Beware of a spouse hiding income from a business

If your spouse owns a business and you anticipate divorce, you need to be very careful and intentional about gathering as much factual information as you can about the true state of the business.

In many cases, a spouse who owns a business may attempt to hide income form the business or represent it as less valuable than it truly is. Usually, this occurs because the business-owning spouse does not want to divide up his or her income from a business, or wants to keep the business intact throughout the divorce negotiation.

If you suspect that your spouse may hide income from you, you have several options for how to proceed. Each situation is different, so it is wise to consult with an experienced attorney who understands the nuances of California property division (of which there are many), as well as effective strategies to combat a spouse hiding income or asset value.

Think big picture instead of getting caught in the details

If you believe that your spouse may hide assets from you, but do not have reasons to believe it has happened yet, you may consider offering your spouse a postnuptial agreement. This may be especially useful if you believe that your spouse wants to keep his or her business intact through the divorce.

In this scenario, you can get out in front of the conflict and propose that you receive either a monetary buyout of your potential share of the value of the property, or receive other assets that compensate you fairly.

Of course, in this scenario, your spouse may attempt to diminish the value of the business, in which case you may want to pursue professionally valuing the business. In a professional valuation, an independent party determines exactly what the business is worth so that neither party can exaggerate or diminish its value for their own gain.

Don’t fall for Sudden Income Deficit Syndrome

When one spouse owns a business and divorce enters the picture, this often leads to that spouse misrepresenting exactly how much he or she makes in the business. In these cases, a spouse may attempt to move assets outside of the business or pay themselves less so that they can avoid giving up more than they wish in a divorce settlement.

This behavior is surprisingly common in divorces, to the point that it has it’s own name — Sudden Income Deficit Syndrome, or SIDS.

If you see the signs of your spouse hiding income, or suddenly notice that the business they always claimed was successful is suddenly on the brink of bankruptcy, you may want to enlist the help of a forensic accountant.

A forensic accountant can dive deeply into the details of your spouse’s financial life and find any discrepancies that may indicate misrepresentation or attempts to hide money.

No matter what strategy you choose, be sure to understand exactly what you deserve and so that you don’t accept anything less.