DEALING WITH ATTEMPTS TO HIDE VALUE
Could your spouse be hiding assets? Hiding assets during a divorce is sneaky and unethical – but it happens much more frequently than most people expect. Concealing money, property, and liabilities is illegal, but that doesn’t always act as a deterrent.
If you have always left money matters to your spouse and are now either considering divorce or in the middle of one, financial infidelity can affect what assets you receive and how much you are awarded in alimony and child support.
Here are some ways that your spouse could potentially hide money and assets from you.
Skimming cash from the business. This is especially prevalent wherever cash transactions can happen.
Underreporting income on tax returns and/or financial statements. If it’s not reported, it can’t be used in a financial analysis.
Delaying signing business contracts until after the divorce in order to lower the value of the business during the valuation process and also to present the business as being in a vulnerable or declining financial position for the purpose of reducing spousal maintenance or child support.
Overpaying creditors including the taxman. He/ she can get the refund later, after the divorce is final.
Creating phony debt or transferring assets. Your spouse can collude with family members and/or friends to establish fake loans or expenses knowing that all the money will be returned after the divorce is final.
Paying money from the business to a trusted third party such as the spouse’s father, mother, girlfriend, boyfriend or close associate.
Deferring income entitlements such as bonuses and payments from debtors until after the divorce settlement is negotiated.
The likelihood of uncovering these various schemes increases dramatically
IF you use of a skilled forensic accountant with substantial experience in business valuation and accounting.
Once the forensic accountant analyses a couple’s marital living expenses and connects those expenses to all known sources of income, assets and loans, he can see if there is a mismatch. If the amount of living expenses exceeds the amounts of known income, assets and loans, a giant red flag appears! Discrepancies like this are one telltale sign of concealed income and/or assets.
Remember - At one point in time, your spouse was not scamming; the marriage was good. Finding that benchmark point in time is one way a forensic accountant will figure out ways to “triangulate” what is truth and what is deception.
VALUATION ISSUES
The most significant asset in a marital estate is often the family business. A fair resolution hinges on its accurate valuation. That can be achieved by working with an experienced valuation expert who understands how courts handle challenging divorce issues and the application of established, appropriate valuation practices.
The problem of different knowledge levels – One spouse may often have had little to do with the business, will often either have a grossly inflated idea of its value, or massively undervalue it. Due to their lack of involvement, they realistically do not know what the business is truly worth.
Some may attempt to assess the value of a business based purely on the evidence of ongoing contracts, and while it can be tempting to say “there is no good will” in the absence of these contracts, this often is not the case. This is why an expert valuation is required to assess the true value of the business.
Businesses can also be used to hide money. If one of the parties retains the business it can become tricky because they can potentially manipulate their income, sometimes through increased expenses, to dramatically reduce child support payment obligations.
Even if a business may not be valuable to sell, it can still be a valuable asset because it is likely to deliver an income.
Business valuations are usually contentious during a divorce. The person who wants to keep the company puts a low value on it to minimize the cost to buy out the other spouse’s interest. The person who is not keeping the business wants a high value to maximize the amount of buyout received. Spouses rarely agree on the value of a business.
Courts are aware that the profit and loss statements are usually less than accurate in a small business because of things like personal expenses masquerading as business expenses, discretionary expenses, and business perks. The divorce court will consider the amount of money the couple or family took out of the business as income, as well as personal expenses, perks, and other items. Sometimes it is worth more to the spouse who does not get the business to adjust the value of the business a little lower in exchange for bumping up the income of the other spouse to increase the alimony. The difference in alimony can more than offset a lower business interest buyout.
There can sometimes be legitimate reasons for the reduction in performance (and hence value) of a business.
The emotional and financial burden created by divorce can impact an owner's ability to manage the business and adversely affect productivity, profitability, and employee morale..
FIGHT, NEGOTIATE OR JUST CONCEDE?
Collaborative divorce tackles divorce outside of the courts so that agreements can be reached around a conference table and thus be resolved with more dignity and respect.
By the end of the divorce trial, spouses can become enemies - Litigation makes people be mean to each other.
People are raiding their retirement accounts just to pay for divorces; Going to court can be more expensive, more time intensive and corrosive for children.
IGNORANCE IS NOT A VIRTUE
If you have ever been concerned with marital finances before, now is the time to get involved. Don’t accept the financial disclosures of your future ex at face value: search the records for joint holdings and if necessary get advice from a financial advisor and your attorney. It’s critical that you have an experienced divorce attorney on your team to help you spot and resolve any attempts by your spouse to conceal money in order to gain a better settlement.
