Using the Net Worth Method of Proof to Determine Income in a Divorce Case

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iStock_000019355019XSmallThis article was originally printed in the ABA Section of Family Law eNewsletter, November 2013.

How can income be calculated in a divorce case when a spouse refuses to produce documentation or is suspected of concealing sources of income? One way is through the Net Worth Method of Proof, which is used to analyze income and assets when detailed documentation is not available, either because the opposing spouse is obstructing efforts to get data and documents, or because data and documents are legitimately not available.

This method of determining income is used by the federal government in criminal income tax cases. Because it is accepted in federal criminal cases, family courts often will accept this as a reliable method for calculating income.

A detailed analysis of expenditures is performed using any documentation available. Each expenditure for the period under review is captured from bank, brokerage, and credit card statements, and each item is categorized so that totals can be accumulated for the period under analysis. Continue reading

Calculating Income in Family Law Cases

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forensic-accountingThis article was originally printed in the ABA Section of Family Law eNewsletter, October 2013.

There are four widely recognized methods of calculating income in family law cases. These four methods have been developed for use by the Internal Revenue Service in calculating unreported income in tax cases, and are the primary ways a lifestyle analysis can be completed.

Specific Items Method
One of the most straightforward ways to complete a lifestyle analysis is through an analysis of specific items of income. This method is possible when there are substantial documents detailing cash inflows, and is considered a “direct method” of verifying income. Continue reading

Determining Support in Family Law Cases

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This article was originally printed in the ABA Section of Family Law eNewsletter, September 2013.

Spousal support and child support can be calculated using a number of different factors. The relative importance of the factors may be laid out in local rules, but often the factors are simply listed and defined with little other guidance.  Considerations may include:

  • The actual earnings of each person, including wages, investment income, and other sources of income
  • The earning capacities of each party, both independently and relatively
  • Future earning capacities of the parties
  • The value of the assets divided, and the ability of those assets to produce income Continue reading

CHECKLIST: Gathering Financial Documents for Divorce

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divorce financial analysisThis article was originally printed in the ABA Section of Family Law eNewsletter, April 2013.

Financial documents are at the heart of divorces. Regardless of how contentious or amicable a divorce is, the finances of the spouses will need to be separated, and financial documents are required to make the division. Whether the information sought is current or historical, unaltered documents tell the truth about the money. This truth needs to be examined in every divorce before assets, debts, and income can be divided.

While financial documents can often be easily obtained during divorce proceedings, it is much easier for the spouse with access to the documents to simply copy and/or retain the documents. This reduces the number of discovery requests and subpoenas, and eliminates the time spent waiting to receive documents. Continue reading

My Spouse Is Hiding Assets In Our Divorce…

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divorcemagazine.com

One frequently asked question from divorcing individuals is what to do if the spouse is suspected to be hiding assets. I recently outlined the steps that should be taken if a spouse is worried about the other spouse manipulating assets and income:

If you think your spouse may be attempting to hide income or assets during your divorce proceeding, your first step should be to tell your divorce attorney. Your attorney should know how to handle situations such as this, and the sooner he or she can act, the more likely you are to see results.

You should also quickly gather and secure any documentation that might prove your allegations. Financial documents that you can legally access should be copied and turned over to your attorney. This might include tax returns, pay stubs, credit card statements, bank statements, brokerage statements, contracts, or any other documents which might prove the existence of assets or streams of income.

Read the rest of the article here.

The article can also be found in the Spring 2013 print edition of Divorce Magazine.

Divorce Lies: Red Flags of Common Financial Untruths

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red-flag-fraudThis article was originally printed in the ABA Section of Family Law eNewsletter, March 2013.

Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.

Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further. Continue reading

Finding Hidden Income and Assets In Family Law Cases

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This article was originally printed in the On Balance, the magazine of the Wisconsin Institute of CPAs, March/April 2013.

Divorce and child support cases often are highlighted by disputes over money. One party may be accused of artificially depressing earnings, hiding assets or manipulating the finances to lower the financial obligation to another party. Understanding the complete picture of the finances is necessary before a fair settlement can be reached.

Chicago divorce attorney Jeffrey Knipmeyer, partner at Nottage & Ward, cautions that spouses of individuals hiding income and assets rarely have the financial sophistication to recognize that manipulation is occurring. He adds that during the marriage, they typically have been hands-off, and their only knowledge of the finances depends on what the spouse has communicated. Continue reading

Divorce Lies: Red Flags of Common Financial Untruths

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iStock_000014758534XSmallThis article was originally printed in the ABA Section of Family Law eNewsletter, March 2013.

Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.

Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further. Continue reading

Finding Hidden Income in Divorce and Child Support Cases

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This article was originally printed in the Family Law Review, a publication of the Family Law Section of the New York State Bar Association, Fall 2012.

Family law cases often focus heavily on financial issues. Whether the parties to a case are of modest means or great wealth, both sides want their own version of what is fair. Unfortunately, this can lead one or both parties to hide income and assets. With the help of a financial expert, counsel can identify income and assets that might otherwise go undiscovered, and hopefully reach an equitable end to a divorce or child support case.

Sources of income and assets owned can be identified with the right documentation. Attorneys need to be familiar with some of the most common financial documents so they know what to request. Attorneys with financial knowledge can also help identify issues that may need further analysis in a family law case. Continue reading