Financial Tracing
Financial tracing is a process that occurs in many divorce or parentage proceedings. The process typically stems from instances of needing to track a party’s sources of income, expenditures made for non-marital purposes (also known as dissipation in Illinois), or in the event a party is trying to prove the marital or non-marital nature of an asset. Essentially, financial tracing is the process of tracking the origin, movement, and ownership of assets or income incident to a domestic relations matter.
Financial tracing to determine sources of income usually occurs when your attorney is trying to determine a party’s income for purposes of calculating child support or maintenance, formerly known as alimony in Illinois. This type of financial tracing is generally straightforward, and our attorneys are trained to be able to trace and detect deposits or expenditures that indicate sources of income for parties in their banking or investment account statements. This process also applies to instances when a party is earning income from multiple sources. The attorneys at The Law Office of Erin M. Wilson LLC can trace the different types of deposits into a party’s account and determine income from each source.
In terms of expenditures for non-marital purposes, also known as dissipation, our attorneys can also trace expenditures in various statements (i.e. bank, investment, retirement accounts) and create spreadsheets to demonstrate where an individual may be moving money and if it is being spent towards “non-marital” purposes. To learn more about dissipation and what is classified as a “non-marital” purpose, please see our article linked here. When it comes to tracing income or expenditures, parties usually to not have to engage in a formal financial expert to conduct the tracing because attorneys can do this work.
Sometimes it is necessary to trace financial assets when trying to determine the classification of an asset as marital or non-marital. This is important because there are rules for determining how assets are divided during a divorce based on whether the asset is marital or non-marital. In Illinois, marital assets are subject to equitable division and the presumption is that all assets received or created during the marriage are deemed marital (with some exceptions). This is a rebuttable presumption, meaning the burden is placed on the party wishing to prove the asset as non-marital, and therefore not subject to division, is in fact non-marital. Tracing comes into play in cases to determine what portion of the asset may be non-marital. It can also come up if a non-marital asset has been placed into a marital asset and then subsequently taken out. As an example, if a party owned a home before the marriage (their non-marital property) and before the marriage sold the property and deposited the money received from the sale into a joint account with their now spouse, those funds may be deemed marital since they were placed into a joint account. However, if the party placed those funds in a joint account and then immediately transferred those funds into another, non-marital account, then tracing is necessary to show where the funds went and why they should be considered non-marital.
The process of tracing for classification of assets involves researching the origin and pre-marriage value of an asset, investigating each spouse’s finances to determine if there are any hidden or undisclosed assets, examining financial documents like bank statements and tax returns, reviewing transfers or sales of assets within the marriage, locating offshore accounts, and analyzing marital debts and liabilities. It is important to find where the asset funds originated to determine if they were originally pre-marital or marital assets.
When conducting tracing for classification purposes, a forensic accountant may come into play. A forensic accountant is an accountant who is skilled in analyzing and examining financial transactions of a person or business. Forensic accountants documents and verifies financial transactions including deposits, withdrawals, and transfers within bank accounts and brokerage accounts. These transactions may also include the purchase and sale of securities and other assets, as well as deposits and withdrawals from retirement accounts.
The Law Office of Erin M. Wilson is experienced in helping clients trace financial assets. Contact the Law Office of Erin M. Wilson at 312-767-4220 to schedule a consultation.
NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.