income or fraudulent tax return information during their investigations.

The Internal Revenue Code is the domestic portion of federal statutory tax law in the United States. It covers the rules for federal income tax, payroll taxes, estate taxes, gift taxes, and excise taxes. Forensic accountants may analyze personal and business tax returns to detect fraud or manipulation by comparing reported income and deductions with other financial records. Discrepancies may indicate hidden assets or unreported income, which can be critical in divorce litigation for determining the correct division of assets and appropriate support payments.

Sarbanes-Oxley Act of 2002 - 15 U.S.C. §§ 7201-7266
This act is relevant because it includes provisions to combat corporate and accounting fraud, and forensic accountants may rely on the compliance requirements of this act to assess the integrity of financial documents.

The Sarbanes-Oxley Act was enacted in response to a number of major corporate and accounting scandals. It established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. The act contains provisions relating to auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. While primarily focused on publicly traded companies, the principles and requirements of the Sarbanes-Oxley Act may provide a framework for forensic accountants when examining the financial records of private entities in divorce cases to ensure the accuracy and completeness of financial disclosures.

Fair Credit Reporting Act (FCRA) - 15 U.S.C. § 1681
The FCRA is relevant because it regulates the collection, dissemination, and use of consumer information, including credit information that forensic accountants may review during financial investigations.

The Fair Credit Reporting Act is a federal law that promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. It is designed to protect consumers from the willful and/or negligent inclusion of inaccurate information in their credit reports. Forensic accountants may use credit reports to trace financial transactions and liabilities, which can reveal hidden assets or undisclosed debts in a divorce proceeding. The FCRA also provides guidelines on the use of credit information for employment, which may be relevant in assessing a spouse's income and financial standing.

Money Laundering Control Act - 18 U.S.C. §§ 1956-1957
This act is relevant because it criminalizes the act of money laundering, and forensic accountants may investigate financial transactions that could be indicative of money laundering as part of asset tracing.

The Money Laundering Control Act makes it illegal to engage in transactions with proceeds generated from certain specified unlawful activities. The act prohibits individuals from engaging in practices designed to conceal the origin of money derived from illegal activities or to avoid reporting requirements under the BSA. Forensic accountants may use the provisions of this act to identify and trace suspicious financial transactions that could be related to money laundering, which may also involve the concealment of assets in the context of divorce litigation.