In divorce and child support cases, one party may attempt to hide income and assets to deprive the spouse or children of their rightful support. It can be difficult to prove hidden earnings or assets, particularly if the other party owns a business, owns assets within corporations or partnerships, or has other financial vehicles that could be used to conceal wealth.
However, there are ways to discover the existence of assets or reasonably estimate the person’s level of earnings. One such way is a lifestyle analysis, which calculates the earnings necessary to live the known lifestyle of the target.
The logic is simple: Life costs money. We can calculate how much you’re spending based on what we know about your mortgage, car payment, eating habits, utilities, toys, vacations, and other expenses. The money to fund these expenses has to come from somewhere, so we can infer that the cost of your lifestyle equals your earnings.
This type of analysis can be done in several different ways, or through a combination of these methods:
- Specific Items (Direct Method) – An analysis of the books and records of the individual or business is done in an attempt to substantiate individual items of income and expense. This method is fairly straightforward, but can become more complicated if the target has multiple sources of income or multiple business interests. In these instances, it will be necessary to aggregate the data to determine overall income.
- Bank Deposits – This is an indirect method of proof, relying primarily on banking records to determine income. Bank deposits, canceled checks, and electronic transactions are analyzed in conjunction with known cash hoards and cash expenditures to determine the subject’s income.
- Net Worth Method – This indirect method of proving income looks at the accumulation of assets, the reduction of liabilities, expenditures, and other financial information to establish the target’s income. A starting point must be identified and the assets and liabilities must be valued at that point. Then the analysis attempts to estimate expenditures, increases to assets, and decreases to liabilities, either through documentation of actual figures or reasonable estimates of known items.
- Expenditures Method – This indirect method of proving income is essentially identical to the net worth method. It relies on circumstantial evidence of the subject’s spending to establish the amount of income. If the subject is spending money, it is assumed that there is income in an amount equal to the expenditures, unless an alternative source of funds can be identified (such as borrowing, gifts received inheritances, and the like).
All of these methods attempt to get to the same point: an accurate estimation of the person’s true earnings. If that person isn’t forthcoming about her or his income or there is a reason to believe the information provided is false, then this work is necessary to establish her or his true income.
Some of the documentation that can be useful in a lifestyle analysis is discussed in this article. If you know that your spouse or child’s parent is hiding income, this is an effective way to ferret out the truth. The side benefit is that it can show that the opposing party is not credible (if it is proven that there is hidden income or assets), and this may help your divorce or child support case in other ways.