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Uncovering Undisclosed Assets Using Your Spouse’s Tax Returns

Uncovering Undisclosed Assets Using Your Spouse’s Tax Returns

One of the biggest fears most often held by those going through a 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 must 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. It also requires each party to produce specific documentation such as pay stubs, 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 specific sources of income 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, hiring the services of these experts may significantly increase the cost associated with the divorce process.

Although seeking a forensic accountant or other experts' expertise 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 beneficial information from the schedules that are often submitted with jointly filed federal tax returns.

Schedule B - Schedule B requires the taxpayer to list mutual funds, brokerage companies, banks, and other sources of dividends and interest. Additionally, Schedule B also requires the taxpayer to answer questions about 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 financial institution's names 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 an 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 they receive from such income. Schedule E is beneficial because it lists the income from rental real estate and the type and location of the property from which the income is derived.

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