How Business-Owning Spouses Manipulate Income
What to Do If You Suspect Deception
In an ideal world, parting couples are honest and transparent during divorce litigation. In the real world, there's always a chance that someone isn't owning up. If one spouse has a business, the opportunities to hide or manipulate income increase significantly. For the sake of argument, consider this (hopefully) extreme scenario.
A restaurant owner is divorcing his spouse. DUring their separation, he also:
- Purchases new appliances and expands his kitchen.
- Limits business hours during renovations, even though it's not really necessary.
- Pays for a second car through the business account.
- Increases his new girlfriend's salary, because she's been doing a great job hosting.
While such bold disregard is thankfully rare, you get the idea. With a business, there are many possible ways a spouse can be deceptive about income - from cutting unearned checks, to delaying invoices, to adding unnecessary or personal expenses that can make the business look less profitable.
What Should an Attorney Do?
The short answer is: It depends. The financial complexity of a divorce case depends on the size and nature of the spouse's business. In other words, there's no checklist with neat yes/no boxes for matrimonial attorneys to get to the truth. That takes experience. However, there are some key steps you can follow to help your clients get all that they're entitled to.
3 Actions If You Suspect Income Manipulation
- Include the spouse in investigations. Even if they weren't involved directly, your client might have knowledge about the business that could prove helpful. Make sure to keep them looped in. Many times spouses will talk at bedtime about topics of the day. A business owner is eager to share his success to anyone who will listen, like his spouse. On many occations, spouses will actually have worked in the business and may know a lot about it.
- Request and obtain all pertinent financial data at the beginning of your engagement. Suspicion is one thing, but proof is another. Be sure to collect the documents - tax returns, personal financial statements, credit reports, bank and investment account statements - and start early. As the divorce proceeds and parties get more emotional, this step gets harder.
- Partner with forensic CPAs. They'll work closely with you, help you ask the right questions, and navigate the potential paths you'll need to go down to determine income, find tangible and intangible assets, and decide if income is being artificially depressed.
Discovery Leads to Justice
Dealing with heated situations is par for the course for matrimonial attorneys. Add a business-owning spouse to the mix, and a divorce case can get even muddier. By providing a more sophisticated review of the economics of the marriage and the business, forensic accountants help level the playing field for non-business-owning spouses.
Original Article by Mark Vogel, CPA/ABV/CFF,CMA,CVA (firstname.lastname@example.org)