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How To Find Hidden Assets by Looking at a Tax Return


One of the most contentious questions in any divorce is this:   

“What is my spouse hiding?”   

While it’s a pretty easy question to ask, it’s much more difficult to answer.  It’s especially difficult if, like many families, only one of you dealt with the finances.  Fortunately, the clues are usually there, if you know where to look.  One of the best places to start is in your own tax return.   

You won’t find all the answers in your tax return.  And you might be confused by what you do find.  However, you’ll at least be able to figure out if something isn’t quite right.  That way, you can give your attorney or accountant a head start when it comes to figuring out what needs further research.   

If you’re parting ways amicably, perhaps you only need to look at the previous year’s tax return.  If you think that your spouse has something to hide, then you might want to go back to the previous 3 to 5 years worth of tax returns.  Just remember:  there should be a balance between trying to uncover hidden assets and the amount of work you uncover for yourself (or the lawyers & CPAs you hire) to do so.  In other words, if it seems all right, it probably is.  And conversely so. 

In each section of this article, you won’t find the answer to everything.  Instead, you’ll find a list of supporting documentation that you should look for, and questions that you should ask. 

Form 1040 (For tax years 2017 and prior).   

Front Page 

Filing Status & Exemptions:  You should be reviewing these each year for basic information.  The important thing you can take away from this is that your marital status on December 31 will determine your marital status for the entire year. 

  • If you get divorced on or before December 3s1, the IRS considers you either single or head of household for the whole year. 
  • If your divorce is finalized on January 1, the IRS considers you to have been married (either separately or jointly) for the entire prior year. 

Income 

Line 7-Wages 

 Documents: 

  • All Form W-2s & Form 1099-MISC.  W-2s are the annual statements from an employer to employees for wage and other income (commissions, bonuses, etc.).  Form 1099-MISC is a similar form given to people who are considered ‘independent contractors.’   
  • Copies of pay stubs for the tax year. 
  • Copies of check deposits. 

Questions 

  • Does Line 7 add up to all the income in your W-2s and Form 1099s? 
  • Do the pay stubs add up to the totals in the W-2s & 1099s?   
  • Do the pay stubs add up to the payroll deposits in your checking account? 

Stop here.  These don’t need to be exact answers.  However, your taxable income should be roughly similar to the amount of money going into the accounts.  If there’s a big difference, then perhaps some money is going into an account you DON’T know about.  In that case, it’s worth looking a little more closely at the pay stub to see if there is an allotment directing money into another account.  

  • Look at the W-2.  You should pay particularly close attention to lines 12a-12d.  These are lines that tell the IRS about various employer-sponsored retirement plans, life insurance policies, or accounts that you might not know about.  Below are a few of the most common codes you can look for in lines 12a-12d: 

C:  taxable life insurance 

D:  401(k) 

E:  403(b) 

AA:  Roth 401(k) 

BB:  Roth 403(b) 

V:  non-qualified ISOs.  (Stock options) 

W:  HSA 

  • If you see any of these codes, you should know about the related account.  If you don’t, then you definitely need to have someone look into this further. 

Line 8-Interest 

 Documents: 

  • End of year bank statements & investment statements (Form 1099-INT) 

Questions 

  • Does Line 8 add up to all the income in your Form 1099-INT? 

Line 9-Dividends  

 Documents: 

  • End of year investment statements (Form 1099-DIV) 

Questions 

  • Does Line 9 add up to all the income in your Form 1099-INT? 

Line 12-Business income:  

We won’t cover business income here.  Suffice it to say, if your spouse has a business, there will either be a number here, or on Line 17 (Schedule E).  If this is the case, and the business is more than just a hobby, you should hire a forensic accountant to review the business books & tax returns.  

Line 13-Capital Gains: 

 Documents: 

  • End of year investment statements (Form 1099-B) 

Questions 

  • Is there a lot of selling activity here?  If so, you might want to look at where the proceeds are going. 
  • Are there any tax losses?  If so, take note.  Tax losses can be carried forward for future tax years, known as a tax loss carryover.  When dividing assets in a joint account, you probably would be entitled to split these losses…but don’t count on your spouse to bring that to your attention. 

Line 15-IRA Distributions & Roth Conversions-Could be a withdrawal, RMD, or Roth conversion 

 Documents: 

  • End of year investment statements (Form 1099-R) 

 Questions 

  • Is there a lot of selling activity here?  If so, you might want to look at where the proceeds are going. 
  • Are there any tax losses?  If so, take note.  Tax losses can be carried forward for future tax years, known as a tax loss carryover.  When dividing assets in a joint account, you probably would be entitled to split these carryforwards.  However, don’t count on your spouse to bring that to your attention.   
  • If there are distributions that came from your account, did you authorize them?  Sometimes, when opening an IRA, a spouse might authorize the other spouse to do business with the financial institution on their behalf.  Is there a chance that you gave your spouse permission to conduct financial transactions on your behalf?  If so, you need to ensure that your attorney is aware of any withdrawals that you didn’t specifically make. 

Line 16-Annuities & employer retirement plans 

 Documents: 

  • End of year investment statements (Form 1099-R) 

 Questions 

  • Are there annuities you didn’t know about?   
  • Is there a rollover from the employer retirement plan into an IRA you don’t know about?  If you see $0 on Line 16b, that might indicate a rollover. 
  • Was there a lump-sum distribution?  Looking at Form 1099-R, if the ‘Total distribution’ box (2b) is checked, this might indicate your spouse was looking to dump the entire amount into an account you didn’t know about. 

Line 17-Pass-Through Businesses & Trusts:   

Questions:  If this is not blank, have an accountant take a closer look.  While this will not apply to most couples, this can become complicated very quickly.  It’s better to have an expert look more closely so you can have a better feel for what is generating this income. 

Line 20-Social Security Benefits:   

 Documents: 

  • Social Security statement (Form SSA-1099).  

Questions 

  • How much are the benefits?  If you’ve been married for at least 10 years and are at least age 62, you might be eligible to claim Social Security based upon your spouse’s Social Security record.  However, you would want to consult with a financial planner who specializes in Social Security planning to help you determine the best option in your situation. 

Above the Line Deductions-Used to calculate adjusted gross income (AGI) 

Line 25-Health Savings Accounts (HSAs): 

Documents: 

  • Reported on Form 8889.   

Questions 

  • Did you know there was an HSA?   

Line 28-Self-Employed Retirement Plans:  Contributions to SEP, SIMPLE, profit-sharing, or 401(k) 

Questions 

  • Did you know there was any sort of self-employed retirement plan?   
  • If not, did you know that your spouse had self-employment?    

Line 32-IRA Deduction:  Deductible IRA contributions only 

Questions 

  • Did you know about an IRA? 
  • This is only for deductible IRA contributions.  Make sure you also look into non-deductible IRAs, as well as Roth IRAs, which will not show up here. 

Line 33-Student Loan Interest   

 Questions 

  • Student loans aren’t assets, they’re debt.  However, you should make sure your student loans are included here, especially if they’re for education you obtained during your marriage.    

Conclusion 

 Lawrence Financial Planning is here for you when you need us most. We will always give you professional advice and walk with you every step of the way. We invite you to one of our monthly Divorce Workshops. Find the details on Facebook and Instagram, or visit our website.