When determining the asset pool available for division in a family law property settlement, the Court must look at the value of any business associated with either of the parties. Also, an assessment must be made as to what income a party or the parties are drawing from that business.
Often when a family business is involved, the parties have historically dealt in cash. Business dealings in cash are permitted as long as they are declared by the parties for taxation purposes. Sometimes, the business records don’t always reflect the actual financial position of the business or the income received by the parties.
Which often leaves one party, usually the party who isn’t planning on retaining the business to ask – but what about all the cash?
In family law property settlements, both parties are required to provide full financial disclosure to each other and the Court. This includes all relevant documents relating to any business in which the parties have an interest and income received by them and/or that business.
Sometimes, the lifestyle or spending habits of one or both parties is inconsistent with their income or the financial position of the business. So how do you factor in the cash?
The Court is able to consider and decide in family law matters that there has been business or personal income that hasn’t been disclosed.
However, the risk of asking the Court to make such a decision is that the Court can’t ignore wrongdoing by one or both of the parties.
If the Court determines, for example, that there is additional income, and as such that a party or parties have engaged in suspected tax avoidance, the Court may refer the matter to the Attorney General who may then refer the matter onto the Australian Taxation Office for investigation.
If tax avoidance is found to have occurred, any debt that may then arise from such avoidance will likely be considered a debt of the relationship. This will reduce the value of the asset pool available for division between the parties. There are also significant penalties which may follow tax avoidance including, in some instances, fines and imprisonment.
Forensic Accountants can offer assistance in family law matters when trying to track business or personal income of a party or parties. Not only can they investigate disputed accounting matters, they can value a business and can appear in Court as an expert witness in relation to their findings.
The lesson is that both parties need to ensure that their business affairs are compliant with all relevant laws and legislation both during and after their relationship. If not, it could come back to bite them when they are asking “but what about all the cash?”