Almost everyone has heard divorce horror stories. 
So, what are some tricks of the trade? During the divorce process, it is common for the parties to provide copies of bank and investment account statements, retirement plan statements, individual and business tax returns, credit card statements, any loan applications (including personal financial statements) and an assortment of other documents (such as titles to motor vehicles and real estate). Whether the parties have an attorney or not, it is wise to perform some due diligence when compiling the list of assets and debts. For example, in a simple scenario where both employees are employed with no supplementary income from a business or rental property, one might verify that the paychecks were deposited into a disclosed account. If the employee is paid semi-monthly and only one check is being deposited, then this should be noted, since the possibility exists that the other spouse is either cashing the check or depositing it into another undisclosed account. Obviously, at times, the amount deposited may be less if the spouse obtained cash back at the bank.
A review of paystubs is also helpful, in that most stubs show if funds are being split between two bank accounts (such as savings and checking), or if there are funds contributed into a 401(k), Health Savings account or another plan that would be considered an asset during the divorce. Other deductions on a paystub should be reviewed for life insurance policies that may have a surrender value. Finally, (and some people do this, unfortunately), a spouse may over-withhold their federal and state taxes with the goal of receiving large refunds after the divorce and retaining those funds for themselves.
Another tip for discovering undisclosed bank accounts is to review credit card statements. Monthly statements will indicate the date and amount of a payment. Those payments should be reflected on a bank statement that has been disclosed. If there are payments that cannot be traced to a known bank account, then this, too, is an area for further research.
When the parties own a business, financial analysis becomes a bit more complicated. Often, the business pays for various expenses that are for the benefit of the owner. Examples include cell phones and monthly cell phone bills, auto payments, auto insurance and fuel, travel and meals, clothing, retirement benefits, and health and life insurance. While the owner/employee may receive a W-2 (depending on the entity structure), their true income is often much more. Often, when completing the Affidavit of Financial Information, the owner/spouse reports the expenses listed above but fails to note that they are not personally paying for the expenses. If the business is set up as a sole proprietor and the spouse provides net income per the tax return as their personal income on the affidavit without properly disclosing the expenses that are paid for by the business, then this, too, is misleading. Of course, I have also seen expenses run through a business that should not have been for tax purposes. So, it is wise to closely review any profit and loss statement as well as the supporting documentation if those numbers will be used on an Affidavit of Financial Information. This includes a review of business bank and credit card statements as well as a detailed general ledger. In some cases, a review of the actual receipt supporting the disbursement is necessary.
In closing, the above tips are a starting point when performing due diligence during divorce proceedings. Stay tuned for Part Two! FBN
By Jenny Staskey
Jenny Staskey, CPA, CFE, CDFA is employed by Aspey, Watkins & Diesel, PLLC as a forensic accountant in support of legal services. She can be reached at Jstaskey@awdlaw.com.
