Robert G. Smith, PLLC

Be wary of dips in income that coincide with a divorce petition

A person who has decided that their marriage is over will begin to pull away from their partner. While this is challenging in almost every case, it comes with some special considerations if you own a business together. This is especially true if only one person knows about the finances of the company.

It's possible that the spouse with that knowledge might try to tip the divorce settlement in their favor by hiding revenue for the business. This is known as sudden income deficit syndrome (SIDS). In short, it means that they aren't being truthful about what the company is making. While the other spouse may think that the company is doing fine financially, this spouse makes it appear that it isn't.

While it is possible that the SIDS will happen suddenly, there is a chance that the spouse has been slowly funneling money away from the business for a while. There are a variety of methods that they might use to do this. Sometimes, they'll keep cash payments unreported. They may also use false vendor invoices or payroll accounts to get money out of the business.

There are several things that might trigger a suspicion of SIDS. One of these is that your ex's lifestyle doesn't reflect the change in the business' income. In some cases, public or financial records might give a clue to a forensic accountant.

Remember, when you're divorcing, you need to protect your own interests. This might mean that you need to do some digging about the financial state of the family business. Your divorce team can help you determine what steps you need to take to get the settlement you're due.

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