Glossary

This glossary explains key terms used in forensic accounting, expert witness work, business valuations, and financial remedy proceedings. Written for solicitors, barristers, and their clients.

Ancillary Relief

The former term for financial claims made in connection with divorce proceedings. Now referred to as "financial remedy" following rule changes in April 2011. See Financial Remedy.

Asset Tracing

The process of identifying, locating, and valuing assets that may have been hidden, dissipated, or transferred to defeat a financial claim. Forensic accountants use bank statement analysis, company filings, land registry searches, and lifestyle analysis to trace assets that have not been properly disclosed.

Balance Sheet

A financial statement showing the assets, liabilities, and equity of a business at a specific point in time. In matrimonial proceedings, the balance sheet date chosen for valuation can significantly affect the outcome, particularly where asset values fluctuate. The court may direct that a balance sheet is prepared to a specific date. Also known as a "statement of financial position" under IFRS.

Benford's Law

A mathematical principle stating that in naturally occurring datasets, the leading digit is more likely to be small. Forensic accountants apply Benford's Law to accounting data to identify anomalies that may indicate fabrication or manipulation of figures. Deviations from the expected distribution can flag entries worthy of further investigation.

Cash Equivalent Value (CEV)

The value placed on a pension for the purposes of divorce. The CEV (sometimes called the Cash Equivalent Transfer Value or CETV) represents what it would cost to transfer the pension benefits to another scheme. However, the CEV may not reflect the true value of the pension, particularly for defined benefit (final salary) schemes, which is why an actuarial valuation is often required. See Pension Sharing.

Capital Gains Tax (CGT)

A tax on the profit made when disposing of an asset that has increased in value. Transfers between spouses and civil partners during marriage are on a no-gain/no-loss basis. Following separation, transfers made within three tax years of the end of the tax year of separation (from April 2023 onwards) continue to benefit from this relief. After this period, CGT may apply, making the timing of asset transfers a critical consideration in financial remedy proceedings.

Clean Break

A court order terminating all ongoing financial obligations between divorcing parties. A clean break prevents either party from making future financial claims against the other. It does not ordinarily affect child maintenance obligations. Whether a clean break is achievable depends on the parties' respective financial positions and needs.

Comparable Transactions

A business valuation method that derives value by reference to the prices paid for similar businesses in actual market transactions. The forensic accountant identifies comparable sales, adjusts for differences in size, profitability, and risk, and applies the resulting multiples to the subject business. Also referred to as the "market approach."

CPR Part 35

Part 35 of the Civil Procedure Rules governs expert evidence in civil proceedings in England and Wales. It sets out the expert's overriding duty to the court, requirements for expert reports, the court's power to restrict expert evidence, and provisions for single joint experts. An expert's report must comply with Practice Direction 35 and include a statement of truth. The expert's duty to the court overrides any obligation to the instructing party. See Expert Witness.

Discounted Cash Flow (DCF)

A valuation method that estimates the value of a business based on its projected future cash flows, discounted back to present value using an appropriate discount rate (typically the weighted average cost of capital). DCF is particularly useful for businesses with predictable future earnings and is commonly used alongside earnings-based methods. The choice of discount rate and growth assumptions can materially affect the valuation outcome.

Disclosure

The obligation on parties in financial remedy proceedings to provide full and frank disclosure of their financial circumstances. In family proceedings, each party completes a Form E setting out their assets, income, liabilities, and needs. Failure to provide proper disclosure can result in costs orders, adverse inferences, or the setting aside of a financial order. Forensic accountants are often instructed where there are concerns that disclosure is incomplete or inaccurate.

EBITDA

Earnings Before Interest, Tax, Depreciation, and Amortisation. A commonly used measure of a business's operating profitability that strips out the effects of financing decisions, tax regimes, and non-cash charges. EBITDA is frequently used as the basis for business valuations, with an appropriate multiple applied to derive enterprise value. Adjustments are typically made for exceptional items, owner's remuneration above market rate, and non-recurring costs to arrive at a "maintainable" or "normalised" EBITDA.

