Alternative Sources of Information for Divorce Investigations

Everyone knows about the typical sources of financial information in divorces. Income tax returns, bank statements and related documents, brokerage statements, credit card statements, and business financial statements are some of the most common.

There are alternative sources of financial information that can be incredibly helpful in divorce cases, however. They are helpful because they can refute or support claims being made by one party about income and assets. They are particularly helpful because often, the other side isn’t prepared for these documents to become part of the divorce case.

Loan Applications

An application for a home mortgage, auto loan or lease, personal loan, or commercial loan will require detailed financial information from the applicant. Assets, liabilities, and income sources must be disclosed, and sometimes supporting documentation is required.

When someone is applying for a loan, there is sometimes a desire to make the financial picture as rosy as possible. In this case, the applicant will likely fully disclose all income sources and all assets. This may differ from the disclosures during divorce, when parties are sometimes motivated to hide income and assets. In addition, assets may have been used to secure the loan, and the loan documents should be examined to determine whether the assets belong in the marital estate.

Therefore, a subpoena to a bank or other lending institution for loan applications may be an important step in uncovering hidden assets and income sources. These documents may also help impeach a spouse and draw into question all representations made by that spouse.

Financial Statements

Financial statements prepared for businesses or personal matters prior to the separation should be compared to the financial affidavits filed in the divorce. In addition, underlying documentation, such as accounting records and account statements should be compared to the financial statements to determine their accuracy.

The financial statements of closely held businesses can be especially important because of the opportunity for a spouse to use the business to hide financial resources. For example, it is not unusual for a spouse to use business funds for payment of substantial personal expenses. This does two important things relative to the finance in a divorce: it lowers the net income of the business and potentially the value of that business when dividing assets; it may also allow the owner to draw a smaller paycheck and therefore reduce the income available for the payment of support.

A detailed look at the accounting records may also reveal manipulation of the income or expenses of the business. One simple way to reduce income is by diverting customer revenues to a new, undisclosed related company. The spouse who is not active in the business may not realize this is happening, and will only be left with a share of what appears to be a declining business. On the expense side, fictitious vendors may be created and paid large sums of money, also causing the business to look less profitable.

Other Documents

Budgets and projections prepared in the normal course of business are often difficult to rely on because their accuracy is unknown. However, they may still provide some information about assets or income and management’s expectations for the future. These insights could be helpful in evaluating financial statements and looking for hidden assets and income.

Business and personal bankruptcies require substantial disclosure of financial details. Bankruptcy documents therefore should be analyzed and compared to tax returns, disclosures, and other related financial information that has been produced in a divorce.

Reliability of Documents

The reliability of financial documents is often an issue in divorce, especially in the case of documents that are created by one of the spouses. For example, check registers and income tax returns can both be prepared by one of the spouses, and are therefore subject to manipulation. These documents can still be helpful to the forensic accountant, however. They can provide clues about other assets or transactions, and they may be helpful to show a pattern of dishonesty.

In contrast, documents prepared by unrelated third parties tend to be very reliable. For example, bank statements, check copies, and deposit ticket copies received directly from the bank are typically not subject to manipulation. These documents prove where money came from, and where it went. For this reason, forensic accounts will rely heavily on these things for facts about the movement of money.

The alternative sources of financial information discussed in this article may not be as reliable as bank documents, but they can provide bits of information that may be invaluable to the divorce case. These documents can be used to support or refute claims about income and assets, and therefore may tend to enhance or call into question the credibility of one of the parties to the divorce.