GoransonBain Ausley attorney Thomas Greenwald interviews Bryan Rice, a CPA with 30 years of experience and 20 years in forensic accounting. In this episode, Thomas and Bryan discuss reasons why it’s crucial to have representation in relation to issues of business when going through a divorce.
To learn more about assets in a divorce visit: https://www.gbfamilylaw.com/service/asset-and-wealth-identification-valuation/.
This is the family law advisor podcast. I’m Tom Greenwald. My guest today is Bryan Rice. Bryan’s been a CPA for 30 years and he’s been doing forensic work for the last 20 years.So, Bryan, what would you say to a client that says, “Well, why can’t I just do this work myself? Why can’t I just get the documents and testify about money I think has been hidden?” or, “Why can’t I just gather documents and testify about the money that I inherited and where that money is today?” or, “Why can’t I just explain to the judge what I think my business is worth?”
That’s a great question, and I think at a very basic level, the things that someone is saying on their behalf is considered to be self-serving. Even though you’re there with the best of intentions, you’re totally telling the truth, if you’re in trial, clearly your spouse isn’t agreeing with anything you’re saying and didn’t agree with anything you were saying along the pathway to trial, you know, didn’t get the case settled.
So first of all, it’s an emotional thing for both of y’all and it’s gonna be hard to get the emotion out of it, second of all, judges and juries have “heard it all before,” and I know they’re gonna have a natural tendency to think that the things that you’re saying are…you’re there in your best interest. So the credibility is an issue. Some of it may be…for example, a business owner is actually permitted to testify about the valuation of their business and actually be given credibility because they have experience in the business. In fact, some owners might know better what their business is worth than me, just because they know and they’ve been in the industry for so long and they’ve maybe bought and sold companies in their industry. But if we’re doing a valuation, they may not really understand or know about all of the methodologies that are accepted. So it’s a credibility issue there.Other people just may not have any idea of how to value a business. I mean, just because maybe they don’t have the financial sophistication or finance and accounting is not their background.
In terms of tracing, a lot of people try to do some shortcut work or say, well…for example, “I inherited $100,000 five years ago, and the average annual rate of return on the S&P 500 is X, so isn’t it reasonable that the separate property in my account is now worth $100,000 plus X?” As a practical matter, they may not be too far off the mark, but that is not the accepted methodology that the court uses, and the other attorney is not gonna be impressed by that, nor is the opposing spouse.So sometimes, you know, having someone like myself or one of my peers out here in the metroplex do that work for you, we will… First of all, I mean, we shouldn’t be advocating for you. We should just be reporting on what we believe the result is based on our unbiased opinion. So it’s a combination of having the experience, and the other thing is, is we’ve done it a lot. So just having the experience and it’s a credibility issue to some extent.But what the client can really do for us is gather the documents. So that part of it, the more that the client can gather documents, put together a clear explanation and be available for questions, that’s 90% of the battle, is helping us get the information.
So in terms of cost, I assume this work is always pretty much done on an hourly basis, is that right?
Yes. First of all, an expert witness in litigation should never be doing anything on a contingent basis, because that means that we’re motivated to get some result for the client, so the hourly rate is pretty much the only way. Now, a CPA can’t take a contingency fee anyway, so. But it’s all hourly rates and it’s driven by the market, and there’s not a whole lot of us who do this, so the rates are kinda high. So, I mean, hourly rates would be for myself, I bill at $400 an hour, which is right there in line with someone with my experience. Of course, the person at my experience level isn’t necessarily doing all the work. We have people that work for us who do it at a lower rate and we superview and review. So maybe an average hourly rate for, say, just the field soldier, so to speak, it might be $200 an hour, which is still very expensive.
I think fees, attorney fees and expert fees, have always been high, and one of the reasons, I think, historically, is to discourage litigation. But if we have to, we have to, and we try to find the way to do the work most efficiently. And that’s another reason, perhaps, to hire someone like myself, is that we’ve done it many times before, and so, we have the models built, we have similar reports written that we can kinda reuse. You know, change the facts and things that are appropriate to the case we’re working on. But we have a lot of infrastructure in terms of, we have the research that we’re able to do efficiently, and so, even though it’s all still very expensive, a lot of times, that’s why you wanna get someone with experience, because we can probably do it faster than someone that doesn’t have it.
So if you have a situation where the expert is just kinda there as a mouthpiece and hasn’t really been supervising, hasn’t really done the hard work on the case, that potentially would be a problem?
That could be a huge problem. If the expert testifying can’t establish a base level of credibility and familiarity with the case, then I think the judge or the jury is gonna be less likely to believe what they’re saying, and it all comes out because it’s rather simple to get into the details of a report and start asking the person on the stand some very detailed questions. “Well, Mr. Expert, without looking at your report on page 45, could you tell us exactly what the 3rd paragraph means?” And if the answer is, “No, I really can’t,” then we may have a problem.
And I know, Bryan, your reputation is incredibly important to you and that’s also part of the reason when you go to court, you can’t take unreasonable positions. You have to be thorough in your work as you are, because you rely on your reputation in order to provide your services. Have you seen such situations where some experts are willing to just, if you pay the money, they’ll come up with some kind of report, some way, somehow, even if they’ve got a week to do it?
Sometimes too much work will be taken in in too short of a period of time, and to some degree, that’s just a byproduct of the system, because people will try to minimize the amount of money they spend on their case, and so they may try to put off hiring an expert as long as they can, which I totally sympathize with.But we have to have the time to do our work and we really can’t do…like, here’s a great example.
