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Divorce is one of life’s most stressful events, especially regarding the division of assets and determining alimony and child support payments. Suppose one spouse is in a career that primarily pays in cash. In that case, the other spouse may suspect they’re deliberately withholding some of those payments to present a lower income for asset division and spousal/child maintenance. Here’s what you need to know if you think this is the case for your divorce.
What Does It take to Prove Income Earned in Cash?
As part of the divorce proceedings, each spouse usually has to file financial affidavits that document all income and assets for the court to consider when determining how assets will be divided and the potential for alimony or child custody payments. Unfortunately, cash income is much easier to conceal than other types of income that level detailed informational tracks.
Regardless of how the cash is hidden, finding it is difficult and time-consuming, and it’s a situation best handled by experienced divorce attorneys, often working with private investigators or forensic accountants.
What Are Some Tactics Used to Hide Cash Income?
People use numerous techniques to conceal assets, especially in divorce or IRS cases. In general, if your spouse claims their income is much lower than you remember, claims to have fewer or less-valuable assets than makes sense, or is reluctant to share their financial information with you and your attorney, those are warning signs to pay attention to.
Cash is tough to trace. When someone is paid in cash, they can park it in their wallet or at-home safe and use it for small purchases such as groceries or meals that don’t raise red flags. Other times, someone may deposit the cash, then find ways to remove the cash in difficult-to-track ways. That can include getting cash back when using a debit card at the grocery store or drugstore. The line item on the bank statement only shows the name of the retailer, not the fact that part of the overall charge was to get cash back.
They may also not report the income to the IRS, so it doesn’t show up on their tax forms. Instead, they might give the cash to a third party, such as a family member or close friend who knows what they’re doing, to keep until the divorce is complete. They may claim they’re paying off a loan to a family member or friend.
Sometimes, people rent safety deposit boxes at their banks and store the cash there. In other cases, they use cash to buy expensive new assets that they claim a low value on during the divorce, then sell them for higher value after the divorce.
One egregious tactic is people who set up custodial accounts for their children. Because the account is in the child’s name, it doesn’t count toward marital property or division of assets. Once the divorce is complete, the spouse who set up the account can take the cash out and close the account.
What Is a Forensic Accountant?
A forensic accountant specializes in examining financial data to investigate fraud as part of civil and criminal investigations. They’re essentially financial detectives.
They’ve received training to read through financial data and find irregularities and signs of unusual accounting activity. They’re usually certified public accountants (CPAs) trained to comb through records, such as tax or income statements, for evidence of wrongdoing.
Is Concealing Assets During a Divorce Legal in California?
Deliberately concealing assets of any kind, including cash income, is fraudulent and illegal. In California, it’s taken seriously, and when exposed, there are consequences, including one or most of the following.
Loss of concealed assets. While most property is divided 50-50 in California, someone who conceals assets and is discovered could lose a minimum of 50% and even up to 100% of the assets they tried to hide.
Attorney’s fees and court costs. If one spouse is found guilty of concealing assets, they can be ordered by the court to pay the other spouse’s attorney fees and court costs. These costs may include not only the attorney’s fees but anything related to the case, including court reporter fees and expert witness fees. It may include private investigator and forensic accountant fees, quickly costing thousands of dollars.
What Are Other Consequences of Concealing Assets During a Divorce in California?
If the concealed assets are exposed during the divorce proceedings, not only can the above fees and financial losses be felt, but there are also some intangible but adverse outcomes.
One example is that the judge presiding over the divorce may find that the spouse who concealed funds has lost all credibility. That can affect the judge’s determinations regarding asset division and child custody. It’s also possible that the concealing spouse’s attorney will withdraw from the case and refuse to represent them going forward.
What Should I Do if I Suspect My Spouse Is Hiding Cash Income from the Divorce Court?
Call us at 559-277-7300 to set up a consultation. This is a complicated and emotionally fraught situation that could significantly impact divorce proceedings and outcomes. The sooner we can begin investigating the situation, the better. If your spouse is trying to hide income earned in cash, it’s vital that it be uncovered and presented to the court to ensure you get a fair settlement.