Enterprise Value

The total value of a business, including both equity and debt. Enterprise value equals equity value plus net debt. When a forensic accountant values a business using an EBITDA multiple, the result is typically enterprise value. To arrive at the equity value (relevant to the business owner's interest in financial remedy proceedings), net debt is deducted from enterprise value.

Expert Witness

A person with specialised knowledge who provides an independent opinion to the court on matters within their expertise. In forensic accounting, expert witnesses prepare reports on business valuations, income assessments, asset tracing, and financial losses. The expert's overriding duty is to the court, not to the party who instructs them. Expert evidence is governed by CPR Part 35 in civil proceedings and FPR Part 25 in family proceedings.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Defined by IFRS 13, fair value is a market-based measurement, not an entity-specific measurement. In forensic accounting, fair value may differ from other valuation bases such as value to the holder or forced sale value.

Financial Remedy

The process by which the court determines the financial arrangements between parties on divorce or dissolution. The court can make orders in respect of capital, property, pensions, and income (maintenance). The court considers the factors set out in Section 25 of the Matrimonial Causes Act 1973, with first consideration given to the welfare of any minor children. Financial remedy was previously known as ancillary relief.

Form E

The standard financial statement used in financial remedy proceedings. Each party must complete a Form E setting out their income, assets, liabilities, pensions, and financial needs. The form requires extensive supporting documentation including bank statements, valuations, and tax returns. The Form E is a sworn document, and providing false or misleading information can have serious consequences including costs sanctions and committal proceedings.

FPR Part 25

Part 25 of the Family Procedure Rules governs the instruction of experts in family proceedings. The court's permission is required before expert evidence can be put before the court. The court will only give permission where the expert evidence is necessary to assist the court to resolve the proceedings and the information cannot be provided by a party. FPR Part 25 sets out the duties of experts, the content of expert reports, and provisions for questions to experts.

Going Concern

The assumption that a business will continue to operate for the foreseeable future and is not at risk of ceasing to trade. Valuations prepared on a going concern basis assume the business will continue trading and generating profits. Where there are doubts about going concern (for example, in insolvency situations), valuations may need to be prepared on a break-up or liquidation basis, which typically produces a significantly lower value.

Goodwill

An intangible asset representing the excess of the purchase price of a business over the fair value of its identifiable net assets. In forensic accounting, goodwill is often split between "personal goodwill" (attributable to the skills and reputation of an individual) and "commercial goodwill" (attributable to the business itself). This distinction is particularly relevant in matrimonial proceedings involving professional practices, as personal goodwill may not be realisable on sale.

Hot-Tubbing

An informal term for concurrent expert evidence, where experts from both sides give evidence at the same time, discussing areas of agreement and disagreement directly with each other and the judge. Hot-tubbing can be an efficient way of identifying the real issues between experts and is increasingly used in family proceedings involving valuations and other financial matters.

Lifestyle Analysis

A forensic accounting technique used to assess whether an individual's declared income is consistent with their lifestyle and spending patterns. Where expenditure exceeds declared income, it may indicate undisclosed income or assets. Lifestyle analysis involves examining bank statements, credit card records, property holdings, vehicle ownership, and other indicators of wealth.

Loss of Profits

A claim for the profits a business or individual would have earned but for the defendant's actions. Quantifying loss of profits typically involves establishing the "but for" position (what would have happened absent the wrongdoing) and comparing it with actual performance. Forensic accountants use financial projections, industry data, and comparable businesses to quantify losses. The standard of proof is the balance of probabilities.

Maintainable Earnings

The level of earnings that a business can be expected to sustain going forward. Forensic accountants adjust reported earnings by removing exceptional or non-recurring items, normalising owner's remuneration to market rate, and correcting for any other factors that may distort the true underlying profitability of the business. Maintainable earnings form the basis for earnings-based valuations. Also referred to as "normalised earnings."

