You are married to someone who has a cash-based business. The majority of cash profits remain unreported. The majority of people have jobs. They submit tax forms. A paper trail exists. Your ex-spouse has a company that brings in unreported earnings. How do you go about proving your ex’s income when they deal in cash?
Click here to watch the video on Proving Your Ex’s Income When They Deal in Cash #ChooseGoldmanLaw
The lifestyle is what the court will examine. Look for proof of lifestyle expenses. Keep track of expenses in your ex-spouse’s life. Look at the expenses your ex-spouse is paying. Analyze your ex-spouse’s residence or reconstruct rent costs and home valuations. If you want to reconstruct your revenue using a pattern of expenses, you might need a forensic accountant. A forensic accountant is able to present a projected income.
What are the telltale signs of unreported income?
The divorce process is supposed to ensure fair and equitable determinations. The court as much as possible makes an effort to ensure transparency in all proceedings. Some spouses will still attempt to conceal or underreport their income. This they do even under the scrutiny of the discovery process. Detecting unreported income is a way to make sure there is a fair division of assets. You need to be more aware. More discerning in your understanding of your spouse’s true income. You need some insights with regard to recognizing signs of unreported income. Take note of some of them here.
Inconsistent Lifestyle
You think you know someone enough. Divorce is on the table. There’s a moment when you realize things aren’t what they seem. You thought you were unable to make ends meet but your spouse seems to have new jewelry every month. Wardrobes seem to get more lavish for every “business conference” attended at a resort. You hate to admit it. Your spouse seems to have a lifestyle disproportionate to what you thought was a low income. You need to find out more about luxury purchases. Check those extravagant “conferences” in resort hotels. People have lifestyles. A way of living. Every kind of living correlates to spending. People have spending patterns. Some more than others. Your spouse is spending more than what you know is their level of income. They have a way of living not in keeping with what they know is their socio-economic circumstance. They have an inconsistent lifestyle. We also need to believe that you can’t judge a spouse by their lifestyle. Your spouse might have a windfall. An inheritance. Your spouse might be a member of a royal family from an obscure kingdom. Stranger things can happen.
Cash-based Transactions
You might be thinking of cash-based transactions as purchases in cash. You are right but cash-based transactions are more than that. A withdrawal from an ATM is a cash transaction. A cash deposit in a bank is a cash transaction. Making a deposit for rent. An advance to a condominium. They are all cash-based transactions. You need to ask yourself why there have been large transactions recently. Are there payments to individuals you don’t know? Are there large transfers between accounts? Accounts you don’t know. Investments in entities not in your current portfolios.
Discrepancies in Tax Returns
Look into tax filings. The good thing about tax returns is the level of detail they contain. Review your spouse’s tax return for discrepancies. Look into inconsistencies. Look closely at the column of income for unreported income sources. Is there unreported self-employment income? Check for rental income or income from side businesses. Check inflated deductions or unusual business expenses. If you’re confident about your basic accounting skills, you can always cross reference. Check information in the tax return against other sources like income statements. Billing statements or bank statements are verifiable sources of data. Take a shortcut. Talk to your accountant. Take whatever financial data you have. Ask your accountant how all that information comes together. You can ask your accountant why asset depreciation is not an expense in the real sense.
Hidden Assets or Investments
Hidden assets or investments can come in the form of offshore accounts or assets in the name of a third party. We mentioned large withdrawals or payments to people you don’t know. You can connect the dots. To be sure, talk to a forensic accountant to check secret investments. For locating hidden real estate assets, you can use a private investigator. The effort of discovering these things can mean paying for services. Think first if the expense is worth it against the anticipated value of assets sought. There might be legitimate reasons why your spouse is keeping a low profile. It could be assets before the marriage that was not really given much attention.
Discrepancies in Business Finances
Some marriages are lucky enough to be supported by a business. Your spouse may own a business even before the marriage. Income or value earned during marriage is considered marital assets. Discrepancies in financial records can be signs of unreported income. Look into inconsistencies in revenue reporting. Check unexplained business expenses. Ask questions about cash transactions, unrecorded sales, or unreported business assets. A look into business processes can also reveal discrepancies in reporting. Candid talks with employees can reveal improprieties. They can be possible witnesses later in deeper inquiries.
