Forensic case history: When is an asset a liability?

In this forensic case it was alleged to be the husband’s investment in four structured private equity investment vehicles disclosed on his Form E.

Forensic accounting were brought in by the solicitors of the wife in the case and asked to help them understand the nature of the investments and their associated liabilities.

The case

The husband alleged that the investments were illiquid and could not be realised to fund maintenance payments. He also claimed that their value was significantly less than the amount invested because of a requirement to invest additional capital and contingent liabilities associated with the investments.

What we did

The forensic accounting team reviewed the relevant paperwork and drafted questions to clarify the nature of the investment vehicles. What became apparent was that the husband had disclosed the worst case scenario.

The investments were illiquid and there was a contractual requirement to invest further funds. However, that requirement had been treated by the husband as reducing the value of the investments whereas in fact it was neutral in terms of value. The nature of the assets would change from cash to investment capital on investment but the value of those assets would not change.

when is an asset a liability

It was certainly possible that in a worst case scenario the contingent liabilities might crystallise. However, given that the husband was a very experienced investor who willingly chose to invest in four vehicles on separate occasions, it seemed unlikely that he expected to realise a loss from his investment of around £500k.

He had very deliberately taken a pessimistic approach when valuing the investment vehicles but hadn’t considered the potential upside, which could have been significant.

The result

As a result of our work, the wife’s solicitors were able to conduct negotiations with a clear understanding of the nature and value of the husband’s investments. This enabled them to achieve a better outcome for the wife.

For more information

For more information on our forensic accounting service, please contact:
Kate Hart, or call us on:

01483 416232