Chapter 6 – Documents Used in the Lifestyle Analysis

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In this chapter we will discuss the documents that are needed to perform a lifestyle analysis and how those documents are used. In later chapters, we will focus on specific types of income or assets and, more specifically, how the documents are used to investigate those items.

This book does not discuss the basics of accounting, as our focus is very narrow and our space is limited. It assumes you have a basic working knowledge of income taxes, financial statements, and accounting terminology. Miles Mason, Sr., JD, CPA, covers the topic of accounting for lawyers thoroughly in The Forensic Accounting Deskbook. An entire chapter is devoted to discussing financial statements, basis of accounting, general ledgers, and audits, and it is an invaluable reference tool for family lawyers.

Following are some of the most common financial documents utilized in family law cases, with a discussion of information they can provide about income, assets, liabilities, and expenditures.

Income Tax Returns, W-2s, and Current Pay Stubs
An individual’s income tax returns (Form 1040), W-2s, and current pay stubs are the most common and basic documents evidencing income. A sample of a 2012 personal income tax return (Form 1040) is included in Appendix A for reference.

The income tax return will provide information on the following sources of income. The list includes some pointers on ways the items can be analyzed to search for hidden income and hidden assets.

  • Wages—The figures reported on the income tax return should be matched to the W-2. The W-2 and the pay stubs will provide additional information on the employers, pay rates, total pay, certain benefits, and taxes withheld. Additional analysis may include tracing bank deposits to ensure that all wages were used for the benefit of the family.
  • Taxable interest and tax-exempt interest—These items of income must be considered when calculating income available for support. They are also important because they can point to bank, investment, and brokerage accounts that may not have been specifically disclosed in the family law case.
  • Dividends—Like interest, this item of income must be considered in calculations of income available for support and can point to bank, investment, and brokerage accounts that may not have been disclosed.
  • Taxable refunds or credits—Refunds should be examined to determine if they were shared by the parties, and the expert should evaluate whether a spouse is having unusually large amounts withheld from paychecks. This could be a technique used to hide funds until after the divorce is final.
  • Alimony received—This item relates to a prior marriage and will likely not be a factor in the current marriage and divorce.
  • Business income or loss—This form shows income or loss from a sole proprietorship or single-member limited liability company (LLC). Chapter 12 covers the business lifestyle analysis, so information on this line item will be found there.

Also included in this chapter:

Income Tax Returns, W-2s, and Current Pay Stubs
Business Financial Statements
Business Budgets or Projections
Business Accounting Records
Personal Accounting Records
Bank Statements and Related Documents
Brokerage Statements
Credit Card Statements
Loan Applications
Bankruptcy Court Documents
Other Miscellaneous Documents
What Is Proof?