Tactics Used by Bad Actors to Manipulate Cash Flow and Expenses in Family Law Cases

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When determining child and spousal support, some individuals manipulate their financial situations to appear less capable. Here are common tactics bad actors use to manipulate cash flow and expenses:

1. Accelerating Debt Payments

  • Description: The payor repays business debts more quickly than necessary.

  • Effect: Reduces short-term cash available for distribution, making the business appear to have less cash flow.

2. Accelerating the Purchase of Capital Assets

  • Description: Hastily purchasing expensive equipment or other capital assets beyond immediate needs.

  • Effect: Spends large sums on non-essential items, reducing apparent cash flow.

3. Accelerating Payments to Vendors

  • Description: Paying bills and invoices much earlier than usual.

  • Effect: Reduces available cash by paying vendors sooner, making the business look less profitable.

4. Deferring Collection of Accounts Receivable

  • Description: Delaying the collection of payments from customers.

  • Effect: Reduces cash inflow, creating the impression of lower cash availability.

5. Excessive Inventory Purchases

  • Description: Buying more inventory than needed, exceeding normal stock levels.

  • Effect: Ties up cash in inventory, lowering distributable cash and distorting financial health.

6. Prepaying Expenses

  • Description: Paying for goods and services in advance, even if not yet received.

  • Effect: Reduces current cash flow, making the business appear less liquid.

7. Writing Off Obsolete Inventory

  • Description: Writing off inventory as obsolete or unsalable.

  • Effect: Increases the cost of goods sold and decreases net income, reducing apparent profitability.

8. Not Accurately Counting and Valuing Ending Inventory

  • Description: Undervaluing or inaccurately counting ending inventory.

  • Effect: Inflates the cost of goods sold and decreases reported net income.

9. Loaning Money to Third Parties

  • Description: Lending money to third parties, such as customers or other businesses.

  • Effect: Moves funds out of the business, lowering available cash flow and potentially writing off loans as uncollectible.

10. Accumulating Large Cash Reserves

  • Description: Retaining unusually large cash reserves for claimed business prudence.

  • Effect: Reduces cash available for distribution, making the business appear less liquid.

11. Paying Obligations Immediately That Are Typically Deferred

  • Description: Paying obligations that are usually deferred, such as bonuses, immediately.

  • Effect: Creates a situation where two years of expenses are paid in one year, artificially lowering apparent cash flow.

Conclusion

Forensic accountants are essential in uncovering these tactics by analyzing financial statements, cash flow records, and transactions. Understanding these tactics helps legal professionals advocate for fair support orders that reflect the payor's true financial situation.