Worried your Soon to Be Ex-Spouse is Hiding Income?

     Dawn and Kevin have been married for fifteen years and recently separated. Kevin owns a business which he agrees is marital property. Despite the fact that the business thrived during the marriage, Kevin insists the business has been steadily declining. Dawn is skeptical and wonders if business is truly declining or if Kevin is hidding some of the business income.  Dawn worries whether she will be able to prove the real value of Kevin’s business, and Kevin's real income.  

     Dawn understands that Maryland is an equitable distribution state (equitable does not always mean equal), but it is important that she and her attorney determine whether Kevin’s business is really declining or whether he is hiding income. In his article, Hunting For Hidden Cash in Divorce Proceedings,  Ben Steverman discusses how a Los Angeles based forensic accountant, Mark Kohn, finds hidden money.

     Typically, forensic accountants are hired in divorce cases to help an estranged spouse discover hidden business income.  Often income is hidden in the form of fake business expenses. Other times business owners hide income by taking payments in cash and underreporting revenue.  Although a spouse may report a certain salary to the IRS, their lifestyle may suggest a much higher income.  It is important to look at a person’s lifestyle, both pre-separation and post-separation, when determining whether assets are being hidden. Is a spouse’s spending consistent with their reported income? Do they drive expensive vehicles, take high- end vacations and/or live in large expensive homes, but report an income too low to fund thos expenses?  Kohn cites an example of a husband who reported income of $500,000 but was actually earning $2 million. The extra $1.5 million was hidden in phony business expenses, and the cash was used to fund personal expenses.

     If a business owner hires various accountants to handle different aspects of their business and personal affairs, Kohn suggests that a spouse should see this as a red flag. It implies that their soon to be ex-spouse does not want to reveal their full finances to any one accountant.   A business owner can include doctors, lawyers, accountants and restaurant owners.

    At Hess Family Law, we will help you assess your situation and options if you think your spouse is hiding income.

 (07/16/13)