Beware Unreported Income

What happens when a divorcing couple has not historically reported their accurate income on their tax returns? This is a common theme in divorces, especially when the divorcing couple owns their own business. What may have seemed like a great way to maximize “take-home-pay” (by paying expenses directly from the business) when married, may backfire once the husband and wife debate as to what was the true income earned during the marriage.

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What happens when a divorcing couple has not historically reported their accurate income on their tax returns?  This is a common theme in divorces, especially when the divorcing couple owns their own business. What may have seemed like a great way to maximize “take-home-pay” (by paying expenses directly from the business) when married, may backfire once the husband and wife debate as to what was the true income earned during the marriage.

The case frequently referred to by Courts on this issue is Sheridan v. Sheridan, 247 N.J.Super. 552 (Ch. Div. 1990),  in which trial judges were determined to have a duty to report unreported income to appropriate authorities (such as the IRS).  On a practical level, the cloud of getting the IRS involved in a couple’s divorce can have a large impact on negotiations for support and ultimately, the decision on whether to risk a trial before a Superior Court judge, have an arbitrator make decisions, or simply settle out of court.

Death of a Spouse During the Divorce

What happens when one of the parties dies during the litigation?  Can the estate of the now-deceased spouse intervene and secure part of the marital estate or does the entire divorce action collapse and the surviving spouse keeps it all?

In a recent case, the estate of the deceased spouse intervened to prevent the “unjust enrichment” of the surviving spouse, who the estate alleged had committed fraud against the deceased spouse.  The court decided that the estate will have its “day-in-court” and would not be prevented from trying to recover monies from the surviving spouse.

The above scenario of a litigant dying happens more than one may think (it tragically happened to one of my clients).  How would a new will drafted by that litigant, after the complaint was filed, have affected the outcome?