When Spouses Hide Small Business Income in Tennessee Divorce
When Tennessee divorce shifts from possibility to probability, some small business owners may attempt to skirt the truth about their income. There are many reasons why a person might attempt this, none of which are honest and all of which point toward gaining an unfair financial advantage over the other spouse.
It’s All Part of the Act
What to do when a spouse hides small business income in Tennessee divorce?
This adds a theatrical component to divorce, so much so that some spouses seem to be vying for the year’s Tony Award for best actor. The determined business owner might begin the performance well in advance of the marital break-up, staging poor business profitability a year or more before the divorce is even filed.
In anticipation of divorce, some business owners deliberately draw less compensation from the company. To really sell the performance, he or she reduces expenditures and hunkers down to a more modest lifestyle. In Act I, Scene 2, the manipulating spouse continues the charade by selling the Mercedes-Benz luxury car for a compact Nissan Rogue.
Although not the first to do so, Jeff Landers, a regular contributor to Forbes, aptly referred to a business owner’s pre-divorce compulsion to feign scarcity of resources as Sudden Income Deficit Syndrome (SIDS). Fortunately the syndrome is not contagious, but SIDS is fairly widespread among those who run their own companies.
Some wrongly believe concealing or redirecting business resources to reduce child support and avoid alimony is a fair way to protect individual income and assets while family law proceedings are ongoing. However, purposefully reducing one’s income to gain a superior financial position over the other spouse has no legitimate place in a divorce, child custody proceeding, or action for separate maintenance.
Thwarting TN Child Support Obligations and Alimony Awards
Most business owners exercise control over the amount they receive in salary and benefits. Setting aside the needs of the children, a business owner might attempt to deliberately shrink his or her income coincidentally with the divorce to achieve a corresponding reduction in that parent’s child support obligation. The same may be said for purposes of reducing the amount of Tennessee alimony awarded to the other spouse, perhaps to eliminate some forms of alimony altogether.
The parties should both know going into the divorce that income from all sources is used to determine their respective spousal support and child support obligations.
With regard to child support, if the business owner hopes to be the primary residential parent, then concealing income could result in the other party being ordered to pay more in child support – creating an unfair burden on the obligor parent. Likewise, how much the alternate residential parent will pay in child support depends, at least in part, on that parent’s income. When the alternate residential parent deliberately reduces income to skirt child support, the child’s entire household suffers the consequences.
Utilizing the Services of a Forensic Accountant
Experienced divorce attorneys are always on the lookout for this pattern of behavior, often using the services of a professional forensic accountant to unravel the truth behind the obligor’s income story and to testify as an expert witness at trial. To cure the problem and catch the spouse in this type of scam, business financials and loan applications must be analyzed and compared with past tax returns, both business and personal.
With the budgetary pressures of divorce looming, every party should be on the alert for SIDS. Unfortunately, this malady is not restricted to savvy business owners. Many an employee has sought refuge in a friendly boss’ ability to adjust salary or wages until after the divorce is finalized. A spouse desiring to appear income-deprived might ask an employer to reduce work hours, creating an underemployment situation. Other employees may ask an employer to substitute a portion of their wages for some other less-traceable perquisite, such as unlimited personal use of a company-owned vehicle.
The only way to catch these types of divorce scams is to sweat the details. Tax returns must be analyzed over time – both personal and business. Consider hiring a forensic accountant to examine the financial records provided and to compare those with past tax returns. As you might expect, the devil lies in the details.
Memphis Family Law Attorney
For more information, see Tennessee Child Support Answers to FAQ’s. For legal updates, news, analysis, and commentary, visit our Tennessee Family Law Blog and its Child Support and Alimony categories. A Memphis family law attorney from the Miles Mason Family Law Group can help you with Tennessee support issues including setting or modifying child support and awarding alimony. To schedule your confidential consultation, call us today at (901) 683-1850.
