Dishonesty Concerns About Spousal Income in Your Divorce

by Michelle Daneshrad, CFL-S
Completion Law Firm, Woodland Hills, California

Many clients are concerned their spouse will lie about their income. How the concern is handled can have different consequences and costs. Here is an example from my own practice, with details changed to protect confidentiality. Read and decide which situation you prefer.

Michelle Daneshrad

Michelle Daneshrad

Before John and Leslie got married, Leslie worked as a paralegal earning a good salary. Leslie was a regular customer at the Summersalt Restaurant, which John managed.

Leslie was a social and outgoing woman. Ever since she was little, her dream was to get married and have children. She was 35 and time was ticking. John was 40, a hardworking man who had worked his way up from being a busboy to being a restaurant manager. He knew and appreciated the value of money. Unlike Leslie, John was not very social and felt alone. Leslie was attracted to John’s quiet and serious demeanor; John was attracted to Leslie’s fun and social attitude.

Leslie and John soon got married. A few months later, Leslie was pregnant. They decided together Leslie would stay home and take care of the baby while John worked.

A few years later, John and Leslie had two boys. John accepted an offer to go into a jewelry business with his brother Sam. John was concerned his income from restaurant management was not going to be enough for his growing family.

Sam had experience in the retail clothing industry. Sam provided the capital and John did all the work in launching and managing the jewelry business. For five years, John worked long hours and came home ready to collapse. Leslie, home with two little boys all day, felt she was not getting the attention and the love she needed from John. The marriage suffered from neglect.

Leslie decided to divorce John. Leslie’s friends recommended two attorneys to her. Mr. Collins practiced Collaborative family law. Ms. Litton was a litigator. Leslie’s greatest concern was that John would lie about his business income. Much of it was on a cash basis, and she believed John was making a great deal of money she didn’t know about.

Litigation Avenue

Leslie meets Ms. Litton in her office for an initial consultation. As Ms. Litton took notes, she told Leslie she needed to be cooperative and follow her directions in order not to mess up the case. Ms. Litton gathered information about wrongdoings by John as described by Leslie. Building a case against John starts at the initial consultation.

John is served at his work with the lawsuit, petition for divorce, along with a Request for Order for custody, visitation, and orders to force John to vacate the family residence, pay child support, spousal support, and Leslie’s attorneys’ fees. These fees are estimated at approximately $10,000).

John is taken off-guard. He has spent the last seven years working hard to provide for Leslie and the children and now finds Leslie on the offensive. John then consults his own litigation attorney to represent him in litigation.

Soon after, Ms. Litton sends out discovery requests demanding numerous documents: five years of tax returns, bank statements, books, logs, cash receipts, and records of the business. A normal litigation tactic is to exhaust the other side with numerous demands and discovery ($10,000). Ms. Litton brings a motion to compel, ordering John to produce documents that he did not produce ($10,000). Ms. Litton schedules a deposition of John ($5,000) and hires a forensic accountant to form an opinion in favor of Leslie based on information and documents from discovery ($50,000).

On Leslie’s side, the legal costs are $30,000 for the first three months of litigation.

In the meantime, the anger and resentment caused by the litigation have strained Leslie and John’s relationship. The children are now not only having to deal with their parents’ divorce, but also dealing with both parents’ anger and fear. The children suffer the loss of their family unit and also the loss of both parents’ loving, calm attention at a time they need comfort the most.

Litigation continues for three years, all leading to a ruling based on an unpredictable assessment by a judge of the information provided by each attorney.

Collaborative Route

Leslie consults with a Collaborative Practice attorney, Mr. Collins. He asks Leslie about what really matters to her. Leslie names the welfare of the children, and her financial stability. Mr. Collins asks Leslie to keep these in mind while they go over the different options for her divorce. Mr. Collins review the litigation, collaborative, and mediation processes. Leslie decides to proceed with the Collaborative divorce process. She realizes she will have the benefit of legal counsel and also a neutral financial expert to make sense of the business income and valuation, without the costs and impact of an adversarial process.

Leslie consults with a divorce coach recommended by Mr. Collins. Her coach helps her learn how to communicate with John about the divorce and ask him to explore divorce options with her. John and Leslie are both supported by the divorce coach as they reach consensus about the divorce as well as the process.

John and Leslie start their Collaborative Process with two Collaborative attorneys, two divorce coaches, and one financial advisor acting in a neutral, fact-gathering role. The Collaborative process requires full disclosure without a discovery process. The coaches assist John and Leslie in developing a parenting plan for the children, and working on their communication for effective co-parenting. The children learn how to problem solve from their parents.

The financial advisor works with Leslie and John to get all records necessary to understand values and income of the business and expenses for each of them, and works with the whole team in creating financial options suitable to address both Leslie and John’s needs and concerns.

John is supported by his own attorney, who requires him to be transparent and fully disclose information and documents, explaining the negative consequences of concealing information. Both John and Leslie are respected and feel they are both responsible for a mutually acceptable outcome.

See the differences? When parties are more emotional and less cooperative, the divorce process takes longer. Costs increase. Children suffer additional emotional trauma.

The issue of the true income and value of a self-employed spouse’s business is the same issue in both litigation and the Collaborative process. The litigation process takes three to five years, leading to an unpredictable result in a judge’s hands, with a cost between $100,000 to $500,000. It leads to tremendous negative impact on the children.

The Collaborative process takes three months to one year. Costs on average for this example range from $20,000 to $50,000 to reach an outcome through the teamwork of both parties.

Cost savings could help both spouses relocated, and perhaps even finance education and child care allowing Leslie to return to the work force. Spousal support ends up costing less for John when she becomes re-employed. There is more money for the kids and their education.

While this situation doesn’t describe every divorce, and while we cannot promise the same outcome for everyone choosing Collaborative Divorce, this example shows what is possible when both spouses decide to make the best of a bad situation.

 

 

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