Tax Returns vs Bank Statements: Trust Your Gut

Here’s a little secret— Anyone can put anything on a tax return.

People cheat on their taxes. That’s hardly groundbreaking news, yet it’s a reality that many family law attorneys and individuals going through divorce encounter, especially those involving complex finances.

When small businesses are involved, the numbers can get even murkier.

If you’ve looked at a tax return and thought, “How is it possible that this person keeps losing money? How are they paying for their personal living expenses?”, you’re likely on to something.

These are red flags, and they’re your cue to dig deeper.

The key is: Learn to trust your gut when the numbers don’t make sense.

Step 1: Follow Your Instincts

Small inconsistencies in financial disclosures often raise bigger questions. Does the claimed income line up with your understanding of their lifestyle? Are they supposedly operating a business at a loss while still managing to afford personal expenses? These hints are worth investigating.

Step 2: Compare Total Deposits to Gross Receipts

A simple yet powerful step is to compare total deposits in a business account to the gross receipts reported on the tax return. If you find a significant discrepancy, alarm bells should go off. These discrepancies can be evidence of unreported income—particularly common among cash-based businesses or small enterprises.

Step 3: Look for Personal Expenses in Business Accounts

It’s not unusual for small business owners to run personal expenses through their business accounts. While a few meals or small expenses may not seem like much initially, they can add up over time. These types of adjustments can drastically alter the financial story presented in a case. For example, identifying personal utility payments, vehicles, vacations, or major purchases hidden within business expenses could substantially impact how assets or income are evaluated during negotiations.

Why It Matters

Taking the time to examine these financial subtleties can transform the outcome of a case. What might look like a modest income at first glance could be masking hidden earnings, completely reshaping child support or spousal maintenance calculations.

Paying attention to these details isn’t just good practice; it’s essential for achieving fair and equitable outcomes for your clients. By trusting your gut, doubling back on inconsistencies, and using basic financial tools to peel back the layers, you can ensure the numbers reflect reality—not creativity.

Family law attorneys are not expected to be financial experts but knowing where to look and what to question can change the game.

It all starts with trusting that little voice that says, “This doesn’t add up.”

If you have questions or concerns, seeking the guidance of a Forensic Accountant could be a critical next step. Schedule a free consultation here.