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Uncovering Undisclosed Assets Using Your Spouse’s Tax Returns

One of the biggest fears most often held by those going through divorce in Georgia is that their spouse will actively hide or fail to disclose any separate or marital assets and income that should be considered in determining issues such as equitable division, alimony or child support. In Georgia, when a divorce action is initiated, each party is required to complete a Domestic Relations Financial Affidavit (DRFA). Once complete this affidavit must be filed with the court and served on the opposing party. The purpose of this affidavit is to ensure that each party and the court are fully apprised of the assets and income of both spouses.

Additionally, in Fulton County, each party is mandated to respond to Fulton County Mandatory Discovery. Fulton County Mandatory Discovery requires each party to respond to a series of questions concerning income, employment and other issues and also requires each party to produce certain documentation such as paystubs, tax returns and bank records.

Although, in theory, the above mentioned tools would ensure that each party is made fully aware of the other parties’ financial circumstances, it is unfortunately common for individuals to fail to disclose certain sources of income in an effort to reduce their potential child support or alimony liability or to hide assets that would otherwise be subject to equitable division. One option to uncover hidden assets or undisclosed income would be to engage a private investigator or forensic accountant. However, engaging the services of these experts may significantly increase the cost associated with the divorce process.

Although seeking the expertise of a forensic account or other experts may ultimately be necessary, especially in high asset divorce matters, reviewing tax returns is one of the best starting places to determine whether a spouse may be hiding assets. This is so because a spouse who has concerns that their husband or wife has failed to disclose all assets and sources of income may obtain very useful information from the schedules that are often submitted with jointly filed federal tax returns.

Schedule B – Schedule B requires the taxpayer to list the names of names of mutual funds, brokerage companies, banks and other sources of dividends and interest. Additionally, Schedule B also requires the taxpayer to answer questions about the existence of banks and financial accounts in foreign countries or foreign trust transactions. Although individuals whose interest or dividend income is less than $1,500 are not required to complete a Schedule B or list the names of the financial institution where the investment is held, that individual must still report the amount of such income on Form 1040. Even this information may be useful because it shows that individual owns assets that generate investment income. This starting point may then in turn be the basis for serving discovery requests requiring that party to provide more information concerning the source of that investment income.

Schedule D – Schedule D requires the disclosure of capital gains and losses from the sale of fund shares, individual stocks and other assets. Thus, if one spouse reports capital gains and/or losses in Schedule D, this shows that he or she once owned the assets that were sold, and may likely own more.

Schedule E – Schedule E discloses income and/or losses from rental real estate (including the type and location), royalties, partnerships and S corporations, and trusts and estates. Schedule E may be of most import to those who wish to uncover rental property owned by their estranged spouse and the income that spouse is receiving from such income. Schedule E is extremely helpful in this regard because it not only lists the income from rental real estate but also lists the type and location of the property from which the income is derived.