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.
Fifteen or twenty years ago, it may have been far-fetched to suggest that a simple internet search could help you win a case in front of a jury. Those immersed in the world of data mining knew it was possible, even then. Today, the sources of information on the internet have grown exponentially, and these can be used strategically in litigation.
The work of a financial investigator and expert witness is focused on financial documents and numeric evidence. Much of the information in fraud cases or contract litigation is found in private records, such as income tax returns, accounting records, bank statements, and financial statements.
In addition, public records can enhance a case. Traditional public records include real estate records, civil and criminal court files, probate court files, vital records, corporate registrations, intellectual property documentation, and professional licensing records.
Publicly Available Information
One source of information that is sometimes overlooked by counsel is publicly available information. The data includes everything else that is readily available to the public, if one knows where to look and how to get there.
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:
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.
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.
Divorcing spouses who own one or more businesses need a detailed financial analysis in order to properly evaluate these interests. A Business Lifestyle Analysis may be performed to determine the true income of the company and find out where the money is really going. Tracy Coenen talks about how she analyzes the detailed accounting records of a business.
I often get asked how someone will know if their spouse is hiding income or assets in a divorce. Sometimes it is obvious when a document is discovered or information is leaked by someone in the know. But what if you just have a “feeling” that something isn’t right?
In working with divorcing couples, I’ve found that there are often some telltale signs of trouble. A gut feeling with some objective information is often enough to warrant further research and investigation. What are some of the common clues that I have seen to indicate hidden income and assets?
- We are suddenly poor: The income-earning spouse has an unexplained decrease in compensation and/or you have gone from regularly having extra money to suddenly having a low balance in your bank account. Beware of the possibility that your spouse is deferring income… having commissions, bonuses, or other compensation withheld until after the divorce is over.
Defendants in criminal cases such as tax fraud, money laundering, or embezzlement often need forensic accountants to help evaluate complex financial situations. Should you provide expert witness services to criminal defendants? Tracy discusses the work and some of the issues that should be considered.
You thought only people experience identity theft. Only individuals become victims of dumpster diving or poor computer security. Someone gets a credit card in your name, and you’ve become a victim. You didn’t even consider that a company could have an “identity” that could be stolen.
Corporate identity theft is becoming all too common, and one of the most troubling aspects of it is how little owners, executives, attorneys and business advisors know about it. Without a basic knowledge of even the existence of corporate identity theft, people are powerless to prevent it.
It can be perpetrated in a number of different ways, but each type of corporate identity theft has one thing in common. It can destroy the reputation of a business quickly.
The type of corporate identity theft people think about most often is the use of a company’s credit profile, either to fraudulently obtain credit for themselves or to make purchases in the name of the company.
Tracy Coenen discusses the early stages of a financial investigation related to a divorce. When couples are divorcing, it is not unusual for a business to appear to decline. Tracy talks about the types of things she looks at to determine whether there is evidence of hidden income or other manipulation of the finances.