Divorce & a Spouse's Cash Income

By Heather Frances J.D.

If your spouse earns some of his income through cash sources -- for example, if his business deals mostly in cash or his employer pays him in cash -- you may find yourself trying to prove his cash income to the court during your divorce action if he reports less income than you know he actually makes. Though this can be difficult, there are ways to make sure the court is aware of his unreported income.

Concealing Assets

Your spouse may attempt to conceal his cash income, whether business or personal, during your divorce. By hiding this income, your spouse will appear to have fewer assets when it comes time for the court to divide those assets. For example, your spouse may receive a small paycheck because he earns most of his money through cash tips. If he under-reports these tips, it will appear to the court that he makes less money than he really does. Similarly, if your spouse owns a business that receives payments in cash, he could transfer that cash directly to himself without reporting it, again making it appear he earns less money than he does.

Proving Cash Income

You and your spouse will likely have to file financial affidavits to report your income and assets to the court. Lying on these affidavits is a serious matter, but it may be difficult to prove. If you suspect your spouse is hiding cash income, a forensic accountant may be able to help you prove it. Forensic accountants can analyze your spouse’s business and personal records to reveal signs of hidden cash income, such as comparing bank deposits between accounts or evaluating increases in brokerage accounts.

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Impact on Child Support and Alimony

Child support and alimony -- also known as spousal support -- are determined by state guidelines. State rules typically allow a court to look at many factors to determine the amount of child support, including each spouse’s income. Similarly, courts consider the financial resources of each spouse to determine how much alimony to award or whether to award it at all. Depending on your situation, proving your spouse has unreported cash income could increase the support payments you receive.

Expense and Results of Proving Cash Income

It can be very expensive to prove your spouse has more income than he is reporting, particularly if you need to hire experts such as forensic accountants or business appraisers. However, the expense and trouble may be worth it if you are successful, since you may receive significantly higher child support or alimony payments. If your spouse under-reported his income to the Internal Revenue Service, the IRS could audit his returns and he could end up paying increased taxes and penalties. Unfortunately, this could also mean you are liable for taxes and penalties if you and your ex-spouse filed joint tax returns while you were married.

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How To Prove Assets & Income in a Divorce
 

References

Related articles

What Amount of Business Income Counts Toward Child Support?

If you have children, calculating child support is an inevitable requirement of any divorce. If you'll be the noncustodial parent and you work for an employer, identifying your income for support calculations is relatively easy. Unless you have investments or other sources of unearned income, your pay stubs will tell the story. If you have your own business, however, the process becomes more complicated, particularly if you operate as a sole proprietor.

Penalty for Hiding Assets in a Divorce

Sometimes, in a divorce, one spouse will try to hide or conceal assets from the other spouse. For example, this may occur because a husband does not want to share a large asset like a bank account or a piece of real estate with his wife, as is usually required in divorces. Also, one spouse may want to artificially deflate his income for the purposes of determining alimony or child support. Although it is not uncommon for a spouse to try to hide assets in a divorce, there are steps that a vigilant party can take to try to uncover this. Also, it is risky to try to hide assets in your divorce because there can be very serious penalties, including monetary sanctions.

Divorces With Sole Proprietorships

Divorce issues such as support and property division can be pretty clear-cut when a spouse works for someone else and his income is reported on a W-2. However, when he's a sole proprietor, this can muddy the waters. A sole proprietor's business is his personal business. There's no line separating the two, nor a specific entity, such as a corporation or partnership, with which the court must deal.

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