The thing with investigating a spouse about hidden cash or income is a realization. A realization you don’t really know your spouse that well. Sorting through all that information (or misinformation) reveals a deliberate effort of lying. It is not only confusing but hurtful. It shakes the bonds that supposedly hold a marriage together. Trust. The deeper you dig, the more hurtful it becomes. As new evidence turns out, hurt transitions to anger. Have a conversation with your lawyer. The line between being angry and being spiteful is almost invisible. You need to control your emotions. Stay focused on the prize. You need to move on. Get out of the divorce process quickly. Keep moving on.
What’s the consequence of hiding cash in a divorce?
A spouse may hide cash or other assets to get even. A spouse may want to gain an undue advantage. Some may only be spiteful. They can’t help themselves. Such reasons may be why divorce is happening now. Hiding cash in a divorce is unethical. It can be illegal. Let’s explore the consequence of this adventure in divorce. Learn to uncover this to ensure fairness. Strive for an equitable outcome in your Michigan divorce.
Legal Consequences
A process in divorce called discovery allows both spouses to make financial disclosures. These disclosures are often done with the help of attorneys. You need an attorney to remind you that most of these disclosures are made under oath. It gives the court more leverage later on if your declarations turn out to be false. Deliberate concealment of cash is considered a breach of legal obligations. The court has a way of penalizing the erring party. The court can resort to imposing financial sanctions. Even holding parties in contempt of court. Weigh the potential legal consequences before considering hiding assets.
Unequal Distribution of Assets
Let’s do the numbers. You have a 100. You hid 30. It leaves 70 for division. You divide 70 and you have 35 each. You know that’s not true. What you actually have is 65. The 35 goes to your spouse who takes care of your children. You only gave them 35 to live with. Try thinking if you got 35 and you’re taking care of children. How fair is that to you? How equitable? Hiding cash which is an asset can distort the financial picture of the property division. It leads to the unfair distribution of assets. You’ve seen the simple math. Your spouse unknowingly receives a lesser share. You deprive your spouse of a rightful portion of the marital estate. Don’t be surprised if the court can be unusually severe in handing out sanctions. The court might just switch the numbers on you and give the 65 to your ex-spouse.
Loss of Credibility
You have to be believable. Trustworthy. You have to have credibility. Judges in Michigan family courts rely on honesty. They rely on the transparency of parties in a divorce. Judges need to make informed decisions to be fair. A party failing to disclose. A party lying undermines the efforts towards fairness. The discovery that a spouse hid assets erodes trust. It damages credibility. A party losing credibility will compromise its position. It will be harder to negotiate in other aspects of the divorce process. Credibility carries weight in child custody. It is important in spousal support and division of assets.
Financial Penalties and Damages
Courts can impose financial penalties on spouses hiding cash during divorce proceedings. The fault-free spouse can be awarded a larger share of the marital assets. The spouse might even get financial compensation. This is on top of the favorable larger marital share. It is a way to make up for the hidden cash. These penalties against the erring spouse are a way to set a deterrent. Force parties to adhere to their legal obligations of full disclosure.
Lengthy and Costly Legal Proceedings
It can be both disappointing and enraging to discover hidden cash. It stretches the legal proceedings. The filings cost money and time. Uncovering that hidden cash requires investigation. It needs professionals like forensic accountants and private investigators. These specialists are skilled in tracking down financial transactions and locating assets. It prolongs the divorce process. You will be spending more on filing and attorney fees. Enduring mental and emotional stress.
Potential Criminal Charges
Your ex-spouse may be angry. Spiteful. The consequences may far outweigh spitefulness and anger. The spouse who hid the cash might have lied about the cash during disclosure. The spouse can be charged with fraud. Some disclosures are done under oath. You can be charged with perjury. Hiding cash in some secret account can be classified as a form of financial crime. These crimes have prison terms that go with them.
Investigating your spouse for hidden money can turn out to be expensive. It can be a wild goose chase. You have to do a cost-benefit analysis of this effort. Hiring professionals can be expensive. Looking into underreported income can open a can of worms. Remember your tax returns. You may have filed a joint tax return. A case of underreporting might also mean you can be subject to the same taxes and fines.
