Tracy explains the purpose of a lifestyle analysis in a divorce case, and the process used to analyze the family’s finances. The lifestyle analysis may be used to determine how much money is required to continue living the lifestyle the parties had while married. It may also be used to find hidden income or hidden assets, and Tracy discusses how she may uncover these items.
It is not unusual for the “out” spouse (the one who is not the major breadwinner in the family and who does not have control over the family’s finances) to suspect that income and assets are being hidden during a divorce. When one party is accused of hiding income, how can a forensic accountant find it?
Below are a few techniques that I may use to uncover hidden income. A more in-depth discussion of this topic appears in Chapter 9 of my book, Lifestyle Analysis in Divorce, published by the American Bar Association.
My new book, Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets, is being published by the American Bar Association this summer. It will be the only book available on the topic of lifestyle analysis in divorce cases. While there are plenty of excellent books on financial issues in divorce, none of them focuses on the lifestyle analysis, how it is done, and how the results may be used in court.
This book focuses solely on the lifestyle analysis in the family law case, although other services from a financial professional may also be needed in a case. 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 possibly property division.
A 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 possibly property division.
Calculating the lifestyle of the spouses prior to separation can provide insight into the lifestyle the married couple enjoyed and the cost of that lifestyle, as well as the income that was or is 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.
This article was originally printed in the ABA Section of Family Law eNewsletter, January 2014.
The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.
Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated. A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.
How does a forensic accountant use bank statements in a divorce or family law case? Tracy Coenen explains why bank statements and credit card statements are requested in these cases.
One frequently asked question from divorcing individuals is what to do if the spouse is suspected to be hiding assets. I recently outlined the steps that should be taken if a spouse is worried about the other spouse manipulating assets and income:
If you think your spouse may be attempting to hide income or assets during your divorce proceeding, your first step should be to tell your divorce attorney. Your attorney should know how to handle situations such as this, and the sooner he or she can act, the more likely you are to see results.
You should also quickly gather and secure any documentation that might prove your allegations. Financial documents that you can legally access should be copied and turned over to your attorney. This might include tax returns, pay stubs, credit card statements, bank statements, brokerage statements, contracts, or any other documents which might prove the existence of assets or streams of income.
The article can also be found in the Spring 2013 print edition of Divorce Magazine.
Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.
Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further.
Family law cases often focus heavily on financial issues. Whether the parties to a case are of modest means or great wealth, both sides want their own version of what is fair. Unfortunately, this can lead one or both parties to hide income and assets. With the help of a financial expert, counsel can identify income and assets that might otherwise go undiscovered, and hopefully reach an equitable end to a divorce or child support case.
Sources of income and assets owned can be identified with the right documentation. Attorneys need to be familiar with some of the most common financial documents so they know what to request. Attorneys with financial knowledge can also help identify issues that may need further analysis in a family law case.
We’ve all seen it before: A spouse owns and operates one or more businesses. Divorce is filed, and the “out” spouse is told that the businesses have little or no value. Further, there is no income available to pay support, thanks to the poor financial condition of the businesses.
How can this be when the married couple has lived a good life for years, always having more than enough money to pay for homes, living expenses, and vacations? It’s the case of the disappearing income and asset values, brought on by the divorce.