Several years ago, an attorney called me. She was representing the wife and out-spouse. I requested she send me their tax returns and that’s when this story gets interesting.
The tax return showed business losses and an earned income credit, a tax credit for low to moderate income earners. I could have said, “You don’t need me” and moved on. I get paid to be curious, so I called the attorney and asked if there was more to this business than what I saw. She said there was, and we decided it would be good to meet her client at her office.
The wife said her husband threatened to throw her out of the house. She and her son were cut off financially and she was currently working a minimum wage job.
A Business is an Income and an Asset During Divorce:
She said the business wasn’t losing money. Quite the contrary. She had been active in helping her husband in the business. The business transported antique cars from sellers to buyers. When the cars were delivered, the buyers handed the husband cash—most of which went unreported. A single “run” could bring $1,500 – $2,000.
They showed me pictures of various motorcycles and other “toys” bought by the husband. They lived in a nice home and certainly shouldn’t have been entitled to an earned income tax credit. If everything was as it appeared, tax fraud was likely. (As an aside, it appeared the local bank should have known about the fraud. He had loans with the bank and no reputable bank would have loaned money on those tax returns).
Finding The True Value of The Business
I suggested digging through other records to determine true income and value since what we had was worthless. There was no other way with the tax returns we had. Building a “lifestyle analysis” would be one option since the cash was very difficult to trace.
A couple days later, I called the attorney to check the status. She said, “they settled the case.” I guess they wouldn’t need me on this one. I hung up the phone and thought, “settled with what?”
Did the Wife Get Her Fair Share?
I don’t know. I have doubts. Why should I be concerned?
- Not enough time passed to request more records, let alone dig further.
- If you can’t see cash coming and going, what settlement figure should you propose?
I understand the attorney was probably in a tough spot. She may have weighed the chances of success pursuing more information and decided the costs would exceed the benefits. I’m still not sure she had enough information to make an informed judgment. To this day, I believe this case could have settled on solid ground.
What About The Value of the Business?
If the income was confusing, the value of the business was nothing less than a mystery. It might be worth somewhere between $200,000 and $400,000 if it was grossing $50,000 to $100,000 per year with little expenses. I don’t know if the wife got a share of the business or not. This would be in addition to any income settlement for maintenance and child support.
The Bottom Line
As I’ve written before, my general guidance is to settle. However, you need to understand if you’re playing a good hand or playing a cheater stacking the deck and throwing you a few cards. I would have gone to the judge and requested funds to pay for further investigation. At a minimum, you need to establish some verifiable income needed for lifestyle. And if there’s a business, you need a value for that business, so you can make sure you get a share of the business as an asset. If you’re on the wrong side of something similar, I hope you’ll do the same.