COSTS OF THE PROCESS ARE INEVITABLE – BUT CAN BE MANAGED
Lawyers charge by the hour. The court system is notoriously slow. These two factors can create significant costs.
Divorce is going to take longer and cost more than you ever imagined. It is going to be more emotional and more difficult than you want. If you know that from the start, and you don’t expect it to be fast or cheap, you will be way ahead of the game.
The burden of proof is often on the spouse with less financial resources (typically the it smart. They must become knowledgeable and keep their eyes wide open. And ideally, they must be financially aware and involved from the onset of their marriage.
Even if your spouse has been kind, considerate and respectful, don’t assume that those character traits will carry through to the divorce process. If you want to come away from your divorce with an equitable settlement you need to anticipate how your spouse will choose to “defend” his/her position during the process. And, whether or not the process will mean a drastic change in personality traits. Just because your spouse was not aggressive during the marriage doesn’t mean they won’t be during divorce.
BULLYING
If your spouse was the one with the power during the marriage, divorce isn’t going to change him/her into someone willing to give up their power. If anything, divorce will make them more relentless when it comes to retaining both financial and emotional power over you.
The more anxious you are to get it done, the more willing you will become to give your spouse anything and everything, just to get your divorce over with. There is something very sad in caving in to conclude a settlement quickly to find that in 12 months’ time, you resent the compromises you have made.
The difficulties created are worse if the ex is toxic or narcissistic.
Don't be intimidated by your ex's behavior. You will go into divorce settlement negotiations with your ex on the same footing. You both have the same rights. Don't allow yourself to buy into threats about "taking the children" or, "leaving you destitute." An angry ex likes to intimidate by threats. Don't reply to threats! Take them to your attorney and let him/her deal with your ex.
You can’t control your spouse. Even if you were able to control your spouse during your marriage, once you start down the road of divorce you can kiss any thoughts of control good-bye.
If your spouse is telling you that you are never going to get a dime in the divorce, or that you are a home-wrecker and your kids are going to hate you forever, or any one of the thousand other horrible things that angry spouses yell at each other when they are hurt – don’t listen! Hang up the phone. Leave the room. This is not productive conversation
GENERAL ISSUES
With the ubiquitous nature of social media such as Facebook and Twitter, it is also important to remain professional online. If possible, keep all the details of your divorce and separation agreement off the Internet. If you do make any posts referencing your divorce or soon-to-be ex-spouse, avoid venting, ranting, or name-calling. These posts can easily reach your spouse or his or her attorney and be used against you in co
UNCOVERING YOUR SPOUSE’S RUSES TO RIP YOU OFF
How can hidden assets, hidden sources of income or understated income come to light during divorce proceedings?
Forensic accountants are routinely engaged in divorces to look for these things such as unreported income and under the table cash. How are they going to find that?
o Looking at cash flowing out of business accounts or into private accounts
o A good forensic accountant is going to be analysing all sources of business income and look for examples of increasing the expenses or cash outflows of the business during the post separation and divorce period to decrease business profitability in an attempt to minimise the marital settlement. The ATO is also likely to look at these areas of misreported or underreported income. They are going to ask about cash transactions, cash on deposit, asset and share transfers (with and without consideration).
o If the Forensic Accountant asks questions in a court context or pursuant to an ATO investigation, the spouse may be forced to commit perjury in order to conceal the actions taken to artificially (and temporarily) reduce or shift the value of a business
DEALING WITH A SPOUSE WILLING TO TELL LIES IN COURT AND IN COURT AND MEDIATION DOCUMENTS
When you are dealing with a spouse who is willing to lie to attorneys and the court, protecting your rights can be difficult without an attorney and you can, unintentionally, make yourself look vindictive. Hiring a lawyer can help you understand the best way to present your evidence, protect your rights, and ensure that your spouse does not get a divorce settlement based on lies or misrepresentations.
There are no solutions for personal disagreements in a law court or in a lawyer’s office.
The discovery process is a good way to get financial information from an uncooperative spouse because the court has the power to compel compliance. For example, if your spouse fails to produce documents, you can ask a judge to order your spouse to do so. If your spouse disobeys the order, a court may punish your spouse by imposing a “sanction,” which can include monetary fines or even a judgment against your spouse on a particular issue.
A business-owning spouse may be so inclined to protect his or her own financial interests that he or she may commit fraud. A business owner going through a divorce may attempt to conceal or transfer assets, understate revenue, or overstate expenses. If you or a client suspects such behavior, you may also require the assistance of a forensic accountant.
Making the disclosure that your former spouse engaged in tax fraud can theoretically open the door to the depletion of marital assets. Furthermore, the disclosing spouse may implicate him or herself in the alleged tax crimes.
