A road map for arguing the existence and amount of hidden income.

By Kim Joseph Onisko, Forensic Accountant

In family law cases where hidden income from a business is at issue, a simple, coherent presentation must be made to the court. The analysis must be easy to understand and clearly prove the presence and extent of hidden income.

Many family law practitioners are told by their client that the other spouse has hidden income. This income is alleged to be from unreported business revenue or exaggerated business expenses.

Reducing income from a business prior to divorce allows a lower valuation amount for the business and diminished support. This can yield the spouse controlling the business (the in‐spouse) an unfair advantage in negotiations.

It is imperative for the attorney to judge the reality of hidden income quickly in the case, or they risk taking an indefensible position that will harm their credibility with the judge.


In a contested divorce, many “out‐spouses” will claim the “in‐spouse” is hiding income. Sometimes this comes from actual knowledge, but often may simply be a retaliation effort.

Many judges are predisposed to side with the in‐spouse and declare no hidden income. This is because many claims for hidden income are alleged and not clearly proven. Even when it is clear there may be hidden income, if an amount cannot be determined with some certainty, it is difficult for the judge to rule effectively.

Tanking a Business

Pre‐divorce planning may lead a business owner to reduce income prior to the filing date – the date of separation – or due to a “leading event”, such as the initiation of an extra‐marital affair. For the forensic accountant or valuation analyst, it is important to determine a date where the need for divorce would be apparent to the “in‐spouse”, as income may be driven down well prior to the agreed date of separation.

If it can be proven a business was “tanked” at a date prior to the dissolution date, it may be possible to assess the value of the business and the income generated by the business using data from prior years.

There must be some testimony or clear evidence the forensic accountant can rely on, or the argument becomes qualitative and can generally be argued by each side.

Investigation – A Basis Business Document Request

If the attorney and the forensic accountant agree that an investigation into hidden income from a business is necessary, the following documents should be assembled:

1. Last 3 years business tax returns

2. Last 3 years financial statements, balance sheet and income statements

3. Detailed general ledger for last two years

4. QuickBooks electronic backup file (If QB is not used, obtain a copy of the accounting data file)

5. Accounts receivable aging schedule at Date of Separation

6. Accounts receivable aging schedule at Current Date

7. Accounts payable aging schedule at Date of Separation

8. Accounts payable aging schedule at Current Date

9. Last 3 years bank statements and cancelled checks for all accounts

10. Last 3 years personal tax returns

11. Sales tax returns for last three years

12. List of business assets (trucks, cars, trailers, computers etc)

13. List of rental properties owned

14. List of all debts

15. Payroll reports for last two years

16. List of suppliers with names and addresses

17. List of customers with names and addresses

Investigation – Analysis

Once the document requests have been fulfilled, the forensic accountant can perform “analytical procedures” on the data. These analytical procedures are comparisons and analysis of various tax returns, schedules and business documents, with client representations and various expectations. When these documents are examined and compared, they can often contradict one another. Contradictions are evidence to support the theory of hidden income. These contradictions need to be modeled into dollar amounts for explanation in court.

The Presentation

The presentation to the judge needs to be clear and concise. The fewer exhibits, the better. If the issues are complex, they must be simplified by the forensic accountant. You should be able to summarize your findings a single diagram, spreadsheet and a bar or line chart

I have found Visio (a Microsoft Office Product) an excellent tool for creating diagrams that assist in clarifying complex financial issues. Present your findings with Visio in an audit diagram, a color pie chart or a cause and effect diagram.

A single excel spreadsheet showing the estimated actual income against the income reported is essential to show the court. This spreadsheet will be a summary of the various findings of the forensic accountant. Attempt to make this document as clear as possible by limiting the number of columns and rows that are filled with data.

The spreadsheet should be turned into a colored bar or line chart. This colored chart can be easily created to illustrate financial findings in excel.

The impact of a short, simple, illustrated presentation will allow the court an understanding of the issues, clarify the forensic work and lead to a positive result for your client.


Kim Joseph Onisko performs accounting and tax work for corporate, non-profit and governmental clients. Mr. Onisko also performs forensic accountings and asset tracings in business and divorce litigation. His firm  Onisko & Scholz, LLP is a tax, accounting and business consulting firm located in Long Beach, California. www.OniskoScholz.com