Developing strong relationships is a very important part of working in public accounting. These relationships build trust and create a sense of bond between the certified public accountant and the client. When clients experience a divorce, your relationship could become very complicated. This is due to the many possible challenges and complicated situations that may arise from the process. We recommend that certain areas of the client relationship be addressed prior to accepting any divorce engagement. Not only will this help you effectively assist your clients, it can also serve to prevent the deep and emotional strains of a divorce from possibly creating professional ethics problems.
The first area of consideration is your own experience and comfort assisting clients in the process of a divorce. Divorces can be tricky, and understanding all of the potential obstacles will be important. If you are willing to accept these risks, then you will need to consider the answers to the following questions:
Do you want to maintain relationships with both the husband and wife?
How will you communicate your concerns related to potential conflicts to a couple who have indicated that they are filing for divorce?
If only one spouse is asking for your help with your consulting services related to the divorce, are you allowed to retain the other spouse as a client?
What do you do if one spouse is or could become unreasonable during the process?
The second area of consideration is your processes to ensure the engagement will be compliant with professional standards. These professional standards and rules may come from Internal Revenue Service regulations (IRS), laws from the State of Oregon, the AICPA, and the Institute for Divorce Financial Analysts (IDFA).
The IRS provides for the most common compliance standards for tax practitioners that can impact how CPAs work with client divorces. Besides the actual presentation of the taxpayer’s situation in front of the IRS, these rules encapsulate all elements of tax preparation services. The main section of Circular 230 that comes to mind when facing a divorcing couple is Section 10.29 discussing conflicts of interests.
Tax practitioners cannot provide services to a client if that client’s interest is directly adverse to another client. You might not be able to represent both even if they are filing a joint tax return. They could be in disagreement as to the positions taken on the tax return. In these situations, there could be a material limitation on services because of the opposing interests of another client, a former client, a third party, or the personal interest of you as the practitioner. A material limitation represents inability to properly represent and serve the client.
You might be able to represent both clients in adverse situations if you have the reasonable belief that you are able to provide diligent representation to each affected client, there is no legal prohibition to the service, and each affected client gives informed consent in writing at the time the conflict is known. It is important to clearly inform each party of all issues of conflict related to the work you are providing.
Often, clients will want to return to you for services because of your relationship and historical knowledge. It is very practical for the client, as your knowledge can save them the time and money of hiring another CPA to get them up to speed on all of the pertinent information. If you determine that you can represent both parties, Circular 230 requires that both spouses be fully informed of the potential issues, and both spouses must consent, in writing, to waive the conflict. For the signed waiver, you will need to maintain this documentation for at least 36 months after the engagement closes.
For any practitioner who routinely assists clients through divorces or is considering a specialty in assisting clients with divorce situations, the Institute for Divorce Financial Analysts (www.institutedfa.com) is a national organization you may consider joining. Their mission is to assist in the certification, education, and promotion of the use of financial professionals in the divorce arena.
The third area of consideration is having a standardized work plan to follow for divorce engagements. This work plan should include how to properly scope the engagement and procedures, such as vetting out any potential conflicts of interest. Another potential area to cover would be considering how to handle situations such as whether or not the client will have an attorney representing them in the divorce.
Online tools and guides can provide good resources to assist you with creating a work plan. In May of 2015, the AICPA released Guidelines for Conflicts of Interest in the Performance of Federal Tax Services. It is an educational guide, not a set of professional standards or best practices. This guide also provides examples of waivers and other helpful forms. Some additional recommended tools would be the AICPA’s divorce issues checklist, checklists and worksheets provided by the IDFA, and information on the Oregon Courts and Family Law website.1 A comprehensive standardized work plan will assist you in making sure you are following and documenting your work for compliance with professional standards.
Divorce can involve a wide variety of complicated situations. When agreeing to work with a divorcing couple, you should be ready for the unexpected. However, knowing the applicable professional standards and having a standardized approach and strategy can help both you and your clients through the process.
Meet the Author
Senior Tax Manager
Elizabeth Hutchison, CPA, CDFA
In 2010, Elizabeth joined the firm’s Portland team with three years of experience in public accounting at a Big Four and local accounting firm. Going beyond compliance, Elizabeth’s role at the firm is both problem solver and strategic tax planner. Her expertise allows her to help her clients navigate the complex nature of tax laws.…
- High-net worth individuals and business owners
- Strategic tax planning and compliance
- Divorce support
- Certified Public Accountant
- Certified Divorce Financial Analyst (CDFA)