Can a Spouse Use a Business to Hide Assets During the Divorce Process?

 Posted on May 17, 2023 in Divorce

During a divorce, issues related to the division of marital property can often be some of the most important concerns to address. All of the money and property owned by a couple must be divided in a manner that is fair to both parties. However, there are some situations where the ability to divide assets equitably may be difficult due to actions taken by one spouse. To avoid dividing certain assets, spouses may sometimes attempt to hide money or property. This can be a significant concern in cases where a couple owns a family business that is primarily managed by one spouse. To ensure that marital property can be divided fairly, it is important to be aware of the methods that could be used to hide marital assets through a business.

Ways Business Owners May Conceal Money or Property

Issues related to a family business can complicate the property division process. In many cases, a spouse who is a business owner will want to make sure they will be able to continue owning the business after the couple's marriage is dissolved. This will require them to buy out the other spouse's share of the business, which is usually done by distributing other marital assets of an equivalent value to their spouse. However, the business owner may attempt to improperly benefit themselves and retain a larger portion of marital assets by taking actions such as:

• Devaluing the business - The business owner may misreport the value of business assets during the discovery phase of the divorce. They may falsely state that certain business assets have depreciated in value, or they may use other methods to attempt to demonstrate that the total value of the business is lower than its actual value. They may do so in an attempt to minimize the amount that will be required to buy out the other spouse's share of the business;

• Misreporting income - Fraudulent accounting practices may be used to underreport the income earned by a business, making it appear as if less revenue is being generated. This may be done to reduce the reported value of business assets, while also limiting the amount of a business owner's income that may be put toward spousal support or child support that would be paid to the other spouse;

• Paying nonexistent employees - A business owner may claim that wages are being paid to certain employees while actually depositing these amounts in a private bank account, diverting assets that should be considered marital property away from the marital estate;

• Overpaying taxes - When a business pays more taxes than are required, it may receive a large tax refund after filing an annual tax return. If a business owner pays higher amounts of taxes prior to the completion of their divorce, this may allow them to receive a refund without being required to divide it with their spouse; and,

• Delaying business deals - Major transactions, mergers, or contracts can affect the value of a business. When a business owner knows that these types of deals may lead to an increase in the value of business assets, they may purposely delay transactions until after their divorce in order to minimize the amount of assets that they will be required to divide with their spouse.

Contact Our Oak Park Business Asset Division Lawyer

In divorce cases involving family businesses, it is important to be aware of the possibility of hidden assets. At Law Office of Vincent C. Machroli, P.C., we can help our clients work with business valuation consultants and forensic accountants to ensure that all business assets are identified and valued correctly. We are able to work with you to determine whether any assets have been concealed, and ensure that all financial factors are properly considered during the asset division process. To learn more about how we can assist with business-related issues during a divorce, contact our Hillside property division attorney at 708-449-7404 and schedule a free consultation.

Sources:

https://www.forbes.com/sites/jefflanders/2012/03/14/divorcing-women-heres-where-husbands-typically-hide-assets/

https://www.wife.org/ss-hiddenassets.htm