In addition to the assets commonly hidden in the typical divorce case, business owners (particularly where closely held businesses are involved) may try to hide assets as follows. Closely held businesses most at risk are those businesses operated by just the spouse, or by the spouse and their family/friends. More often than not, one or more of the following is usually present in closely held businesses:
• Skimming cash from the business. This is especially prevalent in restaurant operations, espresso operations, construction/home maintenance fields, or wherever cash transactions are prevalent. Even where checks are involved, these checks are deposited into a separate account rather than into the business account.
• Salary payments to a nonexistent employee, with checks that will be voided after the divorce. A variation on this ruse is a salary payment to a actual person (known in legal circles as a “straw man”) to decrease profitability for purposes of child support, maintenance, or business valuation, with the payment recouped in some fashion after the divorce is final. Typically, this person gives the money back after the divorce has been long-completed or passes some other benefit (such as season Zag tickets in a recent case) to the business owner.
• Money paid from the business to a trusted third party such as the spouse’s father, mother, girlfriend, boyfriend or close associate. The money is either given back to the spouse after the divorce is final or diverted for the use of this relative (to the detriment of the marital community).
• A delay in signing long-term business contracts until after the divorce in order to lower the value of the business during the valuation process and also to present the business as being in financial straits for the purpose of reducing spousal maintenance or child support.
• Checks or other funds received near the end of the year which are then held until the following year to reduce business value or to avoid sharing with a spouse. The hiding spouse knows that the following year’s tax return will not likely be prepared until after the divorce is final. Similarly, where separation is anticipated, checks or other funds are held for deposit until after the separation to create the appearance of separate property.
• Purchase of non-essential capital assets in order to reduce income. This is a fairly common ruse in medical and dental practices. It is also prevalent in other businesses where substantial equipment exists.
The likelihood of discovering these various ruses increases dramatically where the attorney has extensive experience in business valuation cases. Use of a CPA with substantial experience in business valuation and accounting is also imperative.