DIVORCE SPECIAL COUNSEL

In a high-net-worth divorce the matrimonial litigator runs the case and a forensic accountant builds the asset schedule. Between those two roles sits the tax treatment of everything being divided — and it belongs to neither of them.

The litigator will tell you, correctly, that the firm does not give tax advice. The forensic accountant will tell you, correctly, that valuation is not a tax opinion. Both are right, and the consequence is that the single largest variable in what each side actually receives is frequently the one nobody was engaged to examine.

WHEN IT SURFACES

Almost always at the end. The schedule is built, the offers have been exchanged, the agreement is drafted, and someone finally asks what the tax consequences are. By then the negotiating has been done. Nobody wants to reopen it, and the answer becomes something to absorb rather than something to have negotiated.

The right moment is when the asset schedule is first assembled — before any offer is exchanged. At that point every tax question is still a variable. Afterward it is a problem.

WHAT THIS FIRM IS BROUGHT IN TO DO

• Price the after-tax value of every asset — so that a dollar of retirement account, a dollar of marital residence, and a dollar of closely held business interest are compared on the same basis rather than at face.
• Test the tax claims made across the table — an asserted tax consequence is a legal position, and it can be verified. More on this.
• Find the exposure nobody priced — suspended passive losses, recapture waiting inside a real estate holding, built-in gain in an entity, a foreign account nobody characterized.
• Address joint-return liability — the return already filed is a shared liability, and relief under section 6015 has its own requirements and its own deadlines.
• Work with the team, not around it — the litigator keeps the case, the forensic accountant keeps the valuation. The firm supplies what neither is engaged to supply.

WHY THIS FIRM

Paul K. Donovan is an attorney and a Certified Public Accountant, admitted in Florida and Massachusetts and before the United States Tax Court. The combination is the reason the role is possible at all: reading the partnership agreement, the depreciation schedule, the trust instrument and the Code at the same time is not something the engagement can be split across two people without losing what sits between them.

The firm is engaged as special counsel and does not disturb the existing attorney-client relationship. Where the matter has an international dimension — a foreign trust, an offshore holding company, a non-US pension — that is the sharpest version of this problem and the one most often left unexamined. More on international assets.

THE PAGES BENEATH THIS ONE