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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. Applause, applause, applause ..... but, is this duty to serve the constitutional order not much more incumbent upon the State, whose only aim is to be pure and unadulterated justice, than defense counsel, who is also charged with gaining a result for a client? I agree both are responsible, but it seems to me that the government attorneys bear a burden much heavier than defense counsel .... "“I note, much as we did in Mechling v. State, 16 N.E.3d 1015 (Ind. Ct. App. 2014), trans. denied, that the attorneys representing the State and the defendant are both officers of the court and have a responsibility to correct any obvious errors at the time they are committed."

  2. Do I have to hire an attorney to get co-guardianship of my brother? My father has guardianship and my older sister was his co-guardian until this Dec 2014 when she passed and my father was me to go on as the co-guardian, but funds are limit and we need to get this process taken care of quickly as our fathers health isn't the greatest. So please advise me if there is anyway to do this our self or if it requires a lawyer? Thank you

  3. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  4. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  5. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

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