Valuation Issues in a Divorce


     By Anderson & Associates, P.C.

Firm's Profile & ArticlesFirm's Profile & ArticlesPhoneCall (847) 995-9999Free ConsultationFree Consultation



Addresses the investigation stage of asset valuation in matrimonial litigation. To properly classify and value the parties’ assets, relevant information and materials must be obtained and analyzed. A combination of formal discovery and independent investigations is advocated.

One of the most important aspects of the valuation process involves gathering, organizing, analyzing the relevant information, documentation, electronic data and other materials that relate to the parties’ finances. The discussion of the Investigation Process is divided into three sections. Gathering information and materials through independent investigation and discovery is discussed in Section A. A systematic approach to organizing materials is discussed in Section B. The analysis of materials gathered, including the search for hidden assets and analysis of income tax returns, is covered in Section C.

A. GATHERING INFORMATION AND MATERIALS
It is important that you use all available resources to gather and analyze the information and materials needed. That includes both independent investigation and formal discovery to value assets and prepare for negotiations and trial.

Independent Investigations
Much of the information and documentation needed to determine and prove the value of most of the assets in a dissolution of marriage is readily available separate and apart from formal discovery procedures. Develop an investigation strategy. Identify and analyze the issues. Learn what you can early and gather what is easily accessible. Identify valuation issues that require an historical perspective. Will there be any issues regarding the classification of assets as marital or non-marital? Are there any claims that one of the spouses is hiding income or assets or has dissipated any assets? If not, then assets need only be analyzed as of the date of trial and historical documents are not needed. In developing the strategy, considering the following resources:

1. Your Client. Your client is usually the best source of information regarding the parties’ assets. The best litigation results can be attained through a positive working relationship between the attorney and the client. The client has access to relevant documents and knowledge about the parties’ finances. Include the client in the process from the beginning to the end.

Act quickly to get as much information, documentation and electronic data as possible from your client. Before conducting any discovery or taking any other steps to obtain any documents or information, the attorney and client should discuss the documents and information that will be needed. The client should make a copy for the attorney of all relevant documents and electronic data within the client’s possession. The originals should be returned to the location where they are normally maintained. Documents, files and electronic data that are not obtained early may become difficult, expensive or impossible to obtain later on in the litigation.

The client should provide copies of all joint tax returns and all statements for bank, credit card, retirement and investment accounts that are in the client’s name individually or jointly with the spouse. Those documents that the client has not maintained in the ordinary course of business, should be obtained by the client by requesting a copy from the bank, credit card company, or other financial institution.

2. Public Records and the Internet. Information available through the internet is extensive and easy to access. It will require a relatively small amount of paralegal and/or attorney time when compared to formal discovery. The possibilities are limitless. A few examples of readily attainable information and materials that an attorney should consider accessing on the internet include:

a. The Spouse’s Business Website. If either or both parties own a business, the website should be downloaded, printed and reviewed in its entirety. It contains valuable explanations of the nature of the business, the range of products and services, the target customers, identification of intellectual property and other assets owned by the business, information about the owners, officers and employees, and other information. The website should be printed and retained as its content could potentially change during the litigation to better reflect the image the owner-spouse seeks to portray in the dissolution action.

b. Google search the Other Spouse and the Business. In some cases, a Google search will provide evidence of the value for the business, dissipation by the spouse, or other unexpected information.

c. State and Federal Court and Other Government Websites. In any contested divorce, the court records should be researched for criminal and civil cases in which the opposing spouse is or was a party. Such investigations may reveal pending lawsuits that are marital or non-marital assets or liabilities; cases that reveal dissipatory expenditures; patents, copyrights, trademarks, trade names and other intellectual property owned by the other spouse or the business; lawsuits that reveal situations which require immediate action such as foreclosures, bankruptcies, parentage actions, or collection lawsuits on accounts the client thought were current; driver’s license and other criminal problems; and much more.

d. Real Estate Records. The websites for the Recorder of Deeds, tax assessor and other websites, provide extensive information about real estate owned by the parties. Ownership information, mortgage and other lien information, real estate tax information, past transfers of the property, similar properties being marketed for sale and comparable sales for a market analysis, are all available to the general public.

e. Motor Vehicle Records. Blue Book values, title searches, the asking price for comparable vehicles being marketed, the sale price for comparable vehicles that have recently sold and other information may be available regarding the parties’ motor vehicles.

