26 Sep

Hidden Assets in Divorce Cases

Hidden assets can impact both the property division and the award of support payments. Assets hidden by one spouse deprive the other spouse of a share of them. If the hidden assets include income-producing assets such as a business venture or an investment portfolio, the spouse receiving support may receive a lesser amount of support than he or she is entitled to.

Some of the most common personal and business assets hidden during a family law case include: Read More

13 Sep

What is a Divorce Lifestyle Analysis?

The divorce financial analysis is one very specific set of services that can be offered by a forensic accountant. The lifestyle analysis is the process of tabulating and analyzing the income and expenses of the parties. The lifestyle analysis is then used to determine the standard of living of the parties, which will influence support calculations, and maybe property division.

Calculating the lifestyle of the spouses prior to separation can provide insight on the lifestyle the married couple enjoyed and the cost of that lifestyle, as well as the income that is or was required to fund the lifestyle of the married couple. The results may be used to prove a spouse’s financial needs following divorce. In other words, a detailed analysis of the spending during the marriage can be the basis to calculate the funding the spouse needs to maintain a similar lifestyle after divorce.

The lifestyle analysis may also help confirm or refute income claims made by a spouse. If a spouse has declared income that is well below the cost of the lifestyle he or she is leading, the lifestyle analysis may suggest that undisclosed sources of income exist. It may also help identify previously undisclosed assets, which may have a substantial impact on the property division.

The lifestyle analysis is not only used to sort out the numbers post-separation. It may be used to evaluate the finances of each part at the time of a prenuptial agreement. If a party did not make a full and accurate disclosure prior to the signing of the premarital agreement, the spouse may attempt to have the agreement set aside. A prenuptial agreement can also be instrumental in the forensic accountant’s work post-separation, as it provides a starting point for the tracing of funds or assets.

20 Aug

Tax Returns and Divorce Cases

One of the most common documents utilized in a financial investigation is the income tax return. It’s a key document in any divorce case, so the personal income tax return is always examined. And if there is a business, the tax return for that entity should be examined too.

What can we learn from the tax return? Maybe more than you imagine. Today I’m going to walk through the lines on the personal tax return (Form 1040) and some ways that these items can be analyzed to search for hidden income and hidden assets. Read More

23 Jul

Pay Support or Go to Jail?

Last week Dukes of Hazzard star John Schneider asked a judge to send him to jail because he can’t pay the spousal support he owes. Schneider apparently owes over $150,000 in alimony to his ex-wife Elly Schneider. He was previously sentenced to 3 days in jail for contempt for his failure to pay, but was let out right away because of jail overcrowding.

The court set certain conditions for him to avoid additional jail time, including paying Elly half of the earnings he is owed from Maven Entertainment, filing certain tax returns, and making certain financial disclosures.

But John would rather do time behind bars because he says he can’t pay. He says he’s taken out all sorts of loans and can’t do it anymore. When they divorced, he was ordered to pay nearly $19,000 per month in alimony. Read More

05 Jul

Determining Income in Divorce and Child Support Cases

When attempting to calculate the income of a party in a divorce or child support case, it is important to remember that income is not determined simply on the basis of historical earnings. It is necessary to also consider the future prospects for income, and how the income scenario may change following the divorce. For example, one of the spouses may encounter a job change with a related change in earnings. Even if a change is not the result of the divorce, it still must be considered as changes in earnings may change a spouse’s ability to pay support.

In evaluating historical income, it is necessary to consider whether historical income was abnormally high or low for some reason. For example, suppose a business run by the spouse had lower net income in the past because there was a substantial investment to increase the capacity of the business. The investment included operating expenses and depreciation of fixed assets, which lowered historical earnings, but created an opportunity for the company to generate higher income in the future. Thus, the projection of future earnings must not rely solely on the historical earnings, but must consider the future prospects for income. Read More

07 Jun

Terrence Howard and the Case of the Missing Spousal Support

Empire star Terrence Howard illustrates why it’s so important to pay up when the court orders you to pay spousal support. His divorce from Michelle Ghent has been interesting for years. Back in 2012, Howard signed a spousal support agreement, but later he said that he only signed it because Ghent was blackmailing him. A judge believed him and threw out the agreement.

Ghent appealed, and last year she won that appeal. The agreement was reinstated, so spousal support was back on.

And apparently Terrence Howard is awfully far behind in his payments to Ghent. Their agreement called for support of $5,800 per month plus additional amounts (up to $4 million per year!) depending on his earnings. Ghent is going to court to ask for $909,418 in back support. She says he hasn’t paid what he owes since she won the appeal, and that he’s hiding his income from the Empire series. She says he’s made $9.7 million from the show over the last 5 years. Read More

04 Jun

Budgets for Living Expenses in Divorce

It can be difficult to come up with a budget for your future living expenses when getting divorced. Most people don’t know how much they have been spending on various things like clothing, groceries, and dining out. It can also be difficult because we need to consider the spouse’s reasonable needs in the future. Things can become even more complicated if the earnings of the parties aren’t sufficient to support two households at the same level they had during the marriage.

Nonetheless, budgets or projections of future spending should be prepared, and a financial expert should take steps to verify the figures and determine if they are reasonable.

What historical period should be evaluated when creating the budget? It is typical to evaluate one to five years of data, but there is no hard and fast rule for the time period that should be analyzed. Contrary to the position advanced in some divorces, future needs are not necessarily based only on expenditures in the last year of marriage. What if spending had been increasing by 10% per year for each of the last five years of the marriage? A case could be made that future needs should reflect a similar increase. Read More

17 May

Accountants and Family Law Cases

Family law cases involving complex financial issues often require the assistance of a financial expert for the following issues:

  • Preparing a financial disclosure, including creating a marital balance sheet
  • Comparing balance sheets from period-to-period to evaluate changes in assets and liabilities
  • Analyzing financial disclosures or affidavits prepared by the spouses
  • Calculating the historical income of the spouses
  • Determining income (or the ability to pay) in order to calculate support
  • Determining the standard of living (or the need for support)
  • Valuing business entities or other assets (such as real estate, pensions, and the like)
  • Identifying assets and determining whether they are non-marital (separate) or subject to division (marital or community)
  • Tracing and finding funds or other assets
  • Analyzing claims of dissipation, wasteful spending, or fraudulent conveyance
  • Evaluating the income tax impact of various scenarios
  • Assessing the work of an opposing financial expert
  • Other litigation assistance, such as assistance with drafting discovery demands and interrogatories or preparing for the depositions of individuals with financial information

In addition to these financial issues, an accounting expert could also play the following roles in family law cases:

  • Assisting with settlement activities, evaluating the financial impact of a settlement offer, making certain calculations, and giving opinions on various settlement scenarios.
  • Mediating a divorce case with financial issues to help the parties reach a settlement.
  • Acting as a neutral expert in the divorce, providing an objective opinion on financial matters. The parties may agree together on the financial neutral, or the court may appoint the accountant.
  • Participating in post-court activity, aiding in the evaluation of financial disputes, including things like allegations of fraud during the divorce process or motions for modification of support.