By Kriste Rodriguez, CPA/ABV | EisnerAmper, AAML NJ Gold Sponsor
Often times, marital lifestyle/spending analyses are required in order to assist judges and attorneys in developing the amount of support to be paid to one party. The analysis is time consuming, tedious and costly but necessary. The process includes: 1) inputting transactions from the parties’ bank, brokerage, savings, and credit card statements for a certain period of time depending on the issues of the case; 2) categorizing the data into Case Information Statement (“CIS”) categories; and 3) totaling the categories by year. The analysis will show the total amount spent from the accounts for each CIS category. However, the analysis can identify so much more than the obvious!
Uncover Hidden Assets
Once the data has been entered from the statements, each transaction must be traced and verified. Any unidentified transaction can lead to the discovery of hidden assets. For example, the identification of an unknown transfer can discover an undisclosed account. Large withdrawals or checks payable to cash for large amounts can reveal potential undisclosed accounts. Alternatively, it can potentially mean that one party is diverting funds to third parties, in an effort to “hide” money.
Payments that appear to be legitimate can bring light to something much more. Take for example a single payment to a homeowners’ association. This would seem normal to most; however, if the homeowners’ association is something that one of the parties is not familiar with, it could lead to a hidden asset. This single nominal payment could reveal the purchase of a home by one of the parties without the others’ consent or knowledge.
Dissipation of Assets
Often times, infidelity is the reason why the parties are divorcing and there may be suspicion that monies have been spent on the paramour. A spending analysis may prove the amount spent on the paramour, which could result in a credit to the other party.
“Gaps” or “Holes” in Spending
Identifying holes in spending can imply numerous red flags. Unusually low or no spending in certain categories such as food and home supplies, restaurants, clothing and fuel can indicate that these items are paid for in cash. The payment in cash for expenditures can indicate any of the following:
- Cash as a source of income;
- Implication that these expenses are paid through an owned business;
- Implication that there may be other accounts that weren’t disclosed where these expenses could be paid from.
Indication of Other Sources of Income
A marital SPENDING analysis is more than just that! This type of analysis can also reveal undisclosed income sources. An analysis of the inflows into the accounts could identify deposits for which the source is unknown to one of the parties, thereby indicating another source of income that must be identified by the other party in order to account for the amount when calculating support.
The analysis can also indicate that the parties are spending well in excess of their disclosed income. If the spending exceeds the disclosed income and is not reconciled through inheritances, loans, debt balances, gifts. etc., then this could imply that the spending is being funded from an undisclosed source of income.
As can be seen from the foregoing, although the analysis is timely and at times costly, the red flags that the analysis can reveal can produce benefits that can significantly outweigh the time and cost!
