17 Jun

Divorce Investigation: Uncovering Hidden Income in a Closely Held Business

When a divorce or a child support issue is looming, it’s amazing how a quickly a closely held business starts “losing money.” I use quotes because such a situation is so predictable. One party wants to protect her or his assets, and when there is a business involved, the motivation to hide money can be stronger than usual.

The types of businesses that can be prone to manipulation of the books include restaurants, retail stores, doctor or dentist offices, construction companies, auto dealerships, and law practices. This list isn’t exhaustive by any means, but it provides good examples of businesses at risk of financial maneuvering.

Any business that is closely held and has finances that are easily manipulated by the owner is at risk. A lawyer filing for divorce from his wife may suddenly stop taking a paycheck and then claim he has no earnings from the practice. A restaurant owner could stop reporting cash receipts from customers, thereby claiming much lower revenue for the business while secretly pocketing the cash. A carpenter may offer customers a discount if they pay with cash and don’t request a receipt, never reporting that money as income. Read More

07 May

IRS Expenditures Method to Determine Income

When the IRS believes a taxpayer has unreported income, they will use alternative methods to attempt to determine the true income. One of those methods is the Expenditures Method. Tracy Coenen explains the basic methodology in this video. Note that this method of calculating income can be used in a variety of cases that involve allegations of hidden income including divorce, money laundering, and income tax fraud.

19 Apr

Divorce and Your Credit

The financial effects of divorce are far reaching. In a one-income household, it’s often even worse. It’s bad enough that one income now has to support two separate households, at least for a period of time. The non-moneyed spouse (the one who hasn’t been working and isn’t the source of income) has it especially tough.

Of course, there is often an expectation that the spouse who hasn’t been working will start to do so. This can be difficult if there is a gap in employment, which is common due to a spouse staying home to raise children. Earnings of that spouse are almost always much lower than the moneyed spouse (which is likely part of the reason why that spouse was the one who stayed home with the kids).

It may be difficult to get a job due to the gap in employment history, especially if there have been a lot of changes in the career since the spouse last worked. Employers may not be willing to bring someone up to speed if there are candidates who have been continuously employed int he industry and are up to speed on the new technology and trends. Read More

10 Apr

Alternative Sources of Financial Information in Divorce

Everyone knows about the typical sources of financial information in divorces. Income tax returns, bank statements and related documents, brokerage statements, credit card statements, and business financial statements are some of the most common.

There are alternative sources of financial information that can be incredibly helpful in divorce cases, however. They are helpful because they can refute or support claims being made by one party about income and assets. They are particularly helpful because often, the other side isn’t prepared for these documents to become part of the divorce case. Read More

28 Mar

Second Edition of Lifestyle Analysis in Divorce

Exchanging books with family lawyer Randy Kessler in 2016.

The American Bar Association has asked me to write the second edition of Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets. It was (and still is) the only book on the market that details how to do a lifestyle analysis and how to use the results.

I do lifestyle analysis in very high net worth divorce cases, and the results are used to determine standard of living (which then helps calculate support), find sources of hidden income, and find hidden assets. Read More

26 Mar

Determining Income Using the Net Worth Method of Proof in a Divorce Case

iStock_000019355019XSmallHow can income be calculated in a divorce case when a spouse refuses to produce documentation or is suspected of concealing sources of income? One way is through the Net Worth Method of Proof, which is used to analyze income and assets when detailed documentation is not available, either because the opposing spouse is obstructing efforts to get data and documents, or because data and documents are legitimately not available.

This method of determining income is used by the federal government in criminal income tax cases. Because it is accepted in federal criminal cases, family courts often will accept this as a reliable method for calculating income.

A detailed analysis of expenditures is performed using any documentation available. Each expenditure for the period under review is captured from bank, brokerage, and credit card statements, and each item is categorized so that totals can be accumulated for the period under analysis. Read More

06 Mar

Financial Issues In “Grey Divorce”

Divorces between older couples who have been married a long time are sometimes referred to as “grey divorces.”  Sources say that while divorce rates overall have been dropping in the United States over the last 20 years, among those age 50 and above, it has been growing.

The financial part of a divorce is often difficult, but for senior citizens, it can be even more painful. Some of the reasons it can be harder for the older crowd:

  • One spouse may have little to no financial management experience. How will he or she manage household finances going forward?
  • Dividing retirement assets can be tricky. There may have been plenty of money available to retire and support one household, but two households may not be sustainable.
  • One or both spouses may be past the age at which they can expect to find reasonable employment.
  • Poor money choices during a long marriage may mean that there is not much to split, which can be a huge problem, especially if one spouse has no ability to obtain employment.
  • The spouse in charge of the money may have hidden assets, and it could be difficult for the other spouse to uncover them.
  • If one spouse has been the primary breadwinner throughout the marriage, he or she might view the retirement assets as belonging to him or her, creating a bigger fight.

With life expectancies increasing, retirement money has to last longer. That will necessarily be harder with two households to support.