FAMILY LAW ARTICLES
When an independent contractor files or handles divorce papers, it’s a bit harder to determine the independent contractor’s income. It’s essential that we determine a party’s income for spousal support and child support. You can’t rely on just one source as you can with a W-2 employee. It is easy enough to fudge income and tax returns. Additionally, the other issue with tax returns is that independent contractors have several tax breaks that the attorney needs to add back in.
Finding the Money
Finding the money is not such as issue if the parties agree and sign a marital settlement agreement. These couples are usually upfront with each other and are not trying to hide money from each other.
However, for those that have a contentious divorce, it can become a problem. While you would like to believe that everyone is honest, that is not the case, especially if the spouses are fighting over money, timesharing, and alimony.
First, if an independent contractor takes in cash, it is easy to hide it and not claim it. Thus, you cannot always rely on tax returns. An attorney might require three to five years of tax returns, bank statements, and other financial documents during the discovery phase.
The attorney will compare bank deposits with the amount of income on the tax return. However, if a client doesn’t produce all of their bank statements, there are other ways to find hidden money, including looking at the couple’s lifestyle and credit card habits.
If a couple brings in $7,000 per month jointly, they have a home, a vacation home, expensive cars, high-end clothing, and jewelry. An attorney will be suspicious because a person cannot live over and above their means for very long.
One or both spouses could be hiding a bank account from each other. In addition to the money claimed, an attorney can blame wages based on several factors, including bank deposits, retirement accounts, and spending habits.
Tax Return Issues
Another issue that independent contractors face is that not all legal tax deductions are deductible when figuring child support or spousal support. An extremely unfair practice is that if an independent contractor has a home office, they cannot deduct that from income used to determine support. However, if the independent contractor has an office outside the home, that office is deductible. Whichever way you look at it, the office is a cost of doing business and should be treated as such, but is not.
The Discovery Process
While many clients believe the discovery process to be tedious, time-consuming, and troublesome, it is an essential part of the divorce process. It ensures that both parties do not hide money and that the minor children get the support they require.
Contact Hartley Lamas et al.
If you are ready to file a divorce or have come in possession of divorce papers, contact Hartley Lamas et al. for a consultation.