ASSET TRACING SERVICES

Asset tracing services provided by David Melton & Associates

David Melton & Associates has successfully traced in excess of one billion dollars in separate and marital property under a wide variety of circumstances. Our clients have ranged from individuals to small business owners to Fortune 500 CEOs. Mr. Melton authored the book, Accounting Guide to Asset Tracing, has been published on asset tracing in the Colorado Lawyer, and teaches Continuing Legal Education and Continuing Professional Education courses on asset tracing.

Why Asset Tracing?

Under Colorado's Uniform Dissolution of Marriage Act, separate assets are not subject to equitable distribution. Therefore, a spouse who can establish that assets are separate, to the court's satisfaction, gets to keep them. The task at divorce is to show that assets now in existence are the same separate property that existed at the time of marriage or were acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise, or descent. The "Disposition of Property" Section 14-10-113 of Colorado's Uniform Dissolution of Marriage Act establishes a rebuttable presumption that "all property acquired by either spouse subsequent to the marriage" is marital property. How does one overcome this presumption? The answer is asset tracing.

What is Asset Tracing?

Asset tracing is an accounting process that traces an asset from its separate property beginnings through all of its mutations and demonstrates that the resulting asset in existence at the date of divorce is either separate, marital, or a combination of the two.

ACCOUNTING GUIDE TO ASSET TRACING, An Accounting Guide to Establish or Refute the Existence of Separate Property in a Marital Dissolution, by David Melton, CPA, CVA

Purpose of the Book

The purpose of this book is to give practical and theoretical guidance to attorneys and expert accounting witnesses who are called upon to produce an asset tracing accounting. A successful asset tracing requires timely communication and coordination between the legal and accounting professions. The author hopes that the methodologies and case studies found in this book will be helpful in coordinating efforts between the two professions.

Need to engage asset tracing expert early on

Because asset tracing is a time consuming process, not engaging an accounting expert early on in a case can be a strategic mistake. Take the following example:

Two attorneys, we will call them Mr. Easy and Mr. Thoughtful, are involved in a divorce case. Mr. Easy's client is claiming a material amount of separate property. His client thinks he can present his separate property claims himself and does not want to spend much money on the divorce process. Mr. Thoughtful, upon hearing of the separate property claims of Mr. Easy's client, immediately hires an expert accounting witness to evaluate Mr. Easy's client's separate property claims.

On the day of Mr. Easy's client's deposition, Mr. Easy is surprised to see Mr. Thoughtful show up at the deposition with an accounting expert witness. During the course of the deposition, it becomes apparent to Mr. Easy that his client is being asked detailed asset tracing questions, and worse, it becomes apparent that his client's responses to the questions do not help his separate property claims.

Five days later, and sixty days before the permanent orders hearing, Mr. Easy's secretary deposits Mr. Thoughtful's expert's detailed asset tracing report on Mr. Easy's desk. Mr. Easy immediately reads the report and is quite alarmed to find the expert's report refutes the vast majority of Mr. Easy's client's separate property claims. Mr. Easy is also mindful that, under the Colorado Rules of Civil Procedure rule 26.2, his asset tracing expert's report, if he had been thoughtful enough to engage one, would be due today.

Mr. Easy, now in a semi-panic, calls to hire his favorite accounting expert. Mr. Easy is concerned that under the Colorado Rules of Civil Procedure rule 26.2 his expert witness has only twenty days to produce a report, and worse yet, the report will be limited to rebutting the subject matter of the opposing expert. Mr. Easy reaches his expert's secretary who informs Mr. Easy that the accountant is on vacation and will return in ten days.

Ten days later, the accounting expert is sitting in Mr. Easy's conference room sorting through a mass of documents in an attempt to analyze the asset tracing issues in Mr. Thoughtful's expert's report.

Three days later, the accounting expert informs Mr. Easy that he needs several key documents from the opposing party in order to refute the opposing expert's report. Mr. Easy immediately phones Mr. Thoughtful's office and requests the documents.

Four days later, Mr. Thoughtful returns Mr. Easy's phone call and informs him that Mr. Thoughtful's client is on an extended vacation and will not return until two days before the permanent orders hearing. Mr. Thoughtful explains that only his client knows the location of the information and in addition, expresses little sympathy for Mr. Easy's eleventh hour request.

Twenty days from the delivery by Mr. Thoughtful of his expert's asset tracing report on the due date of Mr. Easy's expert's rebuttal report, Mr. Easy's expert informs Mr. Easy that without the additional information it is impossible to refute Mr. Thoughtful's expert's report.

Two weeks later, the case settles based on Mr. Thoughtful's expert's report.

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