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BGBC: ‘RAIDS’ may be behind spouse’s drop in income

July 17, 2013
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By Howard I. Gross, Steven W. Reed, Erika M. Gowan and Casey L. Higgs

In family disputes, we’re often faced with a dilemma in which the supporting spouse’s income suddenly and/or dramatically decreases without valid support or explanation. In the valuation industry, this disorder is commonly known as “R.A.I.D.S.” or Recently Acquired Income Deficiency Syndrome. Your client’s spouse may have been diagnosed with this terrible affliction as a spousal- or child-support payment obligation is about to be set.

R.A.I.D.S. is most common in self-employed individuals and business owners because they have ownership and control of the financial records of the business, which makes manipulation possible. However, there are times, of course, where a decrease in income is legitimate. For example, the economic recession in 2008 took a toll on small businesses and many companies experienced a decline in profits around this time. Owners of construction companies, residential and commercial builders, and other companies in the real estate industry likely experienced a decline in profits during the recession. There also could be internal factors that cause a legitimate decrease in income. For example, a company losing one of its largest customers or perhaps one of its key employees is cause for a decline in profits. Both external and internal factors present may cause a drop in income to be legitimate.

When a drop in income cannot be attributed to such external and internal factors or may seem unjustified, R.A.I.D.S may be the culprit. The supporting spouse finds ways to hide or divert income so it appears their business is suffering, which results in less money available for spousal- and child-support payments. There are many ways that income can be diverted or hidden by business owners, including, but not limited to:

Revenues can be held until the next fiscal year and not recorded in the year in which the services were performed or the sale was made, thus reducing revenues and income.

Sometimes revenues are just not collected, which is evidenced by a rise in accounts receivable. This reduces cash basis revenues and income.

There also may be several large equipment- and capital-expenditure purchases made unnecessarily, which increases expenses and reduces income.

The business owner may decide to run his or her personal expenses through the business, which would be evidenced by an increase in expenses and a reduction in income.

Another common area that is manipulated is cash. In a cash-intensive business like a restaurant and bar, skimming cash can go undetected. This could be evidenced by a decrease in revenues and a gross profit margin that is not in line with industry standards.

There can be diverted payments to third parties disguised as legitimate business expenses. This results in an increase in expenses and a reduction in income.

The business owner may have customers pay in cash or pay another related entity.

Not recording assets on the financial records and/or federal income tax returns.

Rapid pay down or payoff of substantial mortgages, personal loans, commercial loans or other liabilities before maturity dates, resulting in an increase in expenses and reduction in income.

Temporarily shutting down the business which gives the appearance the business was failing and without income.

Even non-owner employees going through divorces are susceptible to R.A.I.D.S, although it is not as common. One way that income can be diverted is by not working overtime when overtime was available and taken in prior years.

There are ways that R.A.I.D.S. can be detected. Has the spouse’s lifestyle spending changed at all? Does the spouse seem genuinely concerned about his or her own future earnings capacity? Has the spouse expressed concern about the business to any friends or relatives? Collectively these can help to paint a financial picture of the situation.

Forensic accounting specialists and business valuators frequently help attorneys determine if the decrease in income is legitimate or if the income is contrived. A business valuator who also has the skills of a forensic accountant can help with normalizing the earnings of the business when conducting the business valuation. If you suspect your client may be a victim of R.A.I.D.S and you wish to find a cure, seek a seasoned forensic accounting/business valuation specialist.•

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Howard I. Gross, CPA/ABV/CFF, CFP; Steven W. Reed, CPA/ABV; Erika M. Gowan, CPA/CFF, CFE; and Casey L. Higgs, CPA/CFF, CFE, CVA are with BGBC Partners, LLP – Litigation, Forensic and Business Valuation. Contact BGBC at 317-633-4700 or visit www.bgbc.com. The opinions expressed are those of the authors.

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  1. Unlike the federal judge who refused to protect me, the Virginia State Bar gave me a hearing. After the hearing, the Virginia State Bar refused to discipline me. VSB said that attacking me with the court ADA coordinator had, " all the grace and charm of a drive-by shooting." One does wonder why the VSB was able to have a hearing and come to that conclusion, but the federal judge in Indiana slammed the door of the courthouse in my face.

  2. I agree. My husband has almost the exact same situation. Age states and all.

  3. Thanks Jim. We surprised ourselves with the first album, so we did a second one. We are releasing it 6/30/17 at the HiFi. The reviews so far are amazing! www.itsjustcraig.com Skope Mag: It’s Just Craig offers a warm intimacy with the tender folk of “Dark Corners”. Rather lovely in execution, It’s Just Craig opts for a full, rich sound. Quite ornate instrumentally, the songs unfurl with such grace and style. Everything about the album feels real and fully lived. By far the highlight of the album are the soft smooth reassuring vocals whose highly articulate lyrics have a dreamy quality to them. Stories emerge out of these small snapshots of reflective moments.... A wide variety of styles are utilized, with folk anchoring it but allowing for chamber pop, soundtrack work, and found electronics filtering their way into the mix. Without a word, It’s Just Craig sets the tone of the album with the warble of “Intro”. From there things get truly started with the hush of “Go”. Building up into a great structure, “Go” has a kindness to it. Organs glisten in the distance on the fragile textures of “Alone” whose light melody adds to the song’s gorgeousness. A wonderful bloom of color defines the spaciousness of “Captain”. Infectious grooves take hold on the otherworldly origins of “Goodnight” with precise drum work giving the song a jazzy feeling. Hazy to its very core is the tragedy of “Leaving Now”. By far the highlight of the album comes with the closing impassioned “Thirty-Nine” where many layers of sound work together possessing a poetic quality.

  4. Andrew, if what you report is true, then it certainly is newsworthy. If what you report is false, then it certainly is newsworthy. Any journalists reading along??? And that same Coordinator blew me up real good as well, even destroying evidence to get the ordered wetwork done. There is a story here, if any have the moxie to go for it. Search ADA here for just some of my experiences with the court's junk yard dog. https://www.scribd.com/document/299040062/Brown-ind-Bar-memo-Pet-cert Yep, drive by shootings. The lawyers of the Old Dominion got that right. Career executions lacking any real semblance of due process. It is the ISC way ... under the bad shepard's leadership ... and a compliant, silent, boot-licking fifth estate.

  5. Journalism may just be asleep. I pray this editorial is more than just a passing toss and turn. Indiana's old boy system of ruling over attorneys is cultish. Unmask them oh guardians of democracy.

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