Question

Is this statement true or false based on the notes below? A subchapter S business owner may increase his salary in order to decrease the income of his business to reduce the amount he would have to pay in a matrimonial settlement

Some business owners-specifically those whose companies are subchapter S corporations-might prefer to allocate a smaller share of compensation to salary and the balance to profits. The reason is easy to appreciate: Federal Insurance Contributions Act (FICA) and Medicare taxes are collected from salary with an additional matching amount paid by the company. The result is a smaller paycheck. If the company is to be valued as a multiple of net earnings, this will not cause the forensic accountant much of a problem. Forensic Accounting for Divorce Engagements A: Practical Guide, Third Edition. In fact, it works to the client's benefit because of the greater the earnings, the greater the company's value. But what if the business owner, realizing this, switches to a higher salary? After all, it is surely better to have higher payroll deductions for a year or two than to pay the difference in a matrimonial settlement.

Answer 1

The divorce may cause an honest person to commit fraud. The motive is to hurt, devastate the other party. The time that either party realizes that divorce may happen, their time starts for the financial red zone which may result in divorce planning or fraud planning, the objective is to have a favorable economic outcome. Various strategies are used to deprive the spouse of basic needs for survival. Fraud can be described as intentional deception to other.there are various badges which indicate a transaction is fraudulent, they can be categorized as below

A. Understatement of income.e.g hiding any income received

B. Imaginary deduction like personal expenses deducted as business expenses

C. Accounting fraud.Like an improper recording of books

D. Intention or transaction to evade taxes like presenting wrong information

E. Consistently underreporting of income statements

F. Not cooperating with examining agent.

G. Hiding of assets;

H.Hiding illegal activities

I. Incomplete records

By this, we can judge that the business owner may increase salary in order to reduce his income to reduce the amount to pay for the matrimonial settlement.