Page 35 - Family Law Services

Number of Years to Be Investigated

When discussing the scope of the engagement, the CPA should determine with counsel how many and
which years should be part of the analysis. Upon agreeing on the time period, it is advisable for the CPA
to list the specific time period in the retainer agreement so counsel and the client are clear about what
period(s) of time will be analyzed. Should the scope of the engagement later expand to include addition-
al years, an amended retainer agreement signed by the engaging party(s) is needed.

Types of Assets That May Require Tracing

The most common assets that may require tracing in a marital dissolution include the following:

• Business interests and income

• Investments

• Bank and brokerage accounts

• Retirement accounts and related financial assets

• Real property

After clearly defining the scope of the engagement with counsel and the client, it is advisable that the
CPA list the specific type(s) of asset(s), number, and, if possible, account and business names in the re-
tainer agreement. For example, a specific retainer agreement might state that "XYZ CPA is being re-
tained to trace the activity in bank account 123-456 for the years 20XX through 20XY." To the extent
known, a practitioner may want to identify specific accounts to be traced. Additional accounts may be
identified that require supplementing the understanding with the client. Using a generalized scope, such
as "trace the parties’ assets" in the engagement letter may be considered ambiguous because it is not
clear what assets were, or were not, subject to analysis. On the contrary, a lengthy investigation that
does not yield the expected findings may be viewed as performing unauthorized work.

If counsel or the client is unsure of the scope of the engagement, it is advisable for the CPA to document
in writing what specific assets and time periods have been identified for analysis as the engagement pro-
gresses and obtain confirmation of the request(s) in writing.

Business Interests and Income

Tracing Ownership of Pass-Through Entities

The ownership interest in an S corporation, partnership, or limited liability company is frequently one of
the more significant assets in a marriage. When assisting counsel with determining an equitable division
of the ownership interest(s), the CPA can be instrumental in determining when the ownership interest(s)
were obtained, how they were obtained (purchase, sweat equity, gift), and if there were any changes in
ownership during the parties’ marriage. Each of these factors may be important in determining the ulti-
mate property distribution in a divorce.

In order to assist counsel regarding ownership interests in various entities, the CPA should request and
carefully review documents including, but not limited to, personal income tax returns; business tax re-
turns; gift tax returns; K-1 forms; shareholder, partnership, and operating agreements; personal financial

© 2020 Association of International Certified Professional Accountants 33