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RAIDS stands for "Recently Acquired Income Deficiency Syndrome." It is common for a "working spouse" to claim a sudden drop in income upon the filing of a divorce in Illinois. In other words, they earn hidden income. Income you may never be aware of in your divorce.
Hidden Income Various RAIDS Symptoms: Salaried Spouse
A divorcing spouse may claim a decrease in income because overtime is no longer available. Their job has been changed or for a variety of other reasons the employer is paying them less. A salaried spouse may be able to hide income by receiving hidden income in the form of reimbursement for expenses or in other benefits from the employer not reported on an IRS form W-2.
Another example of hidden income may happen with a soon to be ex spouse who is a saleman paid commissions. To hide his true income he does not take credit for all his sales. Instead he has a co-salesman take credit for a sale who turns around secretly pays a commission back to your spouse in cash hidden from you.
There are numerous ways, unfortunately, that a self-employed spouse can reduce income or hide income altogether. If your soon-to-be ex spouse deals in cash and some or all of it is unreported to the IRS as stated above then you have a serious problem indeed in determining true Income. Note: be sure not to file joint tax returns with your spouse if you suspect there is unreported cash income earned by your soon-to-be ex spouse.
Your signature on such a tax return may be taken by the divorce judge that you admit to the understated income on the joint tax returns. The same understated income used by the Judge to set support for you or your children.
Sometimes the only way to actually prove cash income would be to prove how much that spouse actually spends. This is easier said than done. Sometimes the soon-to-be ex spouse earning Cash actually keeps a written log of the cash received. That log itself is like a tablet of gold since it can be used in Court as an admission and proof of actual income. Even if your self-employed spouse is not paid in cash, an impending divorce can cause that spouse to claim a sudden loss of income.
RAIDS Symptoms in a Self-Employed Spouse
Increase in Business Expenses to Show Less Income - Any investment in new equipment, increased inventory, add on of more employees, or unusual business spending should be looked at very carefully if it occurs soon before a divorce. For spouses that own businesses, retaining income earnings in the corporation or business and not paying that income out as a salary to that spouse are a telltale symptoms of hidden income.
Likewise, converting personal expenses into business expenses or prepaying expenses before they are due are additional ways self employed spouses reduce business income. Increasing business expense or debt can be used to argue to a divorce judge that your spouse makes less business income that is actually earned, and thereby for your spouse to pay less support.
Solution: Look at the soon to be ex spouses business records as well as corporate and partnership accounting records and income tax returns. Your divorce lawyer may refer you to a forensic accountant who can analyze business spending to see if it is appropriate. (A forensic accountant is an accountant who is trained to review and give an opinion to the court on business income analysis in divorce and can also give an expert opinion on the value of a business. )
Some soon-to-be ex-spouses go so far as to create phantom expenses such as paying for services rendered or goods received to the business that which area really paid to themselves.
Hidden Income: There May Be Gold in Those Tax Returns
Sometimes a soon to be ex spouse will overpay business or even personal income taxes and later file an amended tax return claiming a refund. So be sure to ask for all personal and business income tax returns of your spouse and all "amended tax returns." Since an Amended tax return may be filed up to three years after the original filing of a tax return.
If you are in need of hidden-asset assistance in your divorce, contact an experienced Illinois family law attorney at Martoccio & Martoccio. Call 630-920-8855 for a free consultation of your case.