Matrimonial Asset

An asset generated by the joint efforts of the parties during the marriage. Matrimonial assets are typically subject to the sharing principle (equal division) on divorce. Assets acquired before the marriage, inherited, or received as gifts ("non-matrimonial assets") may be treated differently, although they can still be taken into account where needs require it. The classification of assets as matrimonial or non-matrimonial is frequently a contentious issue requiring forensic accounting analysis.

Minority Discount

A reduction applied to the value of a shareholding that represents less than a controlling interest in a business. A minority shareholder typically cannot direct the company's strategy, dividend policy, or sale. The appropriate level of discount depends on the rights attaching to the shares, any shareholder agreement, and the specific circumstances. Minority discounts in matrimonial proceedings are approached with caution by the courts.

Net Asset Value (NAV)

A valuation method that values a business by reference to the fair value of its net assets (total assets minus total liabilities). NAV is most commonly used for asset-intensive businesses, property holding companies, and businesses being valued on a break-up basis. For trading businesses, NAV may significantly understate value where there is unrecorded goodwill.

Price/Earnings Ratio (P/E Ratio)

A valuation multiple calculated by dividing the price per share by the earnings per share. In forensic accounting, a P/E ratio is used to value a business by multiplying its maintainable earnings by an appropriate P/E multiple. The choice of multiple depends on factors including the size, profitability, growth prospects, and risk profile of the business, as well as multiples observed in comparable transactions.

Pension Sharing

A court order transferring a percentage of one party's pension benefits to the other party on divorce or dissolution. The recipient receives a pension credit, which can be held within the existing scheme (internal transfer) or transferred to a new arrangement (external transfer). Pension sharing is the most common method of dividing pension benefits on divorce. The percentage to be shared is determined by reference to the Cash Equivalent Value, although an actuarial valuation may be needed to achieve a fair outcome.

Section 25 Factors

The factors set out in Section 25 of the Matrimonial Causes Act 1973 that the court must consider when determining financial remedy applications. These include: the income and earning capacity of each party; the financial needs and obligations of each party; the standard of living enjoyed during the marriage; the age of each party and the duration of the marriage; any physical or mental disability; the contributions made by each party; and any other relevant circumstances. First consideration is given to the welfare of any minor child.

Single Joint Expert (SJE)

An expert instructed jointly by both parties (or appointed by the court) to provide an independent opinion. The SJE owes a duty to the court and must remain impartial. In financial remedy proceedings, SJEs are commonly appointed to value businesses, pensions, and other assets. The use of a single joint expert is encouraged by the courts as it reduces costs and promotes a collaborative approach. The SJE's report is directed to the court, not to either party.

Shadow Expert

An expert instructed by one party to review and comment upon the report of the single joint expert or the other party's expert. A shadow expert (also called an "advisory expert") does not give evidence directly to the court but assists the instructing party in understanding the expert evidence, formulating questions for the SJE, and preparing for cross-examination. The costs of a shadow expert may not be recoverable.

Stamp Duty Land Tax (SDLT)

A tax payable on land and property transactions in England and Northern Ireland. Transfers of property between spouses or civil partners pursuant to a court order on divorce or dissolution are exempt from SDLT. This exemption applies regardless of the value of the property. However, SDLT may be payable on transfers that are not made pursuant to a court order, making the structure of any financial settlement an important consideration.

Valuation Date

The date at which a business or asset is valued. The choice of valuation date can materially affect the outcome, particularly where values have fluctuated. In matrimonial proceedings, there is no fixed rule as to the valuation date; the court has discretion to select the most appropriate date, which may be the date of separation, the date of the hearing, or another date depending on the circumstances. The forensic accountant may be asked to value a business at more than one date to assist the court.

Weighted Average Cost of Capital (WACC)

The blended cost of a company's debt and equity financing, weighted by their respective proportions in the capital structure. WACC is commonly used as the discount rate in discounted cash flow valuations. A higher WACC reflects greater risk and produces a lower valuation. The calculation of WACC involves subjective judgments about the cost of equity (often derived using the Capital Asset Pricing Model) and is frequently a point of disagreement between experts.