You’d be hard pressed to find a person who hasn’t heard the phrase “All’s fair in love and war.” But what if the war arises from a love gone bad? That scenario happens every day – 2,800 times per day by our estimation. We call it divorce. Whether you are gathering your forces to march into battle or just trying to duck and cover, there are good reasons to hire an accountant as part of your expert team.
According to a survey conducted by Fidelity Investments, less than half of married couples agree on finances on a daily basis. And that is only while married! You think she’ll agree with you on money issues now that you’re breaking up? Fat chance, pal.
Don’t Expect Her to Fight Fair
Once the love is over, and divorce is in the air, the gloves can come off and your soon-to-be-ex can behave in ways you never imagined. This behavior can manifest in lots of ways, from questioning your parenting qualifications to non-disclosure of financial information.
Falsifying financial disclosures is not a practice limited to men undergoing divorce, or even to the bread winner. It isn’t even specific to divorce.
Stay-at-home spouses can secret away cash, make hidden withdrawals and transfers as easily as the breadwinner. One of the best pieces of divorce advice for men we give is the need for you to have professionals on your side, and that may include hiring an accountant.
Sounds Good, but Funds are Tight?
Anyone can come up with some clever ideas about how to squirrel away some cash or shelter some income from their spouse during a divorce. Even dealing with relatively small amounts, the math speaks for itself. Every few dollars she is able to extract from you adds up over time. If she’s able to get awarded an extra $200 of support a month, you are talking about $2,400 per year. Think about it. After ten years, that’s an extra $24,000 out of your pocket. Starting to see why you should spend the money up front to hire an accountant?
For some guys, $24,000 in cash payments is nothing compared to being able to protect assets, like stock options, retirement accounts, or savings from being handed to the ex during divorce.
How to Protect Yourself? Hire an Accountant!
The main way to protect yourself from being financially tricked during divorce is through hiring your own accountant. You could jointly hire an accountant to help prepare and present an accurate picture of your joint finances to each attorney, but even then you’d be wise to have your own do a good review to make sure nothing fishy is going on.
Forensic Accountants Find Hidden Assets
There are accountants that specialize in researching and finding these hidden trails of deceit. They are called forensic accountants. Even though their fees are consistent with legal representation, depending on your joint financial situation, or the true assets of your spouse, you usually find they can save you their salary in just a few months, with all income after that going to your pocket.
The value of having a good accountant on your side doesn’t just apply to the time before divorce. Some people delay promotions, or hide income well before, only to then reap the rewards after divorce. If you are paying or receiving child support or alimony, though, these values are always up for reconsideration by the court. If you suspect your ex is hiding some new income, a trained accountant can help you discover their real earnings. Armed with these numbers, you can get your alimony or child support obligations adjusted to a fair value.
Hiding Income or Assets
Still not sure about the value of your own accountant during divorce? Take a moment to consider these tactics that people commonly use to hide income or assets. When reading these tactics, think about the amount of work you’d have to dedicate on your own to find evidence of your ex using these tactics, and make your discovery stand up in court. In other words, five ways to hide money during divorce = five reasons to hire an accountant:
1. Transferring funds to a separate account
Setting up your own bank account and then transferring funds from the joint account is extremely common, likely because it is very easy to do. The tale is all too common where everything in the joint accounts seem ok and normal one day, then vacant the next. In today’s world of simple online digital transfers, moving the money from one account to another is just a click away.
Is it legal? Sure. As a joint owner, that means you have full rights to move funds as you see fit. The “joint” in the title doesn’t mean a vote is needed for transactions. It simply means any of the account holders has rights to singularly make transactions. The ease of the action is probably one of the reasons it is so common.
The error occurs when it is time to report your assets. No judge likes to see this behavior. While legally it may be your rights, it is difficult to show why you had all the reasons to move the money into an account that your spouse can’t access. It today’s digital world, it is child’s play to trace the transaction.
Want to take all your credibility and dump it in the toilet? Forget to disclose the existence of your new account during the financial disclosure process. The account will be found and you will be left trying to not only explain why you felt you needed to move the money, but why you neglected to acknowledge it and disclose why you took those actions.
2. Transferring funds to a friend
Maybe one rung up the evolutionary ladder of deceit is using a friend to hold you money instead of your own separate account. People choose this option in an attempt to hide the digital trace to their own name. Plus, when it comes time for disclosure, they can state they don’t have the funds because, well, they don’t!
Here’s the problem, well two main problems. First, judges aren’t stupid. If you don’t remember anything else, remember that. If you think you are the first to think of things, think again. It’s like your kids trying to get away with something. They forget that you’ve seen most everything from when you were a kid. So when they trace a movement of money out of your joint accounts to your friend’s account (not difficult to do), the judge will know, probably courtesy of your wife’s attorney.
The second problem can come from your friend and the size of the money. How good is your friendship? Your friend is under no obligation to give the money back. Plus, if your friend failed to report the gift as income, and didn’t pay tax on this gift, then they are in their own legal fun zone.
3. Cash withdrawals on a debit card
While this action isn’t going to generate enormous amounts of stored cash, over time it can result in a pretty good pile of stash cash. The method isn’t difficult. The person wanting to build some cash pays for everything with the debit card. This is a good household budget practice as it doesn’t run up credit card debt and pulls just from a checking account.
The trick, though, comes at the register. Most stores when using a debit card will allow you to get cash back. The amount allowed varies from store to store. So if the spouse that is planning ahead for an eventual divorce keeps pulling out $50 cash with each purchase, the stockpile can grow depending on how long they carry out these actions, as long as they don’t break the bank account either.
Some spouses know a divorce is in the future. They know their situation isn’t ready today, so they fake it, or let the household continue in the tension. During this time, they can build their plan, like get the last kid off to college, get some education completed for themselves, or be in line for that next promotion (another tricky move…delaying the promotion until after the divorce). Along with their planning can be this debit card maneuver to build up the cash reserve.
The problem is that any good accountant, especially a forensic accountant, can spot this behavior easily. There are records, but also there are standards for how much groceries should cost. By watching the grocery store charges from a year prior, to then totaling the ones from the naughty year, they can see the bump. Plus, they can see if they are way above the normal values for most households.
In the end, the little bit of cash isn’t worth the damage to your courtroom reputation once it becomes evident you played these tricks in the past. It only leads the court to believe you are a liar and likely have other examples of misbehavior in your past.
These last two methods apply when your spouse owns their own business. Owning your own business is a great way to blend your home expenses with your business expenses. There are countless books out there detailing the tax advantages available to you as being your own boss. Unfortunately, these methods, which are mostly legal, also open up the door to illegal methods that can be used to hide income or assets during a divorce.
4. Delayed billing and fake expenses
A person’s income when they own their own business can be boiled down to two basic factors; money coming in minus money going out. The money coming in can be falsely represented by a person delaying their invoicing to clients. By pushing some of these to later, either blatantly or through “special” offers like paying nothing for 90 or 180 days, the income can be pushed months into the future. The equation gets altered on one side by lowering the amount of money coming in.
The other factor can be altered by claiming large expenses to the business. Personal expenses can be blended into the business to some extent. Some have been known to go to the extremes of “hiring” family or friends as consultants. They can pay them for their fake service, which flows money to these people to hold for them until after the divorce.
By working just these two factors, a business owner can continue to thrive, but show a reduced income on paper. The problem is that there still is the paper trail. Bringing in your accountant can easily find these actions of misbehavior. Not only will questionable behavior destroy a reputation in court, but it has tax law consequences as well. Income tax fraud carries stiff fees and prison terms.
5. Business investments that can be resold
One final example of driving up business expenses is for the business owner to take some of the savings and purchase valuable equipment, furnishings, art, etc. for the office. These investments can easily be sold after the divorce. What may on paper appear to be office furnishing are in fact stashes of money for their use after the divorce.
One problem with resale is there may be a loss taken by the business owner. Think in terms of a new car. The owner could buy a new car for the business, while planning to sell it once the divorce is final. Sure, they will take a hit on the resale value. But, their ex won’t get the money. Emotions are on fire during divorce. It shouldn’t be too hard of a stretch to understand why someone would rather take a 20% loss on some savings rather than split it with their ex.
All of these investments can be difficult to argue with your spouse. But a trained accountant can spot this spike in investments as well as apply a value to them for the settlement.
Tip of the Financial Iceberg
Looking back on these five examples of ways people hide money during divorce, you need to remember that I’m just scratching the surface. There are countless examples of ways to work the system. As you think about it, imagine being on the receiving end of a pile of paper from your spouse’s attorney during the financial disclosure process.
Many follow the tactic of delivering reams of paper to you in an unorganized manner so that you can’t get any good understanding of their financial state except from the tax returns. You are faced with having your lawyer go through it, at their hourly rate, while your legal bills are mounting.
Your other alternative is to hire an accountant. They can cut through the piles of paper in a fraction of the time it would take you and your legal team. Plus, the experienced ones can spot the trends much quicker than any of you. Your accountant can spot any financial antics by your spouse, and make sure that your financial disclosures are clean and tidy. While you will have to make some investment in them up front, the decision to hire an accountant can easily pay for itself during a divorce.
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