Maryland Info

Maryland Divorce Start Your Divorce Find Professionals Maryland Articles Divorce Facts Divorce Grounds Residency Divorce Laws Mediation/Counseling Divorce Process Legal Separation Annulments Property Division Alimony Child Custody Child Support Divorce Forms Process Service Grandparent Rights Forum Maryland Products Divorce by County

Maryland Articles

Agreements Custody & Visitation Child Support Counseling Divorce/General Domestic Abuse Financial Planning Mediation Property Division Spousal Support SEE ALL

Info Categories

Contemplating Divorce Children & Divorce Divorce, Dollars & Debt Divorce Laws Divorce Process Divorce Negotiation SEE ALL

More Information

Articles Checklists Research Center Cases of Interest Dictionary Encyclopedia Encyclopedia (pop-up) Blogs

For Professionals

Advertise With Us Free Network Page Join Our Network Submit Articles Case Management Sign In

Network Sites

Maryland Divorce Support Maryland Divorce Online

Tax Returns Provide Clues to Income in Divorce

The detail review of a divorcing couple’s tax return can provide attorneys with a plethora of information that may help their clients attain a more financially equitable divorce settlement.

Just a glance at the first page of form 1040 can show if someone is self-employed, has investment income, income from properties, or income from a closely-held business. A detail review of the supporting schedules can provide significant data that can have an impact on child support, spousal maintenance, and the property division.

Self-employed individuals show their income on Schedule C. A review of the form with its supporting schedules can show a wealth of information. For example, for a true picture of discretionary income, you will need to examine depreciation. Depreciation is most times not a current period cash outlay. If the item was expensed, or accelerated depreciation was taken, I always recalculate the depreciation using the straight-line method over the useful life of the asset.

Are other expenses such as travel, entertainment, gifts, or office supplies legitimate business expenses? Are they reasonable and necessary for the production of income or, are they of a personal nature, which should be added back to determine the true income of the owner? And what affect has the impending divorce had on the gross income of the business? I always recommend the review of at least the prior three year’s tax returns to assess the consistency of the income. Was the business growing until the year of separation? For commissioned salespeople, is there a base of income that is paid because of vested renewals or fees? This could lead to an uncovered marital asset.

Schedule E will list income from other business interests. If a partnership interest is shown, a review of the partnership tax return and associated partnership agreement should be examined for clues to purchase or sale options. Along with analyzing and comparing the income and expenses, the value of the partnership could be another marital asset. The same holds true if the spouse is a shareholder in an S Corporation. The evidence of ownership in a closely-held business, either a C or S corporation, may also require a detail review of those company’s financial statements and Board Minutes. The examination may reveal additional income recorded as shareholder loans, deferred compensation, deferred bonuses, or additional employee benefits, retirement plans, etc.

What about the rental income or loss that is shown on Schedule E? Are the expenses related to the operation of the rental property or are they personal expenses? What is being depreciated? What is the value of the building (another possible marital asset)? Are there any rental losses that could not be deducted but can be used in future years? Is the rental being charged a “fair value rent”? Was the rental expense charged on the Corporate return also deducted as interest and taxes on the 1040 (I’ve seen this)?

Comparing amounts on Schedule B, interest and dividends, for the last three years can also be revealing. What’s happened to bank account that was credited with interest in one year and not the next? What about dividends that have also “disappeared”? A review of the brokerage statements may reveal additional accounts that have not been listed as a marital asset. An analysis of the related Schedule D may show that stocks or bonds may have been sold. Where were the proceeds deposited? Is the account shown as an asset?

Pertinent to the review of the income tax returns is a quick review of recent mortgage refinancing applications. Most people show their maximum earnings and assets on these to get the best rates. A comparison of the income reported on both documents can be very revealing.

For a quick, “down ‘n dirty” test of true income, on the couple’s form 1040, subtract line 40, itemized deductions and line 71, taxes paid (excluding credits) from line 38, adjusted gross income. If there were sales of assets, the net receipts from the sales should also be added to the calculation, while reducing or decreasing the income for any gains or losses reported on Schedule D.. The remainder is what the couple had left to pay for living expenses, mortgage principle, and debt. If this amount is negative (I’ve also seen this), then the couple has either borrowed to live or, there may be some misstatements in the return.

Not all divorce cases require this kind of analysis; however, if there is any doubt about a spouse’s income or there is a concern about “hidden” assets, this type of review may provide a more accurate picture of the couple’s finances.


Was this helpful? Like our site & let us know.

Related Articles


Start Maryland Divorce Start Your Maryland Online Divorce Today
Easy, Fast and Affordable with a 100% Guarantee.
Maryland Divorce Find Maryland Divorce Professionals in Your Area:
Join the Network
Maryland Divorce Products, Services and Solutions Maryland Divorce Products, Services and Solutions
Maryland Divorce Resources to Help You Through the Process.
Online Parenting Class Maryland Mandatory Online Parenting Class
Easy and convenient - complete at your own pace online.
Divorce and Custody Books Discount Divorce Bookstore
Over 100 Titles of the Best Books on Divorce & Custody.
Divorce Downloads Divorce Download Center
Instantly Download, Books, Manuals, & Forms.
Divorce Worksheet Free Maryland Divorce Worksheet & Separation Agreement
Your Guide to Get Organized and Put Everything in Writing.
   
Maryland Family Law recognizes eight different grounds for divorce. Adultery, voluntary separation (for at least 12 months), imprisonment (with a sentence of at least three years and at least 12 months already served), and living separate and apart (for at least two years), are among some of the reasons. For the court to grant a divorce based upon any of these grounds, they must be proved in court through evidence and testimony.
Divorce Lawyers & Mediators
 

Find Professionals

Easily Connect With a Lawyer or Mediator
Have Divorce Professionals from Your Area Contact You!
Enter Your Zip Code:

 

Start Your Divorce File for a Maryland Divorce

 

Settle Your Divorce Negotiate Your Maryland Divorce

 

Support Forum Maryland Support Forum

Children In Between - Online Parenting Class


FEATURED TOOL - Divorce Research Manuals (detailed discussion and analysis with references to cases, articles, and other resources)

Guarantee Official PayPal Seal Facebook Twitter Versign Secure Site
Limited Offer Women's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"The Absolute Best Investment in Your Divorce"

Men's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"Uncover Your Options and Unleash Solutions"