SAVVY WAYS TO LOCATE HIDDEN ASSETS, INTERESTS &

INCOMEPresented by: Dennis P. Greeno, CPA/ABV/CFF

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

oEmphasis on discovery for family law cases

oPrepare two sets of standard discovery interrogatory templates:

1) Opposing party is an employee2) Opposing party is self-employed

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

Opposing Party is Employee (OP/EE):

oW-2 Forms

o indicates retirement plan participation

oRequest year end and current paystub. Compare year-end paystub to related W-2 form

Tip #1Download IRS Instructions for W-2 at www.irs.gov to assist in your computation of W-2 gross income for child support purposes (ex. Add retirement plan contributions made by employee)

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

Opposing Party is Employee:

oMake a list of all 1099 Forms that could possibly be issued to OP/EE for future reference

Tip #2Handout Reference titled “List of U.S. Information Returns”. Includes listing of all transmittal forms (ex. Form 1099-MISC)

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

Opposing Party is Employee:

oConfirm that all 1099 and W-2 forms are made available for each year requested.

o Use the handout spreadsheet “Multi-Year Tax Comparison Worksheet” as a reference for discovery inventory received

Tip #3Handout reference Multi-Year Tax Comparison Worksheet can be used to track tax-related discovery and RFD

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

Opposing Party is Self-Employed:

oForm 1099-K Payment Card & Third-Party Network Transactions reports total gross payments to businesses using a card merchant service. Confirm that revenue reported on Schedule C Profit or Loss from Business is no less than gross payments on Form 1099-K

Tip #4See Handout Reference “Form 1099-K Payment Card & Third Party Network Transactions”

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Savvy Ways to Locate Hidden Assets, Interests, and Income

A. Crafting Discovery Requests to Obtain Key Data

Opposing Party is Self-Employed:

If OP/SE uses Quickbooks accounting software, remember to request a data file backup with administrative preferences. The data file should be named “xxxx.qbw”

Tip #5Generate income statement for multiple years in columnar format and export to Excel. Compare income and expenses to Schedule C Profit or Loss from Business

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis

Utilized by forensic accountants to search for:o Unreported Income (URI)o Imputed Incomeo Unknown Assetso Misappropriation of Marital Assetso Assets Transferred in Contemplation of Divorceo Assets Transferred During Divorce

Tip #6Tax returns can provide:- SSNs- Assets- Investments- Real Property- Bank Accounts- Interest in

business entities- Family members

& dependents- Addresses- Employment

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis

Schemes to Hide Assets & Income (OP/EE):oCredit card payments in excess of

account balance oCash converted into assets that can be

resold, such as jewelry, real estate, investment securities

oConverting cash into travelers checks or savings bonds

oHiding cash in safe deposit box listed in another name

Tip #7Read blog by Fred Abrams, Attorney called “Asset Search Blog” for useful references on hidden assets and unreported income.www.assetsearchblog.com

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis

Schemes to Hide Assets & Income (OP/EE) (continued)oPrepaying federal or state income taxoFictitious loans to relatives/friendsoQuitclaim of real estate to otherso Invest in life insurance with cash

surrender valueo Investing in an annuityoFormation of hidden trusts to hold

investments

Tip #8Consider IRS hobby loss rules if OP/EE with substantial W-2 income also reports a Schedule C with a loss.

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis

Schemes to Hide Assets & Income Opposing Spouse is Self-Employed (OP/SE):

o Hoarding unrecorded cash flowing from a business

o Deferring recording large customer payments until after divorce

o Excessive bonuses, fringe benefits, business expense reimbursements

o Payments to fictitious vendors and ghost employees

Tip #9Compare income and expenses for multiple years to spot trends.

Tip #10Schedule B Interest & Dividend Income Part III requires Yes/No answer re: signature authority or financial interest in foreign bank accounts

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis

Schemes to Hide Assets & Income OP/SE with K-1 from S Corp, LLC

o If OS/SE is shareholder in S corporation, member in LLC, partner in partnership:

o Determine level of control OS/SE has over entity finances, payroll, vendor payments, etc

o - review K-1 to estimate sources and uses of cash from capital investment, loans to business, cash distributions & loan repayments

o Shareholders of S Corporations may receive profit distributions (see K-1) as well as W-2 salary

Tip #11Compare K-1s from multiple years to note unusual items. Ordinary losses in excess of tax basis may not be currently deducted on Schedule E of Form 1040.

