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Tips When Divorcing a Self-Employed Spouse

When a married couple has filed for divorce in Rhode Island, there are a variety of issues that may need to be resolved to end the marriage, such as child custody, division of assets and property, child support, and spousal support. Each spouse’s income plays a significant role in determining how these issues will be resolved.

In order to verify income, the court requires certain documentation be produced under penalty of perjury. These documents include paystubs, tax returns, and financial affidavits. It is critical for the court to know the true amount of each spouse’s income so that final orders entered are fair and just for both sides. Failure to provide accurate amounts can result in one spouse not paying what they should be paying. For example, if a spouse who is ordered to pay child support underreports their income, the amount set by the court could be less than what the spouse should legally be responsible for.

In divorce cases where both spouses are employed and receive a paycheck from their employer and W-2 forms each year, it is much more difficult for a spouse to hide income. However, if a spouse is self-employed, there are several ways they can avoid reporting their actual earnings. If you are divorcing a self-employed spouse, there are several steps you will want to take before filing. The following is a brief overview. For more detailed information, call our office to speak with one of our skilled Rhode Island divorce attorneys.

Before You File

One of the most critical steps you can take to protect yourself in a divorce is one you will want to do before you even separate from your spouse, if possible. The more financial information you can gather and provide your divorce attorney, the harder it will be for your spouse to hide income. Although gathering this information is important even if your spouse is employed, it is especially crucial when they are self-employed.

You should go through all your household records and make copies of everything you can find, including:

      • Tax returns
      • Bank statements and check registers
      • Financial statements
      • Retirement account statements
      • Investment statements
      • Mortgage documents
      • Life insurance policies
      • Wills and trust accounts
      • Social Security statements
      • Employee benefit handbooks
      • Vehicle titles
      • Credit card statements

You will also need to copy all documentation you can find relating to your spouse’s business, including income, expenses, assets, and debts. There should be some sort of recordkeeping system, whether written or online, where your spouse keeps this information. They could be using either an electronic format (i.e. QuickBooks) or a cloud-based system. Whatever version your spouse uses, make sure to copy all the years of documentation that they have.

The Discovery Process

Once you have filed for divorce and your spouse has been served, both sides will exchange financial affidavits. Your attorney will then initiate the discovery phase. Discovery is where each party gathers information from the other party. They may also obtain information from third parties, if necessary. Your attorney can request your spouse produce many types of business documents that can determine how much they are really earning. Some of these documents can include:

      • Client lists (as long as no HIPAA or other privacy violations)
      • Invoices
      • Vendor list
      • Expenses
      • Employee payroll
      • Profit and loss statements
      • Bank statements
      • Financial statements
      • List of equipment, tools, vehicles, etc.
      • Scheduling calendars

Determining Worth

Your attorney will use all this information to determine if the income your spouse is claiming in their financial affidavit is true. Depending on the size of your spouse’s business, your attorney may bring in a business evaluator to determine the full value of the company and what type of income it is providing your spouse.

If your attorney suspects that your spouse has taken measures to hide income or assets, they may consult with a forensic accountant or other financial expert who specializes in uncovering fraud.

Once your divorce attorney has determined your spouse’s true income and presented this to the court, that amount will be used to determine how much child support your spouse will pay, how much, if any, spousal support will be paid or received, and how the martial assets and property should be divided.

Call Our Office for Legal Assistance

If you have decided to end your marriage, you need a seasoned divorce attorney advocating for you. Remember, even the friendliest of divorces can quickly become contentious. Don’t be unprepared for that possibility. Make sure you and your children are legally protected.

Contact Kirshenbaum Law Associates at 401-467-5300 for a confidential consultation.