Certified Divorce Financial Analyst Certified Fraud Examiner Mission: To help family attorneys and their clients prepare their financial case in a divorce. Asset Discovery Tracing Characterization

Discovering Hidden Income and Assets

The answer to the two most important financial questions that come up in a divorce proceeding:  Are we dealing with all of the assets?  Are we looking at all of the income?

Individual Tax Return Form 1040  Schedule A: Itemized Deductions  Schedule B: Interest and Dividends  Schedule C: Profit/Loss from Business  Schedule D: Capital Gains and Losses  Schedule E: Supplemental Income/Loss  Schedule F: Profit/Loss from Farming

Flow of Schedules and Forms FormsSchedulesReturn A: Itemized Deductions B: Interest and Ordinary Dividends C: Profit and Loss From Business 1040 D: Capital Gains and Losses 1065 & K1E: Supplemental Income and Losses Return of Partnership Income F: Profit and Loss From Farming 1120 U.S. Corp. Income Tax Return

Serves as the basis for determining taxable income. It is the ‘Table of Contents’ for the return.  Employment Status: Employed or Self Employed and Sources of Income  Investments generating income  Schedules critical to discovery

 Line 7: Total Wages  Lines 8-9: Interest Income and Dividends  Line 12: Business Income/Loss  Lines 13-14: Gains & Losses  Lines 15 & 16: Ira & Pension Distributions  Line 17: Rental, Real Estate, Royalties, etc.  Line 18: Farm Income/Loss  Line 30: Early Withdrawal of Savings  Line 45: AMT

 Line 48: Foreign Tax Credit  Lines 74b & 74d: Refund Final Task: Call the IRS Check Account Balance Copy of Transcripts

 Potential Medical Reimbursements  Employment Out of State  Identify Undisclosed Real Estate  Identify Undisclosed Assets  Identify Safe Deposit Box

 Line 1: Medical and Dental Expenses  Lines 5 thru 9: Taxes Paid  Lines 10 thru 15: Interest Paid  Line 23: Safety Deposit Box

The purpose of this form is to report interest and dividends earned on financial assets during the reporting year. We use it to examine reported interest and dividends and to discover additional financial assets.

 Part 1: Interest  Part 2: Ordinary Dividends  Part 3: Foreign Accounts and Trusts

 Anyone who operates a business of professional practice as a sole proprietor rather than as a corporation or partnership must complete Schedule C.  Potential for hidden assets or unreported incomes high because there are no checks and balances from partners.

 Schedule C is loaded with information germane to the family attorney in terms of income available for child support and potential dissipation. Most of the information is contained in Part 2, Expenses. For Discovering hidden assets:  Line 15: Insurance  Line 16: Interest

Summarizes numerous forms reflecting:  Sale of real or personal property.  Stocks and Bonds  Exchanges of in-kind property  Redemption of bonds  Gains and losses from business property  Gains and losses from partnerships, fiduciaries and S Corps. Lines 5 & 12.

From an asset discovery standpoint all forms need to be reviewed.  Brokerage accounts can be reviewed for deposits and withdrawals: where did they come from, where did they go?  Property transactions can be reviewed to determine source of funds to purchase and placement of proceeds.

It is tantamount to analyzing the 1040 on steroids.  Sole Proprietorships: Schedule C  Partnerships, LLc’s and S Corps: Form 1065  Corporations: Form 1120

The purpose of this schedule is to report income from:  S Corps  Partnerships  LLC’s  Rental Properties  Royalties For family attorneys this is fertile ground to determine income available for maintenance and child support.

From an asset discovery stand point, things to look for:  Location of Properties: Conduct asset search in those counties.  If there is a mortgage on the properties (Line 11) request loan apps.  If there was a second mortgage where were the proceeds deposited?  If there was income where was it deposited?

 Shows up on 1040, Line 17 and on Schedule E  From a discovering of unknown checking accounts standpoint, Section L of the K1 (form 1065) needs to be examined. K1 distributions do not show up on the  Capital Contributions During the Year: Where did they come from?  Withdrawals and Distributions from Owners Capital Account: Where were they deposited?

The purpose of this form is to report farm income and expenses for partnerships, trusts and individuals. Family attorneys should examine this for excessive expenses and non-business related expenses. This is critical to determine income available for maintenance and child support. Horizontal and Vertical analysis of expenses

Sometime what is not on the monthly statement is more telling than what is on the statement.  No mortgage payment  No utility payment  No direct deposits from employer  No credit card payments

 A ‘Talk from’ document.  Helps give clarity to the issue at hand  Helps the client focus on the information required.  Helpful in mediation.  Helpful in trial.

Today Property B 10/24/2002 Property C 10/24/2002 Property D 1/18/2005 Property F 10/24/2007 Property G 7/22/2010 Property H 8/30/2011 Property I 3/21/2014 Property A 9/1/2002 Property A 6/1/2005 Property E 11/1/2005 Property E 1/5/ /24/ /21/2016 Date of Marriage 10/24/2002 Currently Owned Bought and Sold Client’s Property Timeline

 More questions than answers will be raised.  Client must be continually involved.  Checking accounts will usually not be discovered during first analysis.  Numerous subpoenas.  Requests for additionally discovery. Whoever is doing the search, get them involved as soon as possible.

The attorney must:  Be conversant about the financial issues.  Have a ‘Gee Wiz’ moment early on.  Know what to look for.  Call in an expert as soon as possible.