The division of marital property for couples with significant accumulated assets will often be the most combative and time consuming part of reaching a divorce agreement. One spouse will be at a disadvantage if the other spouse is the only one who handled or had knowledge of all financial information during the marriage. Each spouse is entitled to a legal process known as “discovery” to uncover all financial information. Professionals are often called in to perform forensic accounting, an investigation and analysis of all financial information to make sure all marital assets are included for distribution. This article will address some areas to think about should you or someone close to you faces this situation.
What is the difference between “marital” and “separate” property?
Separate property belongs to an individual spouse and is not subject to division in divorce. Laws vary by state, but this property generally includes:
- Property owned by one spouse prior to the marriage
- An inheritance received by one spouse prior to or during the marriage.
- Gifts received by one spouse from a third party
Property can lose its “separate” status if it is comingled with marital property (i.e.) inherited money is deposited in a joint bank account with the spouse.
Marital property is all assets acquired by either spouse during the marriage. It generally won’t matter how the property is titled, or which spouse acquired the property.
What are some marital property items you may have forgotten about?
Marital property includes more than savings and brokerage accounts. The list is surprisingly long; here are some examples:
- Retirement plans, including 401Ks, IRAs and pension plans
- Deferred compensation, commissions and bonuses
- Annuities and cash value of life insurance policies
- Ownership in corporations, closely-held businesses and limited partnerships
- Stock options
- Tax refunds and tax carry forwards
Have you looked at your tax return lately?
A 1040 personal income tax return can provide a good start to finding investment assets that a spouse is trying to hide. Look for entries under these categories:
- Interest and dividend income: Taxpayers earning $1,500 or more in interest and dividend income is required to file a Schedule B. This schedule will list the names of all financial institutions paying taxable income (and holding investment assets). There will also be questions about whether a taxpayer is involved in foreign financial accounts or foreign trusts.
- Capital gains and losses: Schedule D will supply names of financial institutions where stock or bond sales were sold. There will likely still be assets in these accounts.
- Supplemental Income and Loss: Schedule E reports tax information from a variety of income-producing assets such as:
- Rental real estate property
- Royalty investments
- Partnership and S Corporation ownership
- Estates and trusts
- Itemized deductions – Schedule A may uncover property tax paid on real estate or personal property that you were not aware of as was acquired by your spouse.
There are countless other ways a spouse can undervalue, disguise or fail to disclose marital assets. The emotional upheaval of divorce should not prevent a fair division of property. As a forensic accountant, Gary Kaplan, CPA can investigate and analyze financial evidence to ensure all marital assets have been revealed. Gary is available to discuss potential difficulties you may be confronted with.