What can you do to get the evidence you need to prove the hidden income of your ex-spouse?
You may suspect that there’s more than meets the eye. Or, more hidden from it. Your spouse may have thought well about a way to keep information from you. People who are extravagant also tend to flaunt trappings of wealth and luxury. They can’t help themselves. They won’t be able to hide it for long. It can be an opportunity to discover what assets they are hiding.
Look into Lifestyle Discrepancies
Analyze your ex-spouse’s spending and lifestyle choices. If a person’s lifestyle seems out of line with their reported income, hidden money may be present. Look for indications of wasteful expenditure. Check unusual assets or a pattern of luxury purchases. Gather proof of their way of life. Collect pictures, posts on social media, or witness statements. Establish a pattern of extravagant spending. Such a pattern of spending may be not consistent with their declared income.
Careful Document Examination
You have to be meticulous when examining documents. There is a lot to look into like tax returns, bank statements, business records, and pay stubs. You are looking for discrepancies, inconsistencies in unexplained deposits, and suspicious transactions. Documents say a lot if you know what to look for and understand what the entries mean. Don’t forget to keep copies of any document you have discovered. Watch out for spending patterns way off from the usual lifestyle. Look into expensive vacations and luxury items. These items are often masked as gifts from friends and families.
Get Financial Disclosures
Your lawyers have exchanged financial records during the course of the divorce process. You exchange even more documents during the discovery interviews. Made direct queries about financial transactions. All this transpired over the course of your divorce, which lasted several months. Your case proceeded to trial, they provided the judge with this supporting evidence. Spouses in Michigan are required to provide complete financial disclosure during discovery. You have to inform the court if there’s a failure to complete disclosures.
Engage the Services of a Forensic Accountant
You may hit a wall at a certain point in your information gathering. You can’t go any further. You need the help of an expert. This can be particularly challenging when looking into the operation of a business. You will need the expertise of a forensic accountant. This specialist has experience in conducting a thorough examination of financial records. They can sift through cash transactions. Identify discrepancies quickly. You have an expert witness you can use further in your case.
Work with an Experienced Attorney
The process of discovery can be confusing with records piling up for scrutiny. Get your attorney to help you go through each document. Certain terminologies used in the document might be a bit strange. It will need more explaining. You have your attorney who can help you with that. You also need to appreciate the provisions of disclosures made under oath. Declarations in these documents can lead to the discovery of other assets. You need a professional like an experienced attorney to read between the lines. An attorney can help you navigate through the filings, meetings, and hearings.
Use Subpoenas and Discovery
Your attorney can help you identify documents relevant as evidence. Your attorney will also file a request for subpoenas to access documents. During the divorce, there will be a process called discovery. Your lawyer would have explained that already. It’s a legal process allowing you to request documents from your spouse. Ask for specific information about finances and transactions. This is where your lawyer will most likely discover hidden assets. These documents can be useful as evidence to prove the hiding of assets. A subpoena is a legal tool that can compel the other party to produce evidence for you. Your lawyer can guide you on where to look and what document to subpoena.
Get Witness Statements
Identify individuals who may have information about assets hidden by your ex-spouse. This can be distant relatives, friends, co-workers, and even neighbors. You may have to track down people who receive payments. Payments made to strangers in certain suspicious transactions. You need witness statements to corroborate what was declared in certain documents. Some of these witnesses may be signatories to transaction documents. Your attorney may be good at handling and interviewing witnesses.
The technicalities in certain transactions can make it difficult to understand the nature of financial transactions. It creates a layer of confusion that helps obscure the existence of hidden assets. Ask your attorney for help to get around these technicalities and complexities. You need to come up with a strategy for how to approach the inquiry into these hidden assets. You have to anticipate the need for specialists because of the cost involved. A lawyer can help you reflect and weigh the justification for such efforts.
Subscribe to our YouTube channel today for more advice on Family Law!
Goldman & Associates Law Firm is here to with information about Child Custody and Divorce in the State of Michigan.
At Goldman & Associates Law Firm there’s always a sympathetic ear ready to listen.
Book your complimentary case evaluation with our leading attorneys.
(248) 590-6600 CALL/TEXT if you need legal assistance.