Ethics and Conflict of Interest in Divorce For Accountants

Michael Lodge, NCPM - Certified Business Mediator - www.lodge-co.com

When you are in private practice you run across clients that bring in their family, first it is the son and his wife, his mom and dad, and maybe a couple more. You never know. The problem arises when they get divorced, it puts you as their tax practitioner and advisor in a serious legal situation.

I had a young couple who started to have their taxes done with my firm in Los Angeles. I did two or three years of their returns and then they decided to get a divorce. However, they failed to tell the rest of their family they had gotten a divorce. So the first conflict happened because they were all doing their taxes in my office. The mom and dad, son and daughter-in-law However, I was then contacted by the former wife and she requested all of the tax returns and documents I had prepared. The issue was that the husband always took care of the tax returns. They filed separate, he provided the documents to work off of, and she wanted to know what I had been supplied with. Which means at the point it appeared there may be a legal risk to working with these individuals. And I certainly would be asked questions from his parents who were my clients. This divorce and family issue had put me into a situation of ethics and conflict of interest. I certainly could not represent either one of them, the request of the former wife. The former wife had done work for my client mom in her business. Which I prepared the returns for. So it became a sticky wicket. I could not talk to anyone or prepare anyone's tax returns because there was too much of a conflict of interest. I had to drop all of the family as clients.

Divorce and accountants sometimes do not go together. It puts the accountant in a situation where both individuals can come after the accountant in legal action. The accountant hasn't done anything wrong but both sides are so mad that they will take it against the accountant if it gets down and dirty. I have seen this happen a lot of times with accountants, and it hopefully get meiated. The ethical thing to do is to end the professional relationship, unless they both agree it is OK for the accountant to represent each party. Ethically, you cool the relationship and let them move on to an accountant that can remain independent and there is no conflict. Best practice.

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