3. Pleadings and Responses. Pay close attention to each allegation in the petitions and responses to petitions filed in the case. Use fact specific pleadings and pay attention to the response. Keep track of any verified admissions to verified allegations. Pleadings are intended to narrow the issues. Sometimes they actually do.

4. Opposing counsel. The other attorney can provide important information. While the relationship between opposing attorneys may be adversarial in contested cases, their interests are not always inconsistent. Most cases should settle. In all cases the issues should be narrowed before trial. To that extent, the attorneys need to share information and work together. Moreover, the case cannot be resolved until both attorneys have a working knowledge of the case. By explaining the circumstances to each other, the attorneys can save a lot of time. At the same time, remember not to compromise your client’s position or violate any confidences. The communications between the attorneys, while informative, include posturing for litigation and negotiations. The reliability of information provided by the other attorney depends on the likelihood of settlement, personality of the attorney, relationship between the attorneys, and the nature of the other client. Listen to what is being said; and listen to what is not being said.

5. The Parties’ Accountant(s). The parties’ accountant(s) should have knowledge about the parties’ business and other financial affairs. In cases where the parties have a larger net worth and income, the accountant will have spent more time with one or both of the spouses and will have more immediate knowledge and recollection. This is particularly true in the case of an accountant who represents a business owned by one or both of the parties. The accountant generally deals with the party who is the primary breadwinner such as the owner of the business. But if the accountant prepares the parties’ joint tax returns, he or she has a fiduciary duty to both parties. If the accountant feels as though his duty is to the other spouse, do not hesitate to point out the joint tax returns. Anything that you obtain directly from the accountant, including documentation and explanations, can be helpful. Eventually, you may need to take the accountant’s deposition. Doing so may be the most informative three hours spent on the case.

6. Consultants and Expert Witnesses. When hiring someone to be an expert witness, it is often best to first hire the person as a consultant. Communications between an expert witness and the attorney are subject to disclosure pursuant to Rule 213(f). Communications with a consultant usually are not. As a consultant, the expert can explain valuation concepts to you, help you determine the documents that need to be requested, and explain the documents to you. A consultant retainer agreement should be signed. Later, if the expert is going to testify, a new retainer should be signed.

7. Trade Journals and Books. In a case with a substantial business that is being valued, the attorney should review trade publications from the subject industry for articles relating to valuation and sales of businesses in that industry. It may be worthwhile to review a book dedicated to the valuation of that type of business.

8. Private Investigators and Forensic Accountants. In circumstances where a spouse is suspicious about accurate reporting, undervaluing assets, or concealing assets, expenditures or income, a private investigator or forensic accountant can be hired. A forensic accountant is an accountant who is trained in investigative auditing to be used in litigation. Private investigators can be used for a wide range of investigative matters from searching financial information to surveillance.

9. Forensic Computer Experts. The reality of the 21st century is that the most information is maintained electronically. Being careful to obey all privacy laws, all computer records should be requested and produced during discovery. The client should provide all available computer records to the attorney. If the other spouse is suspected of overt concealment of assets and other information, the attorney may need to consider filing a petition, either ex parte or upon notice, for inspection of the other party’s computer hard drive by a forensic computer professional. The computer hard drive can be copied and searched for information that has been deleted, but that, remains on the hard drive. Before proceeding in that direction, additional legal research and professional advice is needed as extensive analysis of this option is beyond the scope of this seminar.

Formal Discovery
Discovery in domestic relations cases in Illinois is controlled by the Illinois Supreme Court Rules and the local rules of the circuit court in which the case is pending. The Supreme Court Rules 201–224 relate to discovery. Each circuit court has rules relating to discovery in civil cases generally and domestic relations cases specifically. The first discovery tool to consider is the Mandatory Disclosure Provisions in the Circuit Court Rules.

1. Mandatory Disclosure. The Circuit Court of Cook County and each of the collar counties has established rules for divorce cases that require mandatory disclosure of the parties’ financial information. The rules in each circuit are different, but they tend to include a Financial Disclosure Affidavit (“FDA”), tax returns for a few years and recent paystubs or other earnings statements. The FDA is intended to require disclosure of all assets, liabilities, income and expenses. Prepared and reviewed properly, the FDA’s of both spouses will provide a complete picture of the parties’ finances. In easier cases, this goal may be accomplished and no further discovery may be required. Often much more is needed. Regardless of the exact language of the local Rule, by the end of mandatory disclosure, both attorneys should have all recent tax returns, including all schedules and attachments, all recent earnings statements, a sworn statement from each of the parties as to the assets, liabilities, income and expenses, and an understanding of the degree of discovery cooperation that can be expected from the other side.

