Statistics have shown that 1 in 2 marriages will ultimately end in separation or divorce. In the unfortunate event of a matrimonial dissolution, there are several financial issues that need to be addressed. These financial issues include (but are not necessarily limited to):

  • Calculating the income available for child and spousal support
  • Calculating equalization payments
  • Identifying potentially hidden assets
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Calculating Income

Calculating the Income Available for Spousal and Child Support

When spouses separate, one of the most critical issues that must be determined is the amount of spousal and child support (if any) that must be paid to the other spouse.

There are several red flags or potential indicators which would suggest that a spouse may not be disclosing all of his or her income to be used in calculating spousal and child support payments, including:

  • An unusual reduction in revenue and an increase in expenses, particularly as compared to previous years
  • Handwritten adjustments on timesheets and timecards
  • Unsupported adjustments to payroll
  • Personal expenses that are known or are suspected to funnelled through the business
  • An unwillingness by the spouse to provide full financial disclosure to the other spouse
  • Several unusual year-end adjustments that lack documentation and cannot be accounted for

Calculating Equalization Payments

Calculating Equalization Payments

In the event of a marital dissolution, in order to ensure both spouses end up in a similar financial position, the spouse with the higher total net assets must pay the spouse with the lower net total, which serves to ‘equalize’ the spouses—commonly referred to as an equalization payment. It would therefore, follow that both spouses would be incentivized to understate the value of their respective assets.

There are several red flags or potential indicators which would suggest that a spouse may not be disclosing all of his or her assets or not reporting the fair market value of such assets, to be used in calculating support payments, including:

  • Known offshore activity without representation of such assets on the sworn financial statements
  • Organization financial ratios that are not consistent with industry standards
  • An unwillingness by the spouse to provide full financial disclosure to the other spouse
  • A spouse providing redacted or seemingly altered financial records in response to disclosure requests

Identifying Potentially Hidden Assets

Identifying Potentially Hidden Assets

Identifying hidden assets in a matrimonial dispute can be challenging in the best of circumstances. Most people that hide assets from their spouses tend to do things ‘behind the scenes’.

There are several red flags or potential indicators which would suggest that a spouse may not be disclosing all of his or her assets includes:

  • Deposits in bank/investment accounts from unknown sources
  • Payments to credit cards/lines of credit that cannot be traced to any known bank accounts
  • Purchases of large assets whereby the source of funds is believed to be cash or cannot be traced to any known or disclosed accounts
  • Individuals who carry their financial affairs in overly complex financial structures, particularly in industries where such complex structures are not the norm

Amanda Smith was married for 15 years, during which time she had two children. Her soon-to-be ex-husband, Jeremy Smith, was a self-employed contractor whose business dealt primarily with residential renovations. He was operating his business through a corporation, and routinely used subcontractors to complete his projects. Jeremy was also retained as a subcontractor for projects by other contractors. Prior to their separation, Jeremy had considered expanding his business to include complete construction projects, but decided to postpone this plan once it became evident that the marriage was sustainable.

The Smith’s enjoyed a comfortable lifestyle and resided in a stately and recently renovated residence, frequently travelled and were free of debt. According to Jeremy, the majority of their shared expenses was charged to a joint credit card in order to attain the greatest amount of ‘reward’ points possible. Throughout the marriage, Jeremy had made it a point to remind and assure Amanda that their incurred business and personal expenses would be separated and appropriately dealt with by their accountant when completing the company’s year-end books.

Due to the extravagant and lavish lifestyle that they shared before their separation; Amanda had believed that Jeremey was earning in a gross income that was in excess of $200,000. However, when Jeremy disclosed his first set of sworn financial affidavits, he provided a T4 statement that indicated a gross income of $15,000. It now became clear to Amanda that Jeremy was not being truthful, and was not disclosing all of his income.

In the end, Jeremy had an additional source of income and was not reporting it. He was channeling a significant percentage of his personal expenses through the business. This includes many of their recent home renovations, which he insisted were business-related when he last met with his accountant. He also retained funds in the corporation instead of paying them out to himself, reducing the personal income that he reported, as reflected on his T4. In addition, Jeremy had hired fictitious subcontractors through the business. As such, Jeremy was not only misrepresenting his income to his spouse, but he was also being deceitful by not declaring his total revenue to the Canada Revenue Agency.

Financial Records Analysis:

  • A thorough review of his financial statements, tax returns, notices of assessment and reassessment
  • An examination of the signed contracts and agreements with general contractors
  • Analyzing his banking records, such as bank statements, deposit slips and cancelled cheques
  • Verifying his income with customers, particularly sizeable contracts
  • Reconciling the building permits obtained by Jeremy on behalf of his clients with the projects that were thought to be undertaken
  • Interviewing the external accountant and reviewing the relevant working papers
  • Obtaining access to Jeremy’s computer and conducting forensic analysis of that device

To determine whether you may be ‘leaving money on the table’ in connection with your pending matrimonial dispute, please take the following survey: