My experience working with divorcing couples has taught me a few things. For one, I expect each spouse to focus on his and her own financial self-preservation, which is understandable. Quite often, though, the husband transitions into this mind-set long before the wife does — sometimes even before the divorce papers have been filed. This can and does leave many women vulnerable to some financial maneuvering by their husbands designed to ensure their own self-preservation at the expense of their wives.
This may appear sexist at first glance, however, based on my experience, men are still predominately the “monied” spouse in the majority of marriages. They earn more income, understand and handle the family finances and investments, often are owners of or partners in a small business, or are high-powered executives in a large corporations, with complicated compensation or retirement packages that are not well-understood or known by their wives. Women typically assume the roles of care-giver to the children and other family members, corporate wife or homemaker, leaving most financial issues to their husbands.
For the sake of brevity, let’s focus on one example — the husband who owns his own business. Once the divorce process gets under way and all parties are required to present financial documents, the husband, to the surprise of his wife and both attorneys, may claim that his business has little or no income or value. He is suddenly impoverished and unable to pay for a fair settlement. This is despite the fact that the business has supported a comfortable lifestyle for his wife and children for many, many years without difficulty.
Well, this scenario happens so frequently, divorce professionals have given it a name — Sudden Income Deficit Syndrome! Here are some typical “symptoms:”
The business is “in trouble,” but his lifestyle does not reflect a loss of income.
The husband whose business has supported a very nice lifestyle for quite some time, suddenly claims he’s drastically lost income – even though his spending habits haven’t changed. In fact, he may even be supporting a new girlfriend in high style. Can his reported income accomplish all that? If not, where’s the money coming from? Surely it would be hard to get a bank loan if the business were suffering as badly as he says. How can someone with no income accomplish all this?
The business pays his personal expenses.
If a husband’s business pays his personal expenses, then he doesn’t need to take a “paycheck” – and can claim he has “no income.” By absorbing his personal expenses, the business also appears to take a hit, both in its net income and in its valuation.
His “loss of income” coincidently began just as your marital troubles escalated.
Many married couples go through years of discord — sometimes periods of separation — before finally deciding on divorce. It is quite likely that the husband started thinking preemptively years ago on how he could preserve or hide assets in case a divorce occurred. Did the business lose value right about the time the couple first separated?
He stalls or stonewalls when asked to turn over financial documents or allow a third-party business valuation.
Husbands in this situation might be reluctant to turn over bank and credit card statements or copies of checks, all of which are difficult to manipulate. He may try to buy time and drive up his wife’s legal bills by not responding to requests for financial documents during the “discovery” process.
Many divorce professionals talk about situations where crafty business owners start bad-mouthing their company’s profitability a year or more in advance of an impending divorce. Some move out of the house and into a friend’s guest house and stop socializing. The antics of such self-preservationists is almost Oscar-worthy!
While it can be difficult to prove someone is under-reporting income and/or misrepresenting the value of a business, particularly when the monied spouse has control of all the financial information, fortunately, there is help.
An entire sub-specialty of accounting, called forensic accountancy, has developed to unravel exactly this kind of challenge. A forensic accountant is an expert in detecting inconsistencies, finding evidence for wrongdoing, if any, and getting at the truth of a financial situation.
“The only way to catch these types of scams is to sweat the details,” one forensic accountant says. “The tax returns must be analyzed over time – both personal and business. A business’s financials and loan applications should also be compared to tax returns.”
Quite often, a Certified Divorce Financial Analyst like myself can find hidden assets and uncover other hidden, financial treasures, foiling such plots by dishonest spouses. This can be an efficient and cost-effective first step. Recently, I’ve seen divorce attorneys simply subpoena banks and other financial institutions to secure documents instead of waiting for unresponsive husbands to get around to turning them over.
If you find yourself in a similar divorce situation, seek out help from a financial expert and don’t let the antics of a wayward spouse pressure you into giving up and walking away for less than what is legally yours.