The FDA’s can be helpful but also have limitations. First, the statements are generally not prepared properly. Insufficient time is spent on the form by the client and the attorney. Second, the numbers are fudged, or even manufactured, to avoid the appearance that the person has any assets or disposable assets. Third, the valuations of certain types of assets are estimates and need to be quantified. Fourth, there is more than one way to interpret and present the data. Within the range of accurate ways to present the data, each side can and should choose the most beneficial interpretation.

2. Rule 213 – Interrogatories. Supreme Court Rule 213 provides for written interrogatories. The Rule allows for standard interrogatories for certain types of cases. Pursuant thereto, standard matrimonial interrogatories have been approved.
a. Standard Matrimonial Interrogatories. The standard matrimonial interrogatories basically cover all of the parties’ finances. It is a sufficient way to get an overall understanding of the other parties’ finances.
b. Modified Standard Matrimonial Interrogatories. If some of the interrogatories clearly do not apply in a case, they can be eliminated and replaced with interrogatories drafted for the particular case. They should be titled Modified Standard Matrimonial Interrogatories.

3. Rule 214 - Requests to Produce Documents. Request to Produce Documents includes answers to the written requests plus documents. Be sure that the answers you receive include an answer to the written questions, that references the documents or to other production are not misleading; that the answer is dated; and that a signed certificate of compliance is attached. The documents produced must be complete and cover the entire period requested. Be sure to get all of the pages of all of the documents to facilitate tracing of transactions.

4. Subpoenas for Documents. Subpoenas for documents can be used to obtain documents from third parties. Rather than fight to make the other party produce every page of every document in response to a Request to Produce Documents, it is often easier and more efficient to obtain available documents by subpoena.

5. Request to Admit Facts. Use a Request to Admit Facts to establish certain facts before trial. Drafting Requests to Admit Facts is difficult. Only the admissions of facts, not legal conclusions, can be requested. Use this tool often. It helps narrow issues and shortens trials. Drafting Requests to Admit on a regular basis improves the attorney’s drafting skills.

6. Depositions. Depositions of the parties are normally taken after most documents have been assembled. Get it done far enough in advance of trial to allow follow up discovery based on the deposition. It may also be advisable to take the deposition of the accountant that represents either or both parties and/or a marital asset business, a business partner, employees, expert witnesses and others with relevant information.

The depositions should be approached with two objectives. First, depositions should be used to learn about the parties’ finances. Second, look for testimony that can be used for impeachment purposes at trial.

7. Discovery Enforcement. The enforcement of discovery compliance generally involves the following steps: 1) 201k conference and letter; 2) Motion to Compel; 3) Petition for Rule to Show Cause; and 4) Motion in Limine to bar testimony or other evidence relating to discovery still not produced. Throughout the procedure the attorney should: i) Docket dates and move to the next step soon after the deadline has passed; ii) Be specific regarding what was requested, what was produced, what is missing and why it is needed. This specificity should be detailed in the 201k letter, Motion to Compel, when arguing in court and at all other steps along the way; and iii) Obtain materials from alternate sources where possible so that the enforcement against the other party can focus on those items over which only that spouse has access.

8. Provide Full Disclosure. Demand Full Disclosure. If you produce professional, organized, complete answers to discovery, you can demand the same from the other party. If your client does not want to pursue discovery, is not cooperative in this process, or if less formal and thorough disclosure is beneficial to your client, be sure to cover yourself with a “CYA” letter to your client and appropriate waivers in any Marital Settlement Agreement.

B. ORGANIZATION OF MATERIALS
1. Develop a System. Each attorney or law firm that handles matrimonial litigation should develop a basic system of organization of discovery requests and responses to be used by the firm. The system is a function of the resources available to the firm, the volume of materials that is received, the format in which materials are received (i.e. documents or electronic data) and the type of cases that are generally handled by the firm. For example, a sole practitioner with a part-time secretary should not develop a system that is labor intensive. A system that cannot be maintained is of no use to anyone. A larger organization can, and should, develop a system that is ultimately more useful and that is more labor intensive. In larger organizations, problems arise because numerous people work on the same file. Unless a universal system is adopted for the firm, much time will be lost as individuals organize discovery using a system that makes sense only to him or her, but not to the next person who works on the file.

