Determining the true income of a self-employed individual in family court cases is essential for fair assessments of child support, spousal support, and other issues. Unlike traditional employees with straightforward income each month, self-employed people often have complex financial situations that require thorough examination. They could be paying personal expenses through the business accounts or saving profits in business accounts to make their income look lower.
Steps:
Tax Returns and Financial Statements: Begin by reviewing the federal tax returns, including all schedules such as Schedule C, which details profit or loss from business activities. Also review the business tax returns. Additionally, analyze profit and loss statements, balance sheets, and other relevant financial documents to gain insight into the business's financial health and total profits.
Bank Statements and Transaction Records: Examine personal and business bank statements to identify income deposits, business expenses and any personal expenses that may be paid by the business. This helps verify reported income and detect any discrepancies.
Lifestyle and Expenditure Analysis: Assess the individual's lifestyle and personal spending to determine if they align with the reported income. A significant disparity may suggest underreported earnings or at least hurt their credibility with the Judge.
Discovery and Subpoenas: Utilize legal discovery tools to obtain additional financial records, such as interrogatories, demands for documents, subpoenas, or depositions.
Forensic Accounting: Hire a forensic accountant to conduct a detailed analysis of the individual's financial records and income available for support. These experts can identify inconsistencies, uncover hidden assets, and provide testimony regarding true income levels.
Recapturing Deductions: Some business deductions claimed for tax purposes may not be "ordinary and necessary" for income production. Courts can add back such deductions to the individual's income to reflect a more accurate earning capacity for calculating support.
Challenges and Considerations:
Cash-Based Businesses: Individuals operating primarily in cash may underreport income. In such cases, indirect methods like expense analysis become crucial.
Co-Mingling of Funds: Blending personal and business finances can conceal true income. It's important to separate and scrutinize transactions to ensure accuracy.
Legal Support and Expertise:
Experienced legal professionals can navigate the discovery process, recommend qualified forensic accountants, and effectively present findings in court
By employing these strategies, courts can attain a comprehensive understanding of a self-employed individual's true income, ensuring proper support orders are made in family court.
If you'd like more information about your matter, you can schedule a call with Payne Law Group.
Payne Law Group
Orange County Family Law Lawyers
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