The Challenge
In a divorce, one spouse owned a small, cash-heavy service business. His tax returns and financial statement showed modest income, and he argued that support should be calculated on that number.
The other spouse knew it didn't add up. The family lived in a home with a sizable mortgage, drove two financed vehicles, paid private school tuition, and took international vacations every year. None of that fit the income being reported.
Her counsel needed more than a sense that something was wrong. Courts can be skeptical of lifestyle arguments that rest on estimates, so counsel needed an analysis built on documents that could withstand challenge.
Our Approach
We built a lifestyle analysis, a method that measures what a household actually spends and asks where that money came from.
- Spending from third-party records. We used statements obtained directly from the banks, credit card issuers, mortgage lender, auto lenders, and the school, not summaries prepared by either spouse. Every expense in the analysis traced back to a specific document.
- Every other source of funds tested. Spending above reported income isn't automatically hidden income. We checked for savings drawn down, gifts, loans, new credit card debt, and asset sales that could explain the gap.
- The business examined directly. We reviewed the business's bank deposits and general ledger for personal expenses paid by the company, owner draws that never appeared as income, and signs that cash receipts weren't reaching the books.
- Several years, not just one. We measured income and spending over multiple years, so a single unusual year couldn't explain the pattern away.
The Findings
- Spending far exceeded reported income. Documented household spending ran at more than twice the income on the tax returns, year after year.
- The gap wasn't savings, gifts, or loans. Account balances didn't fall, no gifts or loans appeared, and debt didn't rise enough to fund the difference.
- The business was paying personal costs. Vehicle, phone, and other household expenses ran through the company, reducing its reported profit while effectively serving as income to the owner.
- Cash deposits didn't match the work. Deposits were low relative to the volume of jobs the business documented, consistent with cash payments that never reached the books.
The Outcome
Because our forensic accountant for divorce sourced every figure to a third-party record and tested every alternative explanation, the analysis was hard to attack. Counsel used it to argue that support should be based on the income the household was actually living on, not the income on the tax returns. The support calculation was ultimately based on a substantially higher income figure.
Key Takeaway
When reported income doesn't match the way a family lives, the difference is often income. But a lifestyle argument only persuades a court when it's treated as an accounting exercise, not an estimate. That means third-party records, every other source of funds ruled out, and a look at multiple years.
If the spouse on the other side owns a business, deals in cash, or reports income that can't support the household's spending, bring in forensic accounting services before discovery closes. Asking for the right records early, such as statements directly from the card issuers and the business's general ledger, makes all the difference.