What Documents Evidence Hidden Assets?

When a party hides assets to minimize their income for purposes of evading financial responsibility during divorce proceedings, it prejudice’s the other party’s property rights. Sometimes people bank of the complexity of finance to try and obscure the true nature of their financial condition. However, an experienced attorney and a forensic account can spot hidden assets through a little investigative work. This article discusses hidden assets and the documents that can lead to their discovery.

Tax Returns

Official documentation related to federal income taxes is an excellent place to start getting a big-picture view of a person’s finances. If your former spouse had a small business, they could use it to obscure income and assets.

Business tax returns. If a small business can be classified as a separate legal entity—such as corporations and limited liability companies—they could use it to try hiding any business income subject to equitable distribution upon divorce. IRS Form 1120 is the tax form for businesses use for the reconciliation of income or loss and analysis of unappropriated retained earnings per books. Businesses must use Schedule M-1 to report net income or loss per book, listing specific expenses for travel and entertainment expenses and tax-exempt interest. Schedule M-2 is used to report the initial balance of a business’ unappropriated retained earnings.

Personal tax returns. Retirement and simplified employee pension (SEP) contributions are items that can lead to the discovery of undisclosed assets. These items are reported to calculate adjusted gross income on IRS Form 1040. Earnings can be diverted into these retirement savings tax vehicles to lower a person’s adjusted gross income. However, those earnings would have qualified as an asset of the marital estate and serve as the basis for calculating child support. If the specific retirement account to which earnings were diverted is a separate, nonmarital asset, those earnings could still be considered for satisfying alimony obligations.

Personal Records

A person’s personal financial records can be useful for a forensic account to trace obfuscated income and assets. For example, check serial numbers can identify a previously unknown bank account used by your former spouse.

An experienced attorney can request the following documents during the discovery phase of litigation to help zero-in on undisclosed income:

  • Suspiciously large checks: Big-ticket purchases can indicate a party’s attempt to convert marital property into separate nonmarital property.
  • Pay stubs: A party’s pay stubs are useful for getting a baseline for earnings received during the marriage that would constitute marital property subject to division upon divorce.
  • Credit reports: Credit reports can paint an informative picture of a party’s use of debt and can lead to the identification of undisclosed credit accounts.
  • W-2 forms: Information contained in W-2 form can lead to hidden assets, such as employer plans and contribution matching for 401(k) plans.

Business Financial Statements

If your spouse owned and ran a business during your marriage, a financial expert can evaluate financial statements to discovery previously undisclosed assets. Financial statements provide a detailed, item-by-item look at the business’ assets versus liabilities.

The following are specific items of interest that a forensic account can use to trace hidden income and assets:

  • Accounting methods: A business can account for income based either on cash actually received during an accounting period or on when the business’ right to use and control money or assets has accrued.
  • Interest income: A business can earn income through interest on investments or loans, which would not be obvious unless an expert knows where to look among the company’s paperwork.
  • Dividends and distributions: If an investment provides for dividends and distributions, an untrained examination of financial records might miss these items depending on the accounting method the business uses.

Miscellaneous Personal Sources of Income

Some financial items that can be divided upon divorce might otherwise go unreported because a party believes that such assets not subject to equitable division, or are intentionally hiding them to affect the outcome of divorce proceedings on financial issues.

  • Rents: Rents must be disclosed to determine financial issues in a divorce case. Rent from undisclosed property might qualify as marital property subject to equitable distribution upon divorce.
  • Personal injury awards: Personal injury awards that compensate for lost past income and medical expenses paid with marital funds can be divided as a marital asset.
  • Depreciating assets: Asset depreciation is a relatively complicated concept that could be used to evade the attention of an unexperienced analysis of a party’s finances.

Contact Thomas Logan Davis, Attorneys at Law, LLC

When a party attempts to hide assets, they unfairly deprive the other party of claiming rights to property they are entitled to receive under the law. To help ensure you are not being taken advantage of by your former spouse and their attorney, you should consult an experienced attorney from Thomas Logan Davis, Attorneys at Law, LLC.

Call us at (205) 512-3331 or visit us online to complete a request for about your case today.