Unearthing unreported income and hidden assets can be difficult. But a trained financial expert can help find clues and open the facts for a fair and equitable settlement.

Hidden assets and unreported income

When high net worth individuals file for divorce, both parties have a financial incentive to hide assets owned by and under report income generated from the marital estate. Therefore, it is imperative to inventory the marital estate as soon as possible.

Methods used to conceal wealth

A dishonest spouse can get creative in using techniques to maximize their share of the marital estate. Some common concealment schemes are:

  • Physically hiding the asset

  • Denying the assets even exist

  • Deferring income and accelerating expenses

  • Falsifying documents

  • Transferring assets to third parties

  • Claiming assets are lost or stolen

  • Creating false debt to offset assets

Cash can easily be stashed out of sight or given to a friend or relative until after the divorce is final. One party may claim that expensive jewelry has been lost or stolen, when it’s just been hidden from the opposing spouse.

Cash can also be converted into other asset forms by purchasing art, jewelry, vehicles, boats and other personal property. These types of assets may be overlooked or undervalued when inventorying the marital estate. Spouses may even ask employers to delay paying commissions, raises, or bonuses until after the divorce is finalized.

A big opportunity to conceal assets and income exists when one spouse owns all or part of a closely held business. Businesses that receive cash payments and pay cash expenses are even more susceptible. Owners may commit simple schemes such as skimming cash from sales or more complex schemes involving deferred income and accelerated expense recognition, which results in understated assets and overstated liabilities.

Uncovering hidden assets and unreported income

Proving hidden assets and unreported income can be difficult. Income tax returns can provide a road map for finding income-earning assets and asset sales. They also identify sources of income, including W-2 wages, interest income, dividends, rental income, and capital gains or losses. Each page of the tax return and all supporting schedules should be carefully examined for clues.

For example, Schedule A, “Itemized Deductions,” may show a property tax deduction for undisclosed real estate assets. Schedule B, “Interest and Ordinary Dividends,” may highlight foreign accounts and foreign trusts. And Schedule C, “Profit or Loss From Business (Sole Proprietorship),” might identify hidden business assets. Form 6521 contains the alternative minimum tax (AMT) calculation. Whether the taxpayer has incurred AMT tax could also help identify hidden assets, such as real estate and incentive stock options.

Other documents to request during discovery include:

  • Personal and business bank statements

  • Pension and retirement account statements

  • Credit card statements and applications

  • Bank loan statements and applications

  • Insurance policies and bills

  • Wills and other estate planning documents

A public records search may also uncover hidden assets. To unearth asset purchases and transfers, an expert will need personal identification information for both spouses and other relevant individuals, such as friends and family members, who might be complicit in the diverting marital assets. This includes full legal names and variations (nicknames, abbreviations, and common misspellings), as well as known aliases.

© 2019 (rev. 2020)

The key is to hire your expert as soon as possible to minimize the opportunity for a dishonest spouse to conceal wealth, and to increase the likelihood of full and adequate discovery.

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