Many divorces are acrimonious, but there are some that go over the top. Beyond disagreements over the issues of divorce, one or both spouses may be violating trust. In more cases than you might expect, one spouse is hiding money from the other. Typically, this is done to reduce alimony, property division and child support obligations.
One man thought he had found a foolproof way to conceal assets from his wife, whom he was divorcing, according to a certified financial planner interviewed by CNBC. Over the course of several years, he paid hundreds of thousands of extra dollars to the IRS. He planned to park the money with the tax man and file for a refund once the divorce was final.
The lesson for people involved in especially acrimonious divorces is to double-check all tax returns, tax forms, bank statements and credit card accounts for unusual activity leading up to the divorce. Often enough, the activity will be obvious to someone with experience reading financial statements. Your divorce attorney can review these accounts, statements and filings and let you know if you need a specialist to dig into the issue.
Your tax documents are a good place to start looking
You may be able to spot evidence of hidden money yourself. However, if you find something, it’s important to bring the issue to your attorney for verification and follow-up. Hiding money or assets from the court is a serious offense, and you should be careful about making accusations.
That said, your spouse’s W-2 is a good place to start. It gives information on your spouse’s base earnings and how much they’re withholding for various purposes. Make sure that any contributions to retirement accounts and any tax withholdings are reasonable.
This same information should be entered into the corresponding fields on your joint income tax return — unless your spouse earns a portion of their income in the form of tips. In that case, make sure the amount in tips reported seems accurate.
On your tax return, look for Schedule B, which details any interest and dividends received. Also check Schedule D, which lists any capital gains and losses. Both forms can alert you to earnings, distributions and sales that you may not have known about. Capital gains taxes may indicate your ex has been selling off brokerage assets.
Another tax document to look for is a Form 1099-R, which indicates a distribution from a retirement account has been taken.
Unexpected entries on tax forms are just the beginning. You should also watch for changes in spending, secrecy about finances, transfers between personal and business accounts, and other irregularities. If you have concerns, talk to your divorce attorney.
