Spouse May Be Hiding Income in Own Business

 Posted on August 16, 2017 in Divorce Finances

One challenge in negotiating a financial settlement in a divorce can be trying to figure out your spouse’s true worth, as compared to what he or she claims. Understating your income and assets gives you an unfair advantage when determining the division of marital property, child support payments and spousal maintenance. In particular, people who are self-employed or own a business are capable of artificially deflating their personal worth. Spouses may think they are savvy when they find ways to understate the value of their businesses or themselves. However, the other spouse would see it as dishonest and manipulative. You must be aware of the ways people can take advantage of their self-employment during a divorce.

Manipulating Finances

When people are self-employed or run a business, their personal and professional assets and expenses often mix. As their own boss, they have the ability to:

• Change their reported personal salaries;
• Determine the amount of retained earnings, which is revenue that is reinvested into a business; and
• Use their businesses to make personal purchases.

During or after a divorce, a self-employed spouse may suddenly decrease his or her own salary. He or she appears to have a lower income, which may affect what is owed in spousal and child support. The spouse may claim that business revenues are down or the money was needed for a major business expense. However, the spouse may be masking his or her personal purchases through the business. Items normally paid for with personal income are instead counted as business perks. Thus, the spouse can report a lower income while maintaining the same lifestyle.

When It Starts

Self-employed spouses may begin deflating their personal income once they know a divorce is imminent. However, the manipulation sometimes starts before the marriage, when spouses create a prenuptial agreement. In an agreement, spouses may define business perks and retained earnings as non-marital properties. Before the divorce starts, the self-employed spouse allots more business revenue as retained earnings. Some of those earnings are used to pay for personal expenses, disguised as perks or normal business expenses. Because of the prenuptial agreement, the other spouse may be unable to receive compensation for this income and purchasing.

Protecting Yourself 

It can be difficult to prove that your spouse is using his or her own business to hide personal income and assets. You will need to see detailed records of personal and business expenses and revenues. A Kane County divorce attorney at Goostree Law Group can help you determine your spouse’s true financial worth. To schedule a free consultation, call 630-584-4800.

Source:

https://www.psychologytoday.com/blog/empathy-and-relationships/201705/are-illusory-agreements-the-new-trend