Say someone owns a business and some part of the business was owned prior to the marriage and another part of the business was acquired during the marriage. It’s a little murky as to how the part that was acquired during the marriage was actually acquired. But then the business is sold and a big chunk of money is distributed.If the attorney working for that person says, “Let’s go hire an expert,” and then the expert’s hired and the attorney tells the expert, “I want you to assume that all of that money is my client’s separate property,” we really shouldn’t do that. We should say, “We need to see some proof.” Because if I don’t, then I’m just now what’s known as a human calculator. I’ve just taken you at your word, I’ve done the tracing, assuming all that money is separate, when in fact, the facts may show that part of that money belonged to the community.
And so, then what happens is, I go to trial. That’s all fine and good to do the work and issue the report, but then when I’m on the stand, the attorney on the other side is gonna say, “Well, Mr. Rice, why did we need you?” Because you just accepted their word at face value. And then, “Oh, by the way, Mr. Rice, did you do a tracing with an alternate scenario of part of that money, maybe 40%, being community?””Well, no, I didn’t.””Well, why not?””I wasn’t asked to.””Is Mr. Attorney your attorney too?””No.””Do you owe any special favors to your client?””No.””I understand, Mr. Rice, there’s a position that all this money could be Mr. Smith’s separate property. But what if 40% of it was community? Could you then show the court what the number would be in the final result, how much is separate and how much is committee?””Well, no, I can’t.”So in that case, the court might just say, “Well, that’s great. I’m throwing out the whole trace and it’s all community, because Bryan didn’t show us what the alternative option was.”
So what I’m getting at is an expert should always be willing to acknowledge that there is an alternative point of view. If there are facts that are not totally clear, we should present alternative calculations. That’s, in fact, what I was doing in my deposition before I got here today. I had three different scenarios of what the breakdown of the ownership of the house was between separate and community, okay? The attorney on the other side was a little frustrated with me because I wouldn’t say which one was the most probable scenario. What I said was, “That’s for the court to determine.” I simply put the numbers on the page and said, “Here’s your three scenarios. Twenty-five percent separate, seventy-five percent community, fifty-fifty, or one hundred percent separate.” So it’s gonna be one of those three in my opinion, the court may have its own opinion, but at least what I’ve done is not favored anybody. I’ve just simply reported the facts.
What would your suggestion be to someone that is looking for a forensic accountant? How would they go about finding someone that has some experience, is ethical, and practices in their particular location?
Well, of course, if you have friends who’ve gone through a lawsuit or a divorce, you could ask them if they had anybody help them and get their opinion of the quality of that person’s work and if they added any value, helped them through the process. Of course, the attorney that you’ve engaged will have a pretty good idea of who might be suitable for that case. Like, there may be someone, Tom, that you know that is just better than me at appraising a certain type of business. Well, it’s actually true. There’s people who can do things that are just as good or better than me, and so I’m happy to say, “Well, I’ve never appraised that kind of business. It’s extremely specialized. I wouldn’t recommend me, but here’s who you should use.”You know, if they’re a CPA, you can pull them up on the State Board of Public Accountancy’s website to see if there’s any disciplinary history. That’s a good thing to know before you get involved with a CPA because that could really hurt their credibility. You should be able to, you know, like on the ASA, American Society of Appraisers website, there’s listings of everyone who’s an appraiser and what their discipline is, what their specialty is, and so, researching that. And local chapters of the Society of CPAs. There’s all kinds of resources out there.
I mean, a good place to start, I think, is with your attorney, but you should be able to call the expert and get a call back, hopefully. I mean, we’re all very busy, so if you call us and leave a message and we don’t call you back that very same day, don’t get your feelings hurt. We will call you back. You know, I try to call everyone back within 24 hours, but we will call you back and I’m always happy to chat on the phone with you for 20, 30 minutes. I’m probably not gonna be able to give you a whole lot of specifics about what my opinion would be, but I could tell you, for example, “I’ve appraised that kind of business,” “I’ve dealt with those kinds of facts before,” “I’ve had a case just like that,” etc. But the expert should not be promising any kind of result to you. They should say, “That sounds like a case that I’ve worked on and this is kind of what happened in that case, but we’re gonna need to sit down and go over your information.”And so, they should be willing to have that kind of conversation with you and not charge you. If you wanna come in for a consultation, maybe very brief, you know, who knows? Maybe you won’t get charged for that if it’s a time that’s very convenient for the expert. Or maybe you say, “Look, I’m willing to come in, pay your hourly rate. I want you to look at my papers and tell me what you think, and I’ll pay you the $400 regardless if you say, “There’s nothing I can do for you,” and then we’ll be happy to meet with you.But then, at that time… It’s interesting, because if a client comes to me before they have an attorney, sometimes it’s hard because I would say, “Well, what did your attorney tell you about this situation?” And there’s, “Well, I haven’t even talked to him yet. I’m talking to you first.” And so, sometimes like, “Well, I can’t give you any legal advice, because you’ve just asked me questions about the law. I could maybe tell you what I’ve seen happen in similar cases, but I cannot give you legal advice.” So sometimes, it’s better to have gone to an attorney before. But then, at those times, I’m in a position to refer that person to an attorney such as yourself.
Well, Bryan, I want to thank you for being here today.