2. Modify the System for Specific Cases. Using the universal system as a foundation, be flexible enough to adapt the system to specific cases. A more sophisticated system is needed for cases that are more complex with more documents. Adjusting the system to the case may be crucial during trial preparation and trial. Unless the system is maintained and adapted to the case, trial preparation may become a nightmare of shuffling documents aimlessly rather than sleeping. Trial may be filled with long pauses while the attorney searches for documents. Neither is much fun for either the attorney or the client. Finally, organized discovery is the key to locating missing assets, liabilities, income and expenses.

3. Organize Responses to Track Compliance with Discovery. The system must include one method of organization that keeps track of the other party’s compliance with discovery. Upon receipt, all discovery received must be inventoried and organized to determine the other party’s compliance and non-compliance. This system must remain intact so that missing responses and materials can be obtained through 201k letters, Motions to Compel, Petitions for Rule to Show Cause and other enforcement proceedings. If full compliance is still not received, the attorney needs to use that organization system to bar use of the missing materials at trial.

Your client’s discovery responses to the other party’s discovery requests must be maintained in a similar fashion. The attorney should be able to counter any claim that his or her client’s discovery compliance is incomplete with specific data as to what was requested, what was produced, what was subsequently requested pursuant to a 201k letter and what steps are being taken to fully comply.

4. Organize Discovery for Analysis and Presentation. The purpose of discovery is to learn about the case and to be used in negotiations and trial. Accordingly, in addition to organizing discovery responses to track discovery compliance, all materials must be organized in a manner that allows for proper analysis. This involves combining all documents received regarding each asset (i.e. bank statements) or liability (i.e. credit card statements) from all sources (i.e. the client, the other party, a third party response to a subpoena, etc.). Both types of organization can be accomplished by making additional photocopies and filing the documents using both systems of organization; a Bates label numbering system coded to track the documents both ways; or a computer database indexing system that allows the attorney to view, or print, an index organized both ways.

C. ANALYSIS OF MATERIALS – THE SEARCH FOR HIDDEN ASSETS, LIABILITIES, INCOME AND EXPENSES

As the investigation process proceeds, the information and materials received must be reviewed and analyzed. All assets, liabilities, income and expenses must be identified, analyzed and valued. This process includes a search for all hidden assets, liabilities, income and expenses. The word “hidden” is being used in a broad sense. It includes items intentionally concealed; and items that either or both of the spouses and/or the attorney missed, did not understand and/or did not realize had significance in dissolution of marriage litigation. The following discussion will address the types of assets, liabilities, income and expenses for which the attorney should be searching; the actions that spouses take to conceal such items; other circumstances that result in the items being overlooked; and the steps that can be taken when reviewing and analyzing specific types of materials to identify and quantify such items.

1. Personal Property. Identify whether there are any personal property assets of value. Consider automobiles, firearms, antiques, collections, jewelry, artwork, and furniture. Ordinary personal property is best divided by the parties without valuation or involvement of the attorneys as the fees will likely exceed the value of the assets involved.

2. Agreements Between the Parties. Often parties tell the attorneys that certain assets (i.e. one spouse’s 401k account and the other spouse’s pension plan) are going to be allocated to the spouse who owns the asset, and that those assets should have no affect on the division of the other assets. The first part of that statement is fine. It is obvious to whom certain assets and liabilities should be awarded. But in doing so, that party should be credited with receipt of marital assets equal to the value of the asset. The attorney must make at least a rough analysis of the values of the assets to be excluded from consideration. If failing to consider the values of the excluded assets works to your client’s advantage, discuss the matter with the client and consider forgetting about it. In doing so, make sure that no misrepresentations are being made. If excluding the value of the assets from consideration does not benefit your client, discuss the matter with the client. State that the value of all assets assigned to each party should be valued and considered. Of course, if the client still insists on omitting it from consideration, confirm in writing the advice given by the attorney and instructions given by the client.

3. Undisclosed Income, delayed income, diverted income and collusion with insiders. It is not uncommon that divorce litigants experience a convenient reduction of income during, or immediately prior to a divorce. Such a development must be reviewed, analyzed and understood. It can affect child support, maintenance, the value of a business and division of marital assets. It can be accomplished by diverting certain income to an undisclosed account, refusing overtime, or collusion with a sympathetic employer, to defer or divert income during the divorce.

4. Collusion. Divorce litigants often collude with relatives, friends, business partners, friendly employers, paramours and others to conceal income and/or assets. Income can be diverted, deferred, refused in an attempt to decrease child support and/or maintenance. Assets can be transferred to insiders for inadequate or non-existent consideration, or for repayment of a phony liability, to decrease the marital assets. All such transactions can include a verbal agreement to refund the money after the divorce is over. Alternatively, it may be refunded to the spouse during the divorce in the form of cash, a cash equivalent or Series EE savings bonds which are not reflected on income tax returns.

