The Moneyist: My wife and I defrauded the government by hiding income. Now we’re divorcing, and she’s threatening to ruin us both

Dear Quentin,

This story is going to sound strange.

Throughout our entire marriage, my wife and I jointly, upon our accountant’s advice, defrauded the government by hiding income. We are self-employed. We do have retirement accounts, but also bought properties and a second home and made as many cash payments as possible.

My wife — again, under the advice of an accountant — continues to claim unemployment during the pandemic, and only takes cash from her customers. We are now divorcing after she left me for her pandemic boyfriend. She was caught at our vacation home with him.

I owe her some sort of spousal maintenance due to our longstanding marriage. But I believe it is far less than she thinks, and now she wants to dig up all of our prior assets that are held in my name or in my other businesses’ name.

I say she’s only entitled to our joint retirement, properties and holdings, and half of our joint business assets. She has an equal amount of assets in her own name. All our children are out of the home, done with college or secondary school and/or married.

Yes, I know. This sounds ridiculous and yes, I know, we could both be in jail. I recommended no one do any digging, but she’s adamant that she gets more, and damn the consequences of both our actions during the marriage to mutually defraud the government.

Future Jailbird

Dear FJ,

A couple that lies together is less likely to stay together. The same, of course, is true of bandits. Your wife lied to Uncle Sam and now she lied to you. You’re in good company. Of course, you also lied to Uncle Sam. To quote the late Princess Diana in her infamous interview with Martin Bashir, “There were three of us in this marriage, so it was a bit crowded.”

You can try calling your wife’s bluff, of course, but that may land you both in hot water where the money is ultimately returned to the Internal Revenue Service and you lose your properties, pay hefty fines and face down criminal charges. Good