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Proving income in divorce for self-employed spouses

If you are divorcing a self-employed spouse, proving their income can be a bit more challenging than if they were employed at a company or in a more traditional job. What this can mean for you is that your spouse may try to hide or reduce their income for purposes of child support and/or alimony.

But all is not lost. Below we will list a few tips that can help you deduce your spouse's true earnings for the purposes of your divorce.

Review recent tax returns

Ideally, before filing for divorce or being served with the divorce petition, you will access and copy the past few years of federal income tax returns. Of course, if you are blindsided by the divorce, this may not always be possible.

But you still have other options to get the bottom line. During the discovery phase of your divorce, your California family law attorney attorney can subpoena financial statements and tax returns from your soon-to-be ex or their tax preparer or accountant.

Self-employed spouses can also be compelled to produce their last two Schedule C tax filings, as well as their most recent Profit and Loss statement.

Be especially careful monitoring cash businesses

If your spouse is the owner of a business that does most of its transactions in cash, e.g., a laundromat or corner store owner, you might need to take the additional step of hiring a forensic accountant to go over the books with a fine-tooth comb.

These financial professionals do not come cheap, but they have all sorts of ways of detecting how cash payments can be hidden or misdirected. From comparing inventory with sales to verifying inflated business expenses, they can really be a worthwhile investment in some cases.

Include all banking records

This is one reason why it is always good to take more than a passing interest in your spouse's business affairs. They may be banking with more than one financial institution in order to disguise their true income.

Again, this is where the tax return is vital. Unless they are also engaged in cheating Uncle Sam -- which is a whole other problem -- their tax returns should reflect every financial institution at which they have an account.

Working together with your attorney and seeking the court's judicial powers when necessary should reveal the true amount of your spouse's income streams.

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John T. Chamberlin, Attorney at Law
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