Divorce Financials: Claimed Income Versus Documented Income

divorce hidden income and assetsChild support, spousal support, and property division are often evaluated in light of the income of the each of the parties to a divorce.The parties fill out financial disclosure forms and purport to tell the court and the spouse the truth about their income. If one spouse is not truthful about his or her income, this can provide a great opportunity for the other side.

The spouse immediately appears to not be credible, and this can affect the entire case. If he or she is lying about income, he or she may be lying about other important things in the divorce.

The first step in evaluating claimed income is comparing it to documents that can confirm or refute the claims. This may include:

  • Income tax returns
  • Bank statements
  • Loan applications
  • Financial statements
  • Publicly recorded documents such as mortgages or trust deeds

Some techniques for analyzing documents like financial statements and loan applications are discussed in this article.

In many cases, it will be simple to evaluate claimed versus documented income. With wages from a traditional job as the primary source of income, verification is easy. When you are dealing with executives (with multiple sources of income and perks) and self-employed individuals, it becomes more difficult. Income is just not straightforward for these people.

What happens if you can’t prove exactly what the party’s income is?

This is not an uncommon problem. There are many different self-employment situations in which it’s hard to determine exactly what the income is for some of the following reasons:

  • Poor bookkeeping
  • Failure to disclose financial documents and details
  • Lying about the finances
  • Hidden income (under the table cash sales, etc.)
  • Commingling of personal and business finances
  • Complicated businesses
  • Movement of funds between multiple business interests
  • Intentionally confusing or incomplete paper trails

It may not be necessary to determine exactly what the income of the spouse is. It may be sufficient to show that the income is significantly more or less than what has been reported, to the detriment of the other spouse. Judges understand that it might not be possible to precisely calculate the income, so you should do your best to document income and make reasonable estimates where necessary.

One way to impute income to a spouse is to analyze the lifestyle. This may include a detailed analysis of spending, or it may be done using estimates of spending (based on known facts about the party’s lifestyle). It is assumed that if a party is spending money, the funds have to come from somewhere. The source of funds may be unreported income.

For example, suppose a spouse is claiming he has no income and that his real estate ventures are all losing money. He has no paycheck, and the real estate has no value. But an analysis of the spouse’s spending patterns shows that he is spending $24,000 per month on personal expenses, including his home, vehicles, entertainment, dining out, clothing, travel, and more.

Do you think a judge is likely to believe that the spouse can live a lifestyle costing $24,000 per month with no income? Of course, it is important to determine whether there is an alternative source of funds from which the spouse is living. Extensive savings or investments may exist to fund the lifestyle. But in the absence of such assets, it may be reasonable to believe that the spouse is funding this lifestyle from an income source.

Disproving a spouse’s assertions about income may be important to help calculate support and to evaluate property division scenarios. Lack of candor about income may also reflect on the spouse’s credibility, and may impact other issues in the divorce too.