“How do I prove I don’t own the Empire State Building?”
A client once said this to me, and it has resonated with me throughout my career.
I was working for the titled spouse in a divorce matter and was in the process of responding to the other side’s requests for information. The client owned several pieces of real estate and we were responding to requests to prove that certain assets were not owned by the client.
On numerous occasions since, I have been faced with the challenge of responding to requests by a client, or the opposing side, to prove that something did not happen, also known as “proving a negative”.
Sometimes these requests can be analogous to proving that the tooth fairy does not exist. While I do not believe the tooth fairy exists, I cannot prove this.
While these requests can be challenging for family lawyers and forensic accounting professionals alike, it is our responsibility to address them in guiding a client through a difficult time in their life. For many, it may be the most difficult time they have ever experienced and thus can be traumatic.
In handling requests to prove that something didn’t happen or that something doesn’t exist, I suggest the following:
1. Listen to what the client has to say.
2. Explain that more information will be needed to support any claim in a court of law, or to pursue additional information requests. Ask questions including, but not limited to:
a. What makes you think this?
b. How do you know this is true?
c. Do you have any documentation or any of the following information:
i. Names of people
ii. Addresses
iii. Vendor names
iv. Account numbers
v. Emails
vi. Text messages
3. Once you narrow down the cause of the claim, work to address it. If the client merely has an inkling, try and devise some sort of “test” to either:
a. Provide circumstantial evidence to pursue additional information requests.
b. Give the client comfort that the results of the test did not yield any indication of financial manipulation. While this does not provide absolute assurance, it can go a long way in helping resolve open claims.
For example, if a client was suspicious that their business owner spouse was manipulating inventory balances to achieve a favorable result in the divorce, I may devise a test that does the following:
a) Analyzes activity ratios for a period that spans several years prior to any actions of divorce and investigate any drastic changes in inventory turnover.
b) Analyze purchases by vendor(s) for a period that spans several years prior to any actions of divorce and investigate any new vendors or major changes to vendor activities.
4. To the extent that the test resulted in findings that indicate there may be some form of manipulation, I may provide this circumstantial evidence to counsel and use this as a basis to request additional supporting documentation. Using the same example as above, if there was a new vendor that appeared within the predefined period preceding the divorce and that appeared to potentially be illegitimate, I would request copies of any contracts and/or invoices with that vendor.
While the prospect of having to prove a negative to address a client’s concerns can be challenging, this is something that family lawyers and forensic accountants alike are almost certain to be faced with on a regular basis. Always take time to listen to the client and understand the basis of their claims. In many instances, they can point you in the right direction. As they say, “Where there’s smoke there is fire.”
When addressing a client that insists that some form of financial impropriety occurred, with no supporting proof, design a test that may either:
a. Provide circumstantial evidence to pursue additional requests.
b. Give the client a sense of comfort that a financial manipulation did not happen.
This approach can be a reasonable alternative to leaving no stone unturned.
Jason Soman, CPA/ABV, ASA, CFE, CDFA® is a forensic accountant and business valuator, and founder of Accounting & Valuation LLC, an expert Accounting & Valuation advisory firm specializing in family law matters. Mr. Soman specializes in advising legal counsel and clients on issues relating to business valuation, spousal support, and other financial forensic issues in divorce matters.
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