5. Personal Financial Statements. The other spouse may have prepared and signed Personal Financial Statements that are inconsistent with those being presented in this divorce. Obtain and review all loan applications, bankruptcy filings and other divorce or parentage documents. It is likely that a loan application shows a larger income than now being claimed and may list assets omitted from discovery documents in this case. A Chapter 13 Bankruptcy Reorganization Plan may show a higher income or additional assets as well. Previous divorce files may reveal additional support being received, reduced support being paid, or a support arrearage that accrued before or during the marriage which may be a marital or non-marital asset. Inconsistent financial statements can be used to disclose hidden assets and income and/or to impeach the other spouse’s credibility. Findings or representations in a different court may even be res judicata.

6. Bank Account, Credit Card and Other Financial Records – Tracing Transfers In, Transfers Within and Transfers Out. If a spouse is attempting to hide income, assets or dissipatory expenditures, he or she can use a variety of tactics. Some spouses are better at concealment than others. Quite often, they leave evidence of the transactions in the documents that are gathered through the investigation process. They can be located through a systematic review of the transfers of money into, transfers within and transfers out of the parties’ assets and liabilities.
It is usually best to start with bank statements. Look at deposits. There tend to be fewer deposits than disbursements so they are easier to work with. Identify the deposits as transfers from outside, or from within. For example, the account may show periodic deposits of the spouse’s paychecks, transfers from a different bank account, cash advances from credit cards, checks from that spouse’s mother, and proceeds from the liquidation of an IRA.

The paychecks and the checks from mom are transfers in. Look for patterns. Make sure that no paychecks are missing. Is bonus and commission income also being deposited into this account? If not, ascertain why not. It may reflect diversion to an undisclosed account.

The transfers from other accounts and the liquidation of the IRA are transfers within. Check the documents and be sure that you have the statements for the other account and that the corresponding withdrawals and liquidation are reflected on those statements. If not, get the statements. Use a process of elimination to explain the deposits and compare them to the other records received. Reduce the number of unexplained transactions. Your client, the other attorney or the other spouse at a deposition can explain the remaining deposits. The explanation may reveal hidden assets, income or loans.

Next, analyze the withdrawals including transfers to other accounts (“transfers within”), payment of bills (“transfers out”), bank charges (“transfers out”), payment of attorney’s fees (“transfers out”) and other transactions. Again use a process of elimination to narrow the scope of the investigation. Confirm transfers within and the corresponding statements for the other account. Identify periodic recurring payments (i.e. rent, utility bills, support payments, gasoline purchases, cigarette purchases, mortgage payments, insurance premiums, etc.). Again, look for patterns and deviations therefrom. Are all the bills being paid? Are new periodic expenses showing up? Examine the remaining expenditures. Look for travel. All business expenses should be reimbursed from the employer (whether or not the employer is owned by the spouse) or deducted as business expenses on the income tax return. Expense reimbursements are often deferred or diverted to an undisclosed asset or an insider or to cash.

Each trip out of the area should be analyzed. Note the dates on a calendar. Look for unusual transactions through all of the accounts during the days the person was out of town. The travel may be relevant to visitation or custody issues. It may be travel with a paramour which is dissipation in and of itself and may include dissipatory gifts. Transfers to insiders may also take place while out of town. Business and personal travel are excellent topics of inquiry in depositions and at trial. Use the process of elimination to narrow the number of unexplained disbursements from the account. Get the explanations through further discovery, your client or other investigations.

Move to the next account. Follow the same procedure. Some of the unanswered questions from the first account will be explained by the review of other accounts. At the end, a handful of transactions will remain unexplained. Get an explanation if possible.

For example, to get all of the documents regarding a certain bank account for the last 36 months, you could make the other spouse produce all of the bank statements, copies of canceled checks, copies of deposit tickets and the check register. Indeed the standard Request to Produce Documents will request just that. Assume the other spouse produces the front page of each of the 28 statements, nothing for the other 8 statements, no deposit information, no canceled checks and no check register. You could return to court several times to force the other spouse to produce everything you need. Instead, send a subpoena to the bank. The bank will produce all pages of all of the statements, copies of canceled checks and possibly deposit slips. This will provide most of the information. Now focus on getting the account register in electronic or hard copy format from the other spouse.
File a Notice of Intent to Claim Dissipation identifying the dissipatory expenditures, income, expense reimbursements and other missing assets, and unexplained withdrawals and disbursements. Use subpoenas and depositions to obtain further explanations. Add the dissipation, missing assets and missing income in any future statements of marital assets and liabilities, in settlement negotiations and trial. Also, impeach the other spouse’s credibility by surprising him or her with any misrepresentations during deposition and trial testimony.

