Divorce Financials: Dangers of an Imprecise Premarital Agreement

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divorceA divorcing couple has a premarital agreement, so everything is simple when it comes to dividing assets and paying maintenance, right? Of course not. Premarital agreements are rarely simple, and they become even more complicated when the language in the agreement is imprecise.

This high net worth divorce case study provides some important insights into the process of completing a lifestyle analysis and calculating support. In this case, an imprecise premarital agreement led to problems in analyzing the marital lifestyle, excluding certain questionable expenses, and calculating future needs.

Marital Standard of Living
Premarital agreements typically speak to the factors to be considered in calculating maintenance, including the length of the marriage, the method for calculating the spousal support, and the lifestyle or the marital standard of living of the couple and their children. Unfortunately, there are many situations that are never contemplated when premarital agreements are written, so they aren’t addressed in the agreements.

The most hotly contested area is the standard of living, as this item is often elusive and subjective. In our high net worth divorce case study, the parties’ premarital agreement provided that the recipient spouse was to receive spousal support for three years in an amount to support her in the standard of living enjoyed by the parties during the last three years of the marriage. Continue reading

Divorce Financials: Analyzing Income Tax Returns

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Income tax returns are an important piece of financial information in a divorce or child support case. There is so much information that can be obtained from the tax returns, and if we have several years of data, we can make comparisons from year-to-year. In the video below, Tracy talks about the financial data she analyzes on the income tax returns and what these items may tell us about the financial situation of the family.

Written Reports in Divorce Cases

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After completing a lifestyle analysis for a divorce case, a written report is often requested. In the below video, Tracy describes the information she puts in her written reports, which often includes things like background information, documents utilized, important estimates, and methodology used.

Proving Income in Family Law Cases

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Icase-of-moneyn 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: Continue reading

Unreported Income: Bank Deposits Method

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When the Internal Revenue Services suspects that a taxpayer has unreported income, the agents can use one of several methods to uncover that income. These methods can also be used to help calculate hidden income in a divorce or child support case. One such method used to determine unreported income is the bank deposits method, in which the forensic accountant analyzes bank deposits. In the video below, Tracy explains how this is done.

Divorce Financials: Importance of a Lifestyle Analysis

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In the early stages of divorce, clients are required to complete financial affidavits, financial declarations, or other similarly titled disclosures.  The importance of an accurate disclosure of assets, liabilities, and income is obvious. Yet many clients are unable to accurately prepare this financial information.

Particularly in high net worth divorces, it may be difficult for the husband or wife to report these financial details because of a large volume of data and/or an inability to compute the numbers. The financial declaration will be a primary piece of information used to divide assets, calculate alimony, and calculate child support. Errors can therefore be very costly.

A lifestyle analysis completed by a forensic accountant can solve this problem, and can add other value to the divorce process. The lifestyle analysis is typically done to demonstrate the spending (or the lifestyle) of the family prior to the separation. Continue reading

Finding Hidden Income in Divorce Cases

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LifestyleAnalysisInDivorceCasesSmallDo you think your spouse may be attempting to hide income or assets in your divorce? One spouse commonly has control over the money in the marriage, either by virtue of being the major breadwinner, or by controlling spending, or both. The spouse in the lesser financial position should take immediate proactive steps to protect herself or himself in the divorce. ex-spouse will have with them. By being aware of some of the most common schemes used to hide income and assets, you may be more likely to see the signs.

Some of the more common schemes used to hide money in divorces include:

  • Stashing cash – It is not uncommon for an estranged spouse to start stashing money around the house, in a safe deposit box, or with trusted friends or relatives. By not keeping the funds in a bank or brokerage account, the spouse is hoping you won’t know of the money’s existence. Pay close attention to transactions that involve cash vaporizing into thin air: large ATM withdrawals, depositing checks but receiving a large amount of cash back, the sale of assets with no paper trail or no deposit to known accounts.
  • Purchasing items that are easily overlooked or undervalued – Everyone notices a new home or a new car, but who is paying attention to works of art, valuable home furnishings, or technological toys? While some spouses are paying close attention to these types of things, many are not, and  this is one great way to reduce cash while secretly increasing hidden assets.

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