Three Things to Learn from a Tax Return.

When getting a divorce, I often hear from one party that he/she does not know anything about household finances or what accounts the other person owns.  A joint federal income tax return can give you loads of information. 

Usually, clients look at the first number on the first page being the wages earned by the couple.  Although this is an interesting number, however, you need each person's W-2 for clarity.  The first three things I look for on a tax return are:

1.        Schedule B showing the interest and dividends earned during the past year.  This identifies the name of banks and financial institutions and shows the amount paid as interest and dividends.  I like to compare these figures with those listed in the past 2 or 3 years to see if there is any major variation.  If there is a large decrease, where did the money go?  If there is an increase, what caused the increase?  If a spouse secretly opens an account in another jurisdiction, it may still reported and listed in Schedule B, if it earns more than minimal interest or dividends.

2.       Schedule C for self-employed people.  I want to see what expenses are deducted from the gross income.  Are some of these really personal expenses?  Are the families' cell phone bill being paid through the business? Are the business expenses inflated?  Are the gross receipts less than expected, hinting at unreported income? 

3.      On the bottom of the first page, there is a line for contributions to a retirement plan.  I want to check the past several years to see if money was put into retirement plans and match that with the person’s disclosure of retirement plans.  Income earned in a 401(k) or an IRA does not show up on Exhibit B, so this is one way to check for a retirement plan.

I also want to look at the W-2’s for each year.  Although the line in the tax return reports wages and earnings, some W-2 should the true gross income and the gross income after contributions to retirement accounts.  Since child support is based upon gross income, the amount on a tax return may not be the true gross wages/earnings. 

Let us help you unlock the information that can be found as you go through a divorce.  As a lawyer or mediator, I want to see these documents to provide a fair resolution of the financial and child support issues.