I think my spouse is hiding income. What do I do?

Financial transparency is critical during separation or divorce, particularly when determining child support, spousal support, and property division. If you suspect that your spouse is hiding income, it’s essential to take action to ensure a fair outcome. Hidden income can take many forms, such as underreporting earnings, inflating business expenses, or concealing assets.

This guide will explain the signs of hidden income, steps you can take to uncover it, and how courts address this issue in Ontario.

Common Ways Spouses Hide Income

1. Underreporting Cash Income. Spouses in cash-heavy industries, such as retail, restaurants, or construction, may fail to declare all cash payments.

2. Inflating Business Expenses. Self-employed spouses may classify personal expenses as business expenses to reduce their reported income.

3. Concealing Corporate Income. Business owners may retain earnings in a corporation, delay bonuses, or pay themselves a reduced salary on paper.

4. Using Offshore Accounts. Funds may be hidden in foreign accounts or investments that are difficult to trace.

5. Misreporting Assets. Spouses may undervalue properties, transfer assets to family members, or fail to disclose certain accounts.

Signs Your Spouse May Be Hiding Income

• Lifestyle Discrepancies: Your spouse’s lifestyle (e.g., expensive vacations, luxury items) doesn’t match their reported income.

• Sudden Income Changes: A significant drop in income is reported during separation or divorce proceedings.

• Inconsistent Financial Records: Gaps or inconsistencies in bank statements, tax returns, or corporate records.

• Reluctance to Provide Financial Disclosure: Your spouse avoids or delays sharing financial documents.

Steps to Address Hidden Income

1. Request Full Financial Disclosure

• Ontario law requires both parties to provide complete and accurate financial disclosure during separation or divorce. This includes tax returns, bank statements, business records, and other relevant documents.

2. Hire a Forensic Accountant

• A forensic accountant specializes in uncovering hidden income and assets. They can:

  • Analyze tax returns and financial statements.

  • Trace cash flow and identify discrepancies.

  • Examine corporate records for unreported earnings or expenses.

3. Seek a Court Order for Disclosure

• If your spouse refuses to provide the necessary documents, your lawyer can request a court order compelling them to disclose their financial information. Courts take non-disclosure seriously and may impose penalties for non-compliance.

4. Examine Tax Returns

• Review the past three years of tax returns. Look for red flags, such as unusually low income, excessive deductions, or missing forms.

5. Gather Evidence of Lifestyle

• Document your spouse’s spending habits, such as:

  • Luxury purchases.

  • Frequent travel.

  • Unexplained cash deposits.

  • This evidence can support your claim that their reported income is inaccurate.

For an in-depth discussion on dealing with a self-employed spouse who may be underreporting their income, refer to the article: “My Spouse is Self-Employed but I Know They Make More Money Than They Claim: What Can I Do?”.

How Courts Address Hidden Income

Ontario courts take financial non-disclosure seriously and have several tools to address it:

1. Imputing Income. If a spouse’s reported income is clearly inaccurate, the court may assign an income level based on evidence such as lifestyle, earning potential, or industry standards.

2. Penalties for Non-Disclosure. Courts may penalize a non-disclosing spouse by:

• Awarding higher support payments.

• Dismissing their claims for certain assets or expenses.

3. Access to Corporate Records. If your spouse owns a business, the court can order them to produce corporate financial records, including:

• Profit and loss statements.

• Bank account records.

• Shareholder agreements.

Protecting Your Rights

1. Consult a Family Lawyer. An experienced family lawyer can guide you through the process, gather evidence, and represent your interests in court.

2. Be Persistent. Don’t accept incomplete or evasive financial disclosure. Your persistence ensures a fair outcome.

3. Document Your Findings. Keep detailed records of all evidence, including emails, receipts, and photographs of assets.

Conclusion

Hidden income can significantly affect the fairness of financial agreements in separation or divorce. By staying vigilant, seeking professional help, and leveraging the court’s tools, you can ensure your spouse provides full and accurate financial disclosure.

If you suspect your spouse is hiding income, consult a family lawyer and consider hiring a forensic accountant to uncover the truth and protect your rights.