In an ideal world, parting couples are honest and transparent during divorce litigation. In the real world, there’s always a chance that someone isn’t being truthful. If one spouse has a business, the opportunities to hide or manipulate income increase significantly.
For the sake of argument, consider this (hopefully) extreme scenario.
A restaurant owner is divorcing his spouse. During their separation, he also:
Purchases new appliances and expands his kitchen
Limits business hours during renovations, even though it’s not really necessary
Pays for a second car through the business account
Increases his new girlfriend’s salary, because she’s been doing a great job hosting
While such bold disregard is thankfully rare, you get the idea. With a business, there are many possible ways a spouse can be deceptive about income —from cutting unearned checks, to delaying invoices, to adding unnecessary or personal expenses that can make the business look less profitable.
The short answer: it depends.
The financial complexity of a divorce case depends on the size and nature of the spouse’s business. In other words, there’s no checklist with neat Yes/No boxes for family law attorneys to get to the truth. It takes experience and digging.
There are key steps you can follow to help your clients get all that they’re entitled to.
Even if they weren’t involved directly, your client might have knowledge about the business that could prove helpful. Make sure to keep them looped in.
Many times spouses will talk at dinner or bedtime about topics of the day. A business owner is eager to share their success to anyone who will listen, like a spouse. On many occasions, spouses will actually have worked in the business and may know a lot about it.
Suspicion is one thing, but proof is another. Be sure to collect the documents — tax returns, personal financial statements, credit reports, and bank and investment account statements — and start early. As the divorce proceeds and parties get more emotional, this step gets harder.
A forensic accountant will work closely with you to get better financial outcomes for your clients. They'll help you ask the right questions and navigate the potential paths you’ll need to go down to determine income, find tangible and intangible assets, and decide if income is being artificially depressed.
Dealing with heated situations is par for the course for family law attorneys. Add a business-owning spouse to the mix, and a divorce case can get even muddier.
By providing a more sophisticated review of the economics of the marriage and the business, forensic accountants help level the playing field for non-business-owning spouses.
Our Forensic, Valuation & Litigation Support Group can help. We have extensive experience in divorce matters, including serving in expert witness, forensic accounting and business valuation roles.
Contact us online or call us at 800.899.4623.