10 Secrets to Finding Hidden Assets in a Spouse's Tax Return

How to use Form 1040 to find hidden assets during a divorce.

If you believe that your spouse is hiding assets during a divorce, a tax return may become your best friend. Typically, a return is furnished voluntarily ... but if not, your lawyer can obtain these forms during the discovery process of a divorce proceeding. Here are ten tips for finding hidden assets that may be buried in a Form 1040.

  1. W-2s. The W-2 forms filed with the tax return should be examined carefully, because they detail not only the salary received by a party, but the existence of deferred compensation plans such as 401K or 403(b) or other plans, as well as other fringe benefits.
  2. Prior Tax Refunds. An unscrupulous spouse may overpay taxes for a previous year in the expectation of receiving the income after the divorce.
  3. Mortgage interest and points. A review of Schedule A may show deductions or refinancing that reflect the existence of undisclosed loans – hence undisclosed assets.
  4. Interest income. Though an obvious indicator of income, interest income as shown on the first page of the return helps to identify income-earning investments. A Schedule B must be filed for any entry that exceeds $400.00 and that identifies the source of the income. The spouse may also have income from nontaxable investments which are not otherwise disclosed.
  5. Miscellaneous deductions. Miscellaneous deductions in Schedule A may unearth secrets. For example, deductions for estate planning advice may lead to discovery of an estate plan with hidden assets. Or deductions for a safe deposit box may also lead to undisclosed information.
  6. Capital gains and losses. Schedule D reflects the sale of property for gain or loss and provides a starting point for the tracing of proceeds from the sale of property. Keep in mind that new assets may have been purchased with the proceeds of previous asset sales.
  7. Retirement plan distributions. Look for indicators that that a spouse received a distribution from a deferred-compensation plan or IRA account. If so, the funds should be traced what happened to the money. The return should also reflect gross income diverted to IRA or Keough plans.
  8. State and local income taxes. Schedule A lists how state and local taxes were paid, and which governmental entities were involved. It’s possible that these entries may reflect income generated in another state, as well as the presence of income-generating assets in that state.
  9. Profit or loss from business. Filing a Schedule C indicates the existence of a side business. And a spouse who creates a side business may have done so the to enable the creation of a Keogh plan to increase retirement plan deductions.
  10. Supplemental income and loss. Schedule E can dislodge a variety of hidden assets as it shows rental properties, as well as income from partnerships, S corporations, estates and trusts. At a minimum, it indicates the existence and location of any property generating rents, as well as the existence of investments in partnerships and "S" corporations. The schedule may also reflect passive activity loss carryovers that should be considered an additional asset.

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