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FAMILY LAW ARTICLES

July 9, 2021
Discussing Common Tax and Wage Errors

When you own a small business, it’s tempting to leave some cash income off your tax returns so that your tax burden isn’t quite so significant. Depending on the amount of cash you “hide,” you could drop your tax obligation by thousands of dollars. However, the consequences of being caught by the IRS are high since you sign your tax returns under penalty of perjury. Additionally, you could be putting yourself in a bind should you or your spouse file for divorce since the amount both parties contribute to support would be incorrect.

Family Law Financial Affidavits
One of the documents you must complete – and swear to under oath – is a family law financial affidavit. The information you include on the sworn statement must match your financial documentation – since you own a business, that would be your tax returns. While discovery rules mandate that you provide financial documents for your business, the court will want to see your tax returns since they are official. People can fudge business financial documentation, but it’s harder to bend tax returns.

The family law financial affidavit contains information about your finances, including assets, liabilities, and cost of living. It shows your standard of living during the marriage. The income information on this sworn statement determines child support and, if necessary, spousal support.

How Lowered Income Affects Child and Spousal Support
If you show less income than you make and place that same amount on your financial affidavit, the court uses that amount to determine child support. Both parents pay a percentage of their income for child support, and that percentage is based on the total gross income you both bring in.

It’s the same thing for spousal support. The court cannot order you to pay more than what you earn. It can only order you to pay a percentage of your earnings to support your family – it must leave you enough to live on.

Thus, telling a fib on your income taxes means less income, which means less child support and less spousal support.

Social Security
Not only does your reduced income affect child support and spousal support, but it also affects how much you get for social security when it’s time for you to retire. Social security is based on the amount you pay into the fund via your income taxes. If you pay less, you will receive less social security – and could end up in the poorhouse.

Your social security is based on your ex-spouse or current spouse’s income if you are not working. So when a spouse lies on their tax returns, it not only affects him, but it could affect you, too.

Draw a Wage from the Business
If you, as a couple, own a business, both of you should draw a wage. Not only does it show that the spouse walking away from the company can work, but it also affects your bottom line. Remember, if your spouse is walking away from the business, you’ll have to hire someone to replace him. Since this cuts into your profits, it also reduces the amount you have for spousal and child support. Thus, cheating on taxes and not taking a wage from the business does more harm to each spouse in a divorce than paying the amount of taxes you rightly owe.

Contact a California Divorce Lawyer
If you are ready to separate or file for divorce and own assets, contact a California divorce lawyer at Hartley Lamas et al. for a consultation and learn more about your property distribution rights.

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