Disappearing Income and Asset Values in Divorce

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.

Fortunately, there are ways to ferret out truth behind the financial picture that is being presented. It likely will not be easy. The “in” spouse controls the money, the information, and the documents. Getting him to turn over financial documents that will prove there is income and value will be difficult.

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Business Lifestyle Analysis in Divorce

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 … Read more Business Lifestyle Analysis in Divorce

Sale on Lifestyle Analysis Book (Today Only)

Today is your chance to get a 40% discount off list price for the second edition of my book Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets. The American Bar Association rarely discounts its books, and the title won’t be available on Amazon for a year or more. So today … Read more Sale on Lifestyle Analysis Book (Today Only)

How to Investigate a Cash Business

Closely-held businesses often create problems in divorces, as they need to be valued for the property division and the income needs to be evaluated for support purposes. It can be difficult to examine the income of a business that transacts with its customers primarily in cash. However, there are ways to verify whether the income being reported is reasonable.

Some of the ways that the income of cash businesses can be examined and verified include:

1. Find out the normal mark-up or profitability of the product or service being sold, and see how recently reported figures of the company compare.

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Ways to Hide Income and Assets in Divorce

While it is common for one spouse to have control over the money in a marriage—be the major breadwinner, manage spending, and maintain control of financial documentation—family lawyers and their clients can increase the chances of finding hidden assets during a divorce by being aware of some of the schemes used to hide money.

Understanding the common schemes that may be used to hide assets and income can help the spouse in the lesser financial position protect himself or herself in the divorce; and, by knowing about these schemes, you can look for signs and hopefully limit the success your client’s soon-to-be-ex-spouse will have with them. Some of the more common schemes used to hide money in divorces include:

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Calculating Income Using the Net Worth Method of Proof

In divorce cases, forensic accountants can use the “net worth method of proof” to calculate income. This is used to search for hidden or unreported income. Rather than simply taking a spouse’s word for it that his or her income is X, we can do an analysis like this to try to verify the claimed … Read more Calculating Income Using the Net Worth Method of Proof