Divorces are complicated, and when a family business is involved they become even more complex. Typically the business is income for the family and is considered property during divorce proceedings, especially if both spouses have ownership rights. Each spouse will want their share when the marriage ends. A business valuation may be done to determine the monetary value of the marital property, or in this case the company.
Business valuations should be done if the divorcing spouses cannot agree on a reasonable approach to sharing the business and an appraiser should be called in if one or the other spouse cannot agree on the value of the company. Connecticut courts follow the equitable distribution model to ensure fairness to both parties, and will label each asset owned by the couple. These labels include:
• Husband’s separate property
• Wife’s separate property
• Marital property
A valuation is a complex task that should be carried out by a professional and may include a team of attorneys, accountants, and financial professionals.
Surprisingly enough, it is fairly easy to hide marital assets during divorce proceedings, especially if one spouse was responsible for managing the marital finances and the other spouse is unaware of what was going on financially. One spouse may suspect something is not adding up financial when reviewing the assets, but the problem lies in that suspicion and proof are two different animals, and proving that one party is hiding assets can be difficult. From the moment you get married, both spouses should be involved and aware of all financial transactions, assets, liabilities, income, and expenses.
If you are considering a divorce be sure to learn about the most common tactics used to hide personal and business assets, and if you do suspect your spouse is hiding important financial information consider hiring a forensic accountant (especially one who is trained in and has experience in evaluating financial reports and assessing the values of a business or investments).
Some of the more common tactics are:
Asking for delayed delivery of a bonus check, retirement check, pay increase, or stock option until after the divorce is final. If one spouse does not want to report their full income, this is a common tactic to take.
Your bank statements or financial statements are no longer going to the house. This should be a giant red flag that something is going on.
You own a business that hasn’t increased its customer base, but has increased the number of employees. These “new” employees may or may not be real, so be aware of any new expenses with a check written to expire immediately after the divorce is final.
A sudden decrease in salary for no explainable reason is another indication that one spouse may be hiding money.
Your spouse is making intentional overpayments to organizations like the IRS. Once the divorce is final, they will receive a refund for the amount of the payment and not have to report that income during the proceedings.
Payments that are made to a close friend or family member for “repayment” of an unknown debt may conveniently be returned upon the divorce.
There are a few things you can do though to help prevent asset hiding:
Have all antiques, hobby equipment, gun collections, artwork, and tools appraised. These pieces are commonly overlooked by either one spouse or the other. Have a professional appraiser put everything in writing and be sure to keep a copy for your records.
Pay attention to the monthly bills. Know what is coming in and what is going out financially. Check credit card statements on a monthly basis, and note if your spouse’s lifestyle exceeds their reported income.
Know how much cash is on hand.
Know where all of your financial paperwork is located and review it on a regular basis.
During your divorce be sure to work with a qualified divorce team to help ensure you have the professional information and expertise you need to receive a fair settlement and will help you keep your finances intact during this difficult time.
Divorce can be a difficult business. Having qualified professionals walk you through every step of the process can significantly reduce stress and help increase the chances that you are being treated fairly.
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