Unreported income and hidden assets are often alleged in divorce, especially in high net worth cases. Such claims are usually made by a spouse who is either not running the family business or has not been involved with the family finances.
Under-reported income can impact child support and spousal maintenance calculations or agreements. If a financial situation is misreported, “true” income should be constructed and imputed to the spouse doing the under-reporting. This will likely require the help of a forensic accountant.
What To Look For
There are numerous ways to find hidden assets, but typically assets are either placed in the hands of third parties or behind false documents. There could be good reason to be suspicious if your spouse seems to engage in one or more of the following.
1. Maintains complete control of bank account information and online passwords.
2. Has a P.O. Box or private mail drop.
3. Acts pushy when obtaining signatures for important documents.
4. Suddenly develops a “my business is failing” syndrome.
5. Owns multiple cell phones.
6. Has multiple business or personal bank accounts without an obvious reason.
7. Is involved in drug use.
8. Make frequent trips out of the country.
9. Maintains large amounts of cash, precious metals, jewelry, or artwork.
What Happens Next?
The cost to pursue the special discovery necessary should be weighed carefully against the potential benefits. Once formal discovery is completed, the second phase of examining tax returns, bank accounts, credit reports, credit card statements and loan applications can commence. Performing cash flow procedures on the business or businesses, a lifestyle analysis, and public records check are typically a part of this level of discovery.
A full and complete accounting of income and property is necessary for those seeking parity and equitable division of marital assets. Due diligence requires exhaustive measures when unethical or fraudulent arrangements are suspected or exist. While difficult, clues can be found to an experienced eye and can bring to light the facts for equitable property settlements.
For more information on filling out tax returns during divorce, see my previous blog post here.