Divorce is complex as it is, but when you and/or your spouse have a diverse income stream, non-traditional income, or both, it can become much more complicated.
Non-traditional income streams are forms of income that are not derived from a traditional job or salary for which you have a W2.
This is especially common for high-net-worth individuals. For example, many executives make more from their stock options than from their take-home pay, and most have bonuses and/or commissions throughout the year.
You might own a number of rental properties with your spouse, or you may have started a number of businesses over the years from which you continue to draw income.
Perhaps you receive royalties from some creative work you have done (books, movies, music), or perhaps you have a number of patents from which you receive royalties.
Dividends from stocks, pensions, trust funds, online businesses, and even social media accounts — these all add up.
It is critical, if you have these non-traditional streams of income, to understand how they will be affected by divorce.
What Does Divorce Look Like When You Have Non-Traditional Income Streams?
When you have non-traditional income streams, the divorce process is a bit more complicated.
The biggest challenge is determining how much these diverse income sources are really worth.
For example, if a couple has a social media account from which they receive “influencer” income, how much is that account worth? If the account has both spouses as active participants, will it retain value after the divorce?
A stock or bond can be easily valued, but what about a patent? How much is a patent going to be worth in the future? Or will it be worth anything at all as technology progresses?
Even something “simple” like commissions for high-net-worth salespeople can be hard to value as they can fluctuate so much throughout the year.
In most cases, you will need to bring in a team of experts who specialize in each asset or income stream. They can determine how much the assets or income streams are worth, what they are likely to be worth in the future, and what an “equitable” split might look like.
Splitting assets might make them worthless, and there might be significant tax implications to splitting an asset. It is critical that you bring in a team of experienced experts who will ensure you retain as much of your asset’s value as possible.
Another challenge is determining income. This is especially true if the non-traditional income streams are not stable or reliable. For example, income from an online store can have massive fluctuations from one month to the next — and one year to the next.
Determining what that income really is will affect alimony and/or child support — another reason to ensure you have a great team on your side.
Understanding The Tax Implications of Non-Traditional Income Streams
Non-traditional income streams can be taxed very differently compared to traditional income from an employer, and if the source of the income is liquidated or split, then you might owe taxes based on the conversion of the asset to cash or the splitting of the asset.
Additionally, the taxation of investments, pensions, annuities, and other non-traditional income streams can vary from state to state.
An experienced tax professional will help you avoid the worst potential tax outcomes if liquidation or split is unavoidable — however, there are other strategies to avoid splitting or liquidating assets.
For example, you and your spouse might choose to let one of you keep one asset and the other keep another asset rather than splitting them both down the middle. If your spouse has a series of patents and you both own a number of franchises, rather than splitting them, you could take the franchises while your spouse keeps the patents.
These are just examples — an experienced divorce attorney will help you and your spouse come to a decision about asset division that benefits both parties.
Determining Income During A Divorce
From the beginning, you are going to want to collect as much documentation of each income stream as you can, including bank statements, investment statements, and tax returns.
However, this may be easier said than done, especially if you are going through a contentious divorce. This is where experts, like forensic accountants, can play an important role.
It may be the case that your spouse has hidden income streams or assets. They might not even have been intentionally hiding these from you — you might just not know about them, especially if you were not involved in your family’s finances.
Experts will make certain that all income streams are found so that they can be divided properly.
This is important even if you have a general idea of how much an asset is worth. Just because you know its value today does not mean you know its value in the future. An asset might be worth much more than you think in the future — or much less.
An expert can make a precise valuation.
Hidden Assets And Divorce
A hidden asset is an asset that your spouse does not tell you, your attorney, their attorney, or the court about.
Hiding assets is an extremely bad idea for a number of reasons, not least of which is that it will anger the judge.
If your spouse attempts to hide some of their income streams and is found out, the judge may grant you higher alimony or child support payments. Your spouse can end up paying your legal fees and may even face criminal charges (hiding assets is considered contempt of court, which the judge will take very seriously).
Hiring a forensic accountant ensures that all assets will be found and avoids the mess that hidden assets can cause. Even if you ultimately end up on top thanks to punishments for your spouse by the judge, it is a problem that is best avoided altogether.
Navigating divorce when you have non-traditional income streams is extremely difficult without an experienced team on your side. This is not something you want to try to handle alone. Talk to our experienced family law attorneys about your divorce today.
Contact Our Texas Family Law Attorney for Advice Today
The Julian Firm offers personal attention to people in need of family law attorneys in Flower Mound, TX, and the surrounding cities.
If you need help with a family law matter like divorce, Jared Julian can help — he has been helping families for more than a decade and is also a licensed mediator.
This makes him a professional in settling family disputes. As an experienced family mediator, he listens to both sides and makes an informed decision that is in the best interest of all parties.
Mr. Julian and his team of experienced family law attorneys are available for a consultation.
Contact us today.
When faced with a heated situation such as the dissolution of a marriage, call a lawyer with compassion, knowledge, and experience with the legal system.
