Common Hidden Business Assets in Divorce

Posted On August 19, 2022 Divorce

In a divorce, spouses are required by law to truthfully disclose their financial assets in order for community property to be divided equally. However, some divorcing spouses will go to great lengths to hide property or assets in an attempt to reduce spousal support or a property award.

What Business Assets are Commonly Hidden in Divorce?

Some methods that a spouse may use to hide assets and reduce the value of their business include:

Cash Payments

A spouse may receive cash in their business dealings and then fail to report it as income. Instead, it may be stored in a secret bank account or safety deposit box.

Fake Employee Salary

A business owner may create a fake employee to make it look as if they are paying a salary, then void those paychecks at a later time.

Prepaying Expenses

A spouse may make advance payments on future expenses to reduce the business’s bottom line—for example, office supplies, furniture, employee benefits, or raw materials.

Overpaying Taxes

In hopes of receiving a large refund after their divorce is final, a business owner may pay more in advance taxes than they know will be owed.

Welcoming Debts

To reduce their business income, a spouse may allow clients to defer payments until the divorce is finalized.

Delaying Bonuses or Promotions

A spouse may delay receiving a large bonus or promotion until after the divorce to exclude the other spouse from receiving part of the benefits.

Falsify Financial Records

A spouse may hide business assets in offshore accounts, trusts, real estate deals, or by “gifting” money to a family member or friend who will return it once the divorce is final.

How To Find Hidden Assets

Here are the documents that may help you find hidden assets if you choose to do the research alone:

Tax Returns

Start by looking at 1099s and tax returns. For example, Schedule C forms report profit or loss from business. Schedule C must be used by businesses operated, or a profession practiced as a sole proprietorship (single owner). Review the reported sales, expenses, costs of goods sold, and net income to get an idea of how your spouse’s company is doing. 1099s and tax returns will also provide evidence of real estate holdings and other assets or accounts which you may be unaware of.

Business Records

Review business records and look for any discrepancies, including ledgers of business transactions, stock transfer documents, expense reports, investment records, etc.

Bank Account Statements

Statements for checking and savings accounts can show your spouse’s income, expenses, and any unusual deposits or withdrawals.

Loan Applications

To apply for a loan, you must disclose income and assets to qualify. Therefore, review any of these documents carefully, for example, if your spouse applied for a business loan or mortgage.

Credit Card Statements

Your spouse may have a separate credit card for business. Statements can show you how money is being spent and when reviewed along with bank account statements, you may find discrepancies. For example, if a significant cash advance was taken against the credit card but never deposited according to bank statements.

If you suspect that your soon to be ex-spouse is hiding business assets, your divorce attorney can also recommend a forensic accountant. Forensic accountants are excellent at locating hidden or missing assets. They will know what signs to look for, and their goal is to ensure that you fully understand your assets and liabilities to get an accurate business appraisal.