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 provide some information.
Usually, clients look at the first number being the wages earned by the couple. Although this is an interesting number, without each person's W-2, it is not very helpful. 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 during the past 2 or 3 years looking for major variations. 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 is still reported and listed in Schedule B, if it earns interest or dividends.
2. Schedule C is for self-employed people. I want to examine what expenses are deducted from the gross receipts. Are some of these really personal expenses? Are the business expenses inflated? Are the gross receipts less than expected, hinting at unreported income? Are the gross receipts out of proportion to the expenses? How much depreciation was reported?
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 compare 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 a line in the tax return reports wages and earnings, some W-2 show 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.
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