D-I-V-O-R-C-E may actually spell F-R-A-U-D

Underreported income in a divorce


By Cheryl B. Hyder, CFE, CPA, CVA

Spouses may try to hide funds during divorce proceedings in several ingenious ways to improve the share of the ultimate financial settlement. Here are some of the methods and how to catch the offending parties. 

Bart and Alice were the seemingly perfect couple - married 32 years, four grown children, six grandchildren. Bart had built Bacme Electric into a multimillion-dollar business and provided well for his wife and family. He had provided well for his mistress, too. A mutual friend had told Alice about Bart's dalliance and before long Alice had filed for divorce. Bart wasn't going to split without taking some big bucks, however. For years he had been hiding away funds in secret accounts, with cooperative relatives, and through illegal and dubious business practices.

But Melanie, an astute fraud examiner and forensic accountant retained by Alice's lawyers, thoroughly examined Bart's finances. She discovered the hidden accounts and investments, and his other illegal money arrangements. Bart now had to give up thousands of dollars in assets with penalties, answer the charges of a criminal investigation, and endure his kids' rejection. Oh, and his mistress left him. (1) 

Every couple wants a successful marriage, but sometimes the dream becomes a nightmare when events lead to a failed relationship culminating in one party filing for divorce. Due to the lead time usually associated with a deteriorating marriage, one or both parties may engage in varying degrees of "divorce planning." Tactics may range from setting aside liquid assets to cover necessities during the divorce proceeding (including professional fees), to outright fraud, all of which improves one party's share of the ultimate financial settlement.

Either spouse may engage in tactics designed to result in a greater monetary award even though only one spouse may be in a moneyed ("independent") position. As a result, family law practitioners, fraud examiners, and forensic accountants should never forget that information received from either party may be intentionally misstated and/or manipulated.

It's important to address the issues encountered during the income, or support, aspect of a case. Be cognizant that a spouse may legitimately be so distraught by the deteriorating marriage that he or she is distracted from his or her otherwise lucrative and successful livelihood to the point where income suffers. At the same time, however, there may be other reasons for the sudden decline in income available to support the family and so it's necessary to look at the financial representations with a critical eye.

1 This fictitious case is for illustrative purposes. 


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By Anonymous
FRAUD