Date posted: 31/05/2022

What to do when your clients divorce

Clients who divorce can present some significant challenges for accounting professionals.

In Brief

  • Accountants have ethical obligations to manage the risks that may arise during a client divorce
  • Things can get complicated if both spouses are directors, trustees, or partners
  • Objectivity is key

One of the most common issues the Professional Standards and Ethics Advisory Team is asked about is what to do when clients divorce.

Once you learn that your clients are divorcing, there are several things you need to do to ensure you protect your reputation, fulfil your obligation to act ethically, and safeguard the interests of all parties.

1. Work out who is your client

One of the first things is to determine who is your client. You may have more than one. That way, you'll better understand where your obligations lie. For example, you may look after both members of a couple for their individual tax returns as well do the accounting and tax for their business (a company). That makes three separate clients.

The spouses individually are quite straightforward. Ensure you have separate engagement letters and you deal with them separately with respect to their individual tax situations.

For the business, if one spouse is a director and the other is only an employee, the employee has no rights to information about the business. Similarly, if one spouse is a shareholder (but not a director) or the beneficiary of a trust (but not a trustee), they'll have no automatic right to information about the business.

Difficulties can arise if both don't understand their rights to information and decision making. Things can get complicated if both spouses are directors, trustees, or partners. You need to deal with them jointly and include both in all communication pertaining to the business – even though you may get caught up in some uncomfortable conversations.

"Even in cases where you feel that one individual is in the wrong, it's not your place to take sides."

2. Stay objective

Objectivity is a key principle under APES 110 Code of Ethics for Professional Accountants (including Independence standards) (the code). When a relationship ends, emotions often run high – and it's easy to get swept up in the drama. Your own bias, a conflict of interest or the undue influence of one party can all compromise your ability to provide objective advice.

Remember that it's as important to be seen to be objective, as it is to be objective. Avoid placing yourself in the situation where one might perceive that you are favouring the other.

Even in cases where you feel that one individual is in the wrong, it's not your place to take sides. Remember, you're likely only seeing a small part of the conflict, and issues about money can bring out less than ideal behaviour in many people.

3. Act ethically

You have certain ethical obligations under the code to manage the risks that may arise during a client divorce. These include:

  • ensuring each individual's matters are managed separately and kept confidential
  • for entities where both are directors (or trustees), treat them both equally, only acting on instructions when both parties consent to them in writing (email is fine) and providing any requested information to both parties.

4. Sort out the administration

Your documentation may become out of date as a result of a separation or divorce. As such, you may need to issue new engagement letters for each individual, as well as one for each business entity – and make sure they get signed! You may find CA ANZ's engagement letter tool helpful.

Let your staff know about the change so they can put proper protocols in place to maintain and manage client confidentiality.

Likewise, update client contact details such as email addresses (beware the joint email address), phone numbers, and residential addresses to ensure information is getting to the right people.

Bank accounts should also be confirmed if there was one joint account and separate accounts are now required to deposit tax refunds or the like.

5. Get consent to continue

If you decide to continue to act for each person, as well as for the joint entity, you'll need to gain consent from both individuals. The objective is to be as transparent as possible.

You should also provide a letter to each party to express that the relationship breakdown creates the potential for an ethical conflict – or at least the perception of one – and how you propose to manage it if you decide to act for all parties.

If one person does not accept the proposed arrangement, you may be free to act for the other – but not for any entity that would require the consent of both directors. You should also provide clear instructions – preferably in writing – to the client who doesn't wish to retain your services that they may use another accountant.

6. If it all falls apart

Occasionally, working with divorcing business directors can result in irreconcilable problems – for example, where they're giving contradictory business directions.

Ultimately, if you can't get clear instructions and agreement from both directors, you may need to stand down as an adviser for the shared entities. Of course, this won't be necessary in all cases, but it's a valid option if you're unable to work effectively in the best interests of all parties.

Where to go for more information

Do you have any further questions or need practical guidance on a complex professional issue? As part of your membership with CA ANZ, you can speak directly to an experienced member of the Professional Standards and Ethics Advisory team. 

This free support service is completely confidential and available to all current members. Make an enquiry via phone or email, or by using the online form provided on our contact page below.

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Engagement letter tool

Engagement letter tool containing sample clauses to assist members in practice to prepare engagement documents for use with their clients in Australia or New Zealand.

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