7. Personal Income Tax Returns. IRS Form 1040. Beginning with the first page of a Form 1040, one can see that income from wages is readily available. The existence of deferred compensation plans can be found by examining the W-2 forms. In addition, interest income is shown and taxable refunds of state and local taxes are shown. Finally, the first page shows any retirement plan distributions. If there are distributions, the funds and their disposition should be traced.

Turning to the second page of a Form 1040, carry forward losses or other credits are shown. There is a limit to the amount of loss that can be deducted against income in any one year. If losses exceed that amount (i.e. $3,000) then the excess loss will be carried forward to future years. $3,000 can be deducted each year until it is used up. These losses carried forward may be in the name of one of the spouses, but if they relate to losses incurred during the marriage, they are a marital asset and should be allocated as such. An entry on line 51 demonstrates tax preference of the alternative minimum tax, which may indicate hidden assets. If the alternative minimum tax line has an entry, the Form 6251 which accompanies it must also be examined. Line 49 shows any income recapture that is realized upon the sale of a depreciable asset that sells for more than the adjusted basis the value to which the asset has been depreciated through the years of ownership. Accordingly, an entry on line 29 belies the sale of an asset. The proceeds from the sale should be traced for possible hidden assets or dissipation.
In addition to the current return, previous years’ tax returns should also be examined to determine prior tax refunds. Taxpayers may manipulate previous returns by, for example, overpaying taxes for a previous year in the expectation of receiving the income after the divorce.

Schedule A. Also review the attached Schedules. Schedule A, which contains itemized deductions from income, shows state and local income taxes; real estate and personal property taxes; interest paid, mortgage interest for a primary residence, and points; investment interest paid; dividend income; and casualty and theft losses, among other things. The examining attorney or tax expert, should confirm that all items are disclosed and that no discrepancies exist. In addition, deductions of interest can reflect the existence of loans or refinancing. Receipt of interest or dividends can reflect the existence of assets not previously disclosed.

Schedule B. Schedule B, which lists specific sources of interest and dividend income, show the names of investments to which income was generated. Schedule B should be compared with that of previous years to determine whether there are any disappearing dividends or accounts. Lines 11 and 12 are for reporting gains or losses from investments located in foreign countries. Documents regarding such assets will be different, or impossible to attain by subpoena. The other party, however, has an obligation to discuss and produce documents regarding the investments and can be sanctioned for failure to do so. An entry on these lines may be the attorney’s only clue as to foreign assets which are protected by the laws of that jurisdiction.

Schedule C. Schedule C also offers information to a divorcing party, including whether a side business exists. If the spouse is self-employed Schedule C must be examined thoroughly to review expenses such as travel, entertainment, gifts, or office supplies and compare them to those found in similar businesses.

Schedule D. Schedule D offers information relating to the sale of property for gain or loss. If a property sale occurred, the attorney must trace the proceeds from the sale. Often times new assets are purchased with the proceeds from a reported sale. The money may have been concealed or spent on dissipatory expenditures or on undisclosed assets. In additional, Schedule D may also identify if ordinary household expenses are being deducted as business expenses in an effort to create “paper losses.”

Schedule E. Schedule E reveals information about rental properties as well as income from other business interests. If the schedule reflects an interest in a non-marital trust or estate the attorney must inquire to determine whether any marital payments have been made to the trust.

Further analysis of these tax returns is beyond the scope of this seminar. Remember two important rules. Review documents and ask questions until you understand everything. Compare the tax returns, banks statements and computer records against each other for a subject year looking for inconsistencies between the documents for a certain period of time. Review that tax return against returns from prior years looking for significant changes from year to year regarding any of the line terms. Ask questions and understand the inconsistencies. Finally, pay close attention to any large numbers on the returns. Think about how those categories or income or expenses could intentionally used to hide income or assets or unintentionally used to hide losses and expenses.

AUTHOR: Anderson & Associates, P.C.

Copyright Anderson & Associates, P.C.
More information about

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.



Find a Local Lawyer