How Does Underreported Income Affect a Divorce?

By Beverly Bird

In community property states, income is a marital asset. One spouse might earn it, but both have an equal right to it. Equitable distribution states treat marital income in much the same way. It affects virtually every aspect of a divorce, so both spouses may have a great deal to gain by telling the court they earn less than they actually do. However, if a court discovers the misrepresentation, the judge can punish the lying party by imposing sanctions -- anything from ordering him to pay the other spouse's attorney's fees to not allowing him to argue against the other spouse's requests at trial.

Child Support

The goal of child support is to ensure that children live as well after their parents' divorce as they would if both parents' incomes continued to come into the same household. After divorce, the custodial parent pays for the children's needs directly by making rent or mortgage payments and purchasing groceries and clothing. The non-custodial parent pays his share of the children's needs through child support payments to the custodial parent. When a custodial parent underreports her income, the non-custodial parent's child support obligation usually increases. The children's financial needs are the same, but the custodial parent doesn't contribute as much to them so the bulk of the responsibility falls to the other parent. If the non-custodial parent underreports his income, his support obligation usually goes down.

Spousal Support

The idea behind spousal support, or alimony, is to make sure both spouses enjoy a similar lifestyle post-divorce, especially after a long-term marriage. If one spouse earns $100,000 a year and the other earns $30,000 a year, a judge might order the higher-earning spouse to pay the other spouse $35,000 a year in spousal support -- half the difference between their earnings. As a result, both spouses would live on $65,000 a year. Many factors contribute to whether a judge orders spousal support, and judges usually do not base their decisions on income alone. However, if a judge does order alimony, and the higher-earning spouse underreports his income, it can make a significant difference. For example, if he claims earnings of $80,000 rather than $100,000, he might only have to pay his spouse $25,000 a year in spousal support, saving $10,000 on his alimony obligation.

Divorce is never easy, but we can help. Learn More

Property Division

Income can also affect property division, especially in equitable distribution states where judges decide the allocation of marital property in a way that seems just and fair. Judges can take many factors into consideration when deciding this, but a common issue is whether the spouse with lesser income can afford to purchase and replace certain assets post-divorce based on her income alone. For example, a spouse who earns only $30,000 a year might have a hard time qualifying for a mortgage to buy her own home. A judge might be inclined to give her the marital home to compensate for this, even if it means she receives more than 50 percent of the total marital assets. A spouse who earns a very good income might not receive as much marital property because the judge figures he has the ability to replace it. In both cases, if a spouse underreports their income, it could result in unfair distribution.

Finding Hidden Income

Unless a spouse owns a business, the divorce procedures in most states make it very difficult to underreport or hide income. Divorce involves the exchange of tax returns and financial affidavits that detail budgets, income, assets and debts. Unless a spouse cheats on her taxes, all sources of taxable income should appear on her return. If a spouse reports income on her financial affidavit that is insufficient to meet her monthly budget, it's usually a safe guess that extra unreported income exists. However, examining her debt can be important in this case, because she might, for example, be meeting her monthly expenses with a credit card.

Divorce is never easy, but we can help. Learn More
How Are Alimony Payments Determined?


Related articles

Divorce Based on Adultery in Illinois

If your spouse has strayed, you might have good reasons for wanting to file for divorce on grounds of adultery -- but doing so might not result in more than some personal satisfaction. Illinois recognizes adultery as divorce grounds, but you could probably end your marriage much more quickly and economically if you filed on the state's no-fault grounds of irreconcilable differences instead.

Why Does a Parent That Doesn't Have Custody Have to Pay Child Support?

Just as you support your children financially while you're married, you must continue to do so when you divorce. The major difference is that if you divorce, the government keeps a watchful eye on whether you're paying – at least if you're the non-custodial parent. Child support is designed to ensure that your children enjoy the same standard of living as they would have enjoyed if you and your spouse didn't break up.

What Happens in a Divorce When Both Couples Earn the Same?

The divorce process begins with an assumption that both spouses contributed equally to their marriage. Even if one partner never worked, the law presumes she contributed in other ways such as by raising the children or caring for the home. A court would not leave her destitute after a divorce because she didn't earn income during the marriage. When both spouses earn the same incomes, the court's duty to untangle incomes and assets becomes easier. When the spouses' earnings have had a similar financial impact on the marriage, courts generally divide assets evenly.

Get Divorced Online

Related articles

Does a Spouse Receive Alimony When Divorced in Ohio?

Spouses can receive alimony during or after a divorce in Ohio, but it’s not an automatic right. Judges make alimony ...

How is Alimony Calculated in a New York Divorce?

Marriage is as much about money as it is about love. When two people depend on each other financially, especially over ...

Examples of Vocational Evaluations for Divorce

Fact-finding -- also called discovery -- is a major part of divorce proceedings, but you have to do it in such a way ...

Divorce & a Spouse's Cash Income

If your spouse earns some of his income through cash sources -- for example, if his business deals mostly in cash or ...

Browse by category
Ready to Begin? GET STARTED