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis Method #1Compare Claimed Income & Asset Stated in Discovery Responses to Specific Items of Income & Assets in External DocumentsoReview all documents available for

references to income & assetsoReview loan applications and/or

personal financial statements submitted to lenders

oReview financial statements generated for financial planning or household budgets using Quicken or Quickbooks

Tip #12Examine cancelled check images of all credit card account payments. Unndisclosed credit card accounts may be uncovered

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis Method #2Tax Return Analysis for Hidden Income and AssetsoConfirm that all tax returns and related

documents have been receivedoRefer to Form by Form Lists of Key

Information Contained in Tax Returns (by line number)

o If OP/SE reports Schedule C business, consider

Tip #13If OP/SE reports Schedule C business, refer to tax depreciation schedule to determine if business assets may be considered marital property.

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Savvy Ways to Locate Hidden Assets, Interests, and Income

B. Hidden Income Analysis Method #3Lifestyle Analysis (LSA)Attorneys are trained to meticulously comb through all tax returns, bank accounts, broker accounts, credit card statements from prior years. Absent glaring errors, attorney & client will assume all information is correct.

Certain cases may call for a LSA, which establishes the standard of living during the marriage & spending habits of each spouse.

Tip #14“Lifestyle Analysis in Divorce Cases” by Tracy Coenen, CPA/CFF is available from American Bar Association. www.lifestyleanalysis.com

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Savvy Ways to Locate Hidden Assets, Interests, and Income

C. How to Analyze Retirement Plans

Step 1 - Request the following documents:1) Summary Plan Description (SPD) informs

participants & beneficiaries about plan & how it operates.

2) Benefit Statement reports accrued & non-forfeitable benefits to which a participant. States whether survivor benefits are present.

3) Notice of Deferred Vested Benefit reported on Form 8955-SSA. Furnished to each participant separating from service with a deferred vested benefit.

4) Plan QDRO Model Agreement & plan administrator’s QDRO procedures

Tip #15“The Complete QDRO Handbook” by David Clayton Carrad is available from American Bar Association. Highly recommended by family law practitioners

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Savvy Ways to Locate Hidden Assets, Interests, and Income

C. How to Analyze Retirement Plans

Step 2 – Consider all possible elections, particularly the pension’s survivorship election options Step 3 – Calculate estimated value of the pension interest (using present value w/ discount rate assumed)Step 4 – compare Step 3 amount to value of pension benefits reported in annual benefits statements. Note assumptions made for each calculationStep 5 – calculate what portion is marital property

Tip #16Search for possible undisclosed pension plans at:www.brightscope.comwww.efast.dol.gov

Tip #17Read : “Pension Valuation In A Tennessee Divorce” by Robert Vance CPA/ABV/CFF/CVA/CFPwww.forensicval.com

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Savvy Ways to Locate Hidden Assets, Interests, and Income

D. Detecting Debtors Hiding Assets with Relatives

oSearch real property records online using names of friends, family, etc.

oQuitclaims of real property may result in federal gift tax liability (IRS matching program with state real estate transaction database)

o Investigate validity of loans to family members (promissory note? Loan payment received?)

oDetermine if family business ownership interests have changed

Tip #18Obtain C.L.U.E. Auto Claims Report from Lexis/Nexis for prior years to search for vehicles formerly owned by spouse. Determine disposition of vehicle (sold? Title transferred to family member?)

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Savvy Ways to Locate Hidden Assets, Interests, and Income

E. Digging Deep Into Internal Databases

oTo expedite sorting & filtering of large amounts of data, such as multiple credit card statements, bank statements, etc. consider using specialized software such as kCura Relativity, IDEA data mining software, and Excel Pivot Tables.

oQuickbooks data files include an audit trail report showing date & user ID for each deleted or altered transaction.

Tip #19Ask your client to obtain a credit report. Look for any undisclosed credit card accounts, loans, etc. obtained surreptitiously by opposing spouse.

SAVVY WAYS TO LOCATE HIDDEN ASSETS, INTERESTS &

INCOME

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