Divorce & a Spouse's Cash Income
By Heather Frances J.D.
If your spouse earns some of his income through cash sources -- for example, if his business deals mostly in cash or his employer pays him in cash -- you may find yourself trying to prove his cash income to the court during your divorce action if he reports less income than you know he actually makes. Though this can be difficult, there are ways to make sure the court is aware of his unreported income.
Your spouse may attempt to conceal his cash income, whether business or personal, during your divorce. By hiding this income, your spouse will appear to have fewer assets when it comes time for the court to divide those assets. For example, your spouse may receive a small paycheck because he earns most of his money through cash tips. If he under-reports these tips, it will appear to the court that he makes less money than he really does. Similarly, if your spouse owns a business that receives payments in cash, he could transfer that cash directly to himself without reporting it, again making it appear he earns less money than he does.
Proving Cash Income
You and your spouse will likely have to file financial affidavits to report your income and assets to the court. Lying on these affidavits is a serious matter, but it may be difficult to prove. If you suspect your spouse is hiding cash income, a forensic accountant may be able to help you prove it. Forensic accountants can analyze your spouse’s business and personal records to reveal signs of hidden cash income, such as comparing bank deposits between accounts or evaluating increases in brokerage accounts.
Impact on Child Support and Alimony
Child support and alimony -- also known as spousal support -- are determined by state guidelines. State rules typically allow a court to look at many factors to determine the amount of child support, including each spouse’s income. Similarly, courts consider the financial resources of each spouse to determine how much alimony to award or whether to award it at all. Depending on your situation, proving your spouse has unreported cash income could increase the support payments you receive.
Expense and Results of Proving Cash Income
It can be very expensive to prove your spouse has more income than he is reporting, particularly if you need to hire experts such as forensic accountants or business appraisers. However, the expense and trouble may be worth it if you are successful, since you may receive significantly higher child support or alimony payments. If your spouse under-reported his income to the Internal Revenue Service, the IRS could audit his returns and he could end up paying increased taxes and penalties. Unfortunately, this could also mean you are liable for taxes and penalties if you and your ex-spouse filed joint tax returns while you were married.
Heather Frances has been writing professionally since 2005. Her work has been published in law reviews, local newspapers and online. Frances holds a Bachelor of Arts in social studies education from the University of Wyoming and a Juris Doctor from Baylor University Law School.