It is common in a divorce case for a spouse to claim that there is undisclosed “cash”. It is uncommon, however, to actually document the existence of cash income during the financial discovery process.
Thus, I was gratified to learn during the course of a deposition of a client’s husband that not only was the business primarily conducted in cash but that he kept a record of the cash transactions. Moreover, the gentleman actually had brought the cash transaction book with him to the deposition! Unfortunately, however, such revelations are infrequent.
In a divorce proceeding, both spouses have a legal obligation to disclose all income and assets. However, it is not unusual in a contested divorce for one spouse to accuse the other of “hiding” income or assets. The undisclosed income may be in the form of unreported business revenue. In some cases, claimed “business expenses” actually fund an extravagant personal lifestyle.
Some of the signals that hidden income exists are the use of separate accountants to handle business and personal income tax filings, unusual bank account withdrawals or deposits, unsubstantiated claims by a spouse that monies are owed to close friends, placing personal possessions or investment certificates in safe deposit boxes in the name of a third party, the sudden substantial reduction of mortgages and credit card balances and the existence of custodial accounts under a child’s social security number.
There may also be reasonable grounds for suspecting hidden income or assets if one spouse is secretive about finances and insists upon controlling access to bank and other account information such as online passwords or if a spouse receives all bills “at work”. There is also cause for concern if a spouse begins to access home equity lines of credit or bank credit lines without apparent reason.
Other indications that a spouse is not being aboveboard regarding finances include the deferral of bonuses or other compensation, the payment of salaries to non-existent employees and an unexplained delay in the signing of lucrative business contracts.
There may be an honest explanation for certain of these financial behaviors but in a divorce proceeding the tactics described above (and many other practices) should be addressed in the course of financial “discovery” and, in some cases, through the employment of forensic accountants and investigators.
Moreover, even in the happiest of marriages, both spouses have an obligation to each other and any children, to be financially aware. Being knowledgeable about the existence and location of assets and familiar with income, expenses and liabilities is vital to your financial security in the event of illness, incapacity or other unforeseen events.