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How Divorcing Clients Can Find Concealed Assets

Oct 15th 2018
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I have advised many clients on divorce and the related tax issues, the majority have been women and invariably, they tell me their husbands are hiding assets.

These clients also fall into three categories: First, there are those who strive to obtain divorces that will finally end their agony. They ask for advice on things like property transfers, deductibility of legal fees and alimony payments.

Second, there are those who are already divorced. They need guidance on how to compel their former husbands to cough up overdue payments of alimony or child support.

Not infrequently, however, there’s a third category: women going through down-and-dirty divorces that disrupt their lives in all kinds of unpleasant and expensive ways. Lots of them want to know whether it’s worth hiring private investigators to track down  any hidden assets.

My forthright answer to them is that it all depends, because sleuths often charge thousands of dollars. I then alert them to an alternative: Frequently, the means for unearthing the coveted information is tucked away in their dresser drawers or filing cabinets. Moreover they can glean a good part of what they need from the separate schedules submitted with the federal tax returns they filed jointly with their husbands.

When they delve into those 1040s, they may discover a treasure trove of names and amounts that could considerably shorten their search for concealed assets. Here’s what I tell them to look for:

Schedule B. This schedule requires listing the names of mutual funds, brokerage companies, banks and other sources of dividends and interest. At the bottom of Schedule B are questions about the existence of foreign financial accounts and trusts.

The IRS doesn’t ask for a Schedule B from individuals who receive less than $1,500 in income from interest and dividends. Instead, the IRS tells them to list their totals for those kinds of income on the first page of Form 1040. Different rules, however, apply to taxpayers with foreign financial accounts and those involved in certain foreign trusts. They must submit Schedule B, regardless of the level of dividends or interest income.

All is not lost if there’s no listing of dividend and interest amounts on Schedule B. True, it becomes harder for a wife to discover her husband’s investments or bank accounts.

Still, just listing totals of interest and dividend income on Form 1040 reveals that an ex-husband owns assets that generate interest and dividends, at least during the year covered by the return. This, in turn, gives women endeavoring to find hidden assets a starting point for their quest.

Schedule D. This discloses capital gains and losses from sales of fund shares, individual stocks and other assets. Let’s say his Schedule D reports profits or losses from sales of some stocks. The details of the sales establish that he owned and unloaded those shares. What did he do with the sales proceeds—and what other investments does he own?

Schedule E. Here, taxpayers disclose income or losses from the following sources: rental real estate (including the type and location) and royalties; estates and trusts; and partnerships and S-corporations, which are companies—taxed much the same way as partnerships are—that pass profits or losses through to their shareholders, who pay taxes at their own individual rates.

Suppose the Schedule E reveals rental income. It might be worthwhile to drop by the property. Ditto when there’s partnership or S corporation income: You might track down the outfit in question and ascertain whether it continues to generate income for the dear ex-spouse in question.

A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting).