News flash: It’s not uncommon for divorcing spouses to lie about their income.
During the marriage, it’s boom times.
After the divorce is filed, suddenly they’re flat broke.
Lawyers have a name for it: “SIDS” – Sudden Income Deficiency Syndrome.
Earnings are under a microscope in divorce. That’s because how much a spouse earns has a major impact on the amount of child support and spousal support, whether alimony will be awarded, and how much of the assets the spouse will receive.
If you’re not careful, you may receive less than you should if your spouse is lying about their income.
So how do you spot SIDS – and what can you do about it?
Fortunately, it’s easy to spot SIDS. Here are a few of the symptoms:
· Your spouse claims business is down but they’re still living the same – or a better – lifestyle.
· You know from experience that your spouse deals in cash. You saw your spouse wrap cash in foil and stash it in the freezer, saw business associates deliver cash receipts to the house in a pizza box, or knew that your spouse instructed employees to fork over the cash without reporting it.
· Your spouse runs many personal expenses through the business.
· Even when you don’t have solid proof, you may find yourself wondering: How can they claim to be making $60,000 a year when it costs them $100,000 just to survive?
If you’re seeing those symptoms, there’s a good chance SIDS is at work.
So what can you do about it? A good lawyer will use some of these tools:
1. Make your spouse disclose all income and expenses. Pennsylvania law requires parties to file what is known as an “Income and Expense Statement.” It will lock your spouse into their “story” about how much they earn and how much they spend.
2. Dissect your spouse’s spending. Get receipts for the lavish vacations, the money spent at the golf club, the dinners at the Five Star restaurants. Get credit card statements, mortgage statements, and bank statements. If your spouse says they don’t have them, your lawyer can subpoena them. Get their calendar. If the calendar has them golfing three times a week at the club and they say they have no country club expense, they’ve got a problem.
3. Understand your spouse’s debts and credit obligations. If income is not enough to pay the bills, then there are only two other ways: Using existing assets or borrowing money. If they’re using other assets, they had better not be marital assets! Your spouse is not allowed to spend those down during the divorce unless you have agreed to that. If your spouse is using marital assets without your consent, your lawyer needs to get the court involved immediately.
If they’re using assets they acquired before or after the marriage, make them prove that they are using those assets to fund their lifestyle. Get the account statements, add up the withdrawals or transactions, and determine if that is enough to support what they’re spending. If they say it’s through debt, even better! Get documentation of the debt, including the credit application. Find out what they told the lender their income was to qualify for the loan. Then get documentation of how they are repaying that loan on their meager income.
4. How much is your spouse paying their lawyer? The law won’t let you get their communications with their lawyer, but the amount they’re paying should be fair game to show how much income they are receiving. If living expenses are $10,000 a month, legal bills are $4,000 a month, and your spouse says they earn $5,000 a month, they have some explaining to do.
5. Hire a forensic accountant to examine your spouse’s financial records. Forensic accountants are trained to look for questionable transactions. They can trace cash transactions, identify questionable “loans,” spot bogus expenses, and calculate how much income your spouse is hiding by running personal expenses through the business. If your spouse is keeping cash or running personal expenses through the business, that’s income – even if it’s not being reported on tax returns.
6. Prove Your Spouse’s Real Cash Flow. Once you’ve identified hidden income and shown that there isn’t enough in assets or debt to support the lifestyle, you are well on your way to showing the court what your spouse’s real income is.
If your spouse is paying $15,000 a month in expenses and has no good explanation for where that money is coming from, a court is more likely to find that their income is equal to what their expenses are – even if their reported income is a fraction of that.
Under Pennsylvania law, courts are not required to accept the income stated in the tax return. That’s because there are many tax rules that allow for things like deductions, depreciation, loss carry-forwards, and other things that can result in a reported income that is lower than the amount your spouse actually receives each year.
In many situations, the law allows the court to disregard some of those tax rules to get to the real answer: How much does your spouse actually receive each month.
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Divorce is about securing economic justice for the parties. Hiding income or lying about income is one of the worst things a party can do. If their behavior is exposed to the Court, the Court will take a very dim view of them – and will be inclined to treat them with the harshness they deserve – and the fairness you deserve.
Kevin Toth practices family law and civil litigation in Delaware, Montgomery, Chester, Bucks, and Philadelphia Counties. Visit The Toth Firm LLC for more information.
The information contained in this article is not legal advice, does not create an attorney-client relationship of any kind, and does not make any promise of, or representations regarding, specific results. You are encouraged to consult with competent counsel in your jurisdiction to review your specific situation and decide on the best course of action. No information relating to clients or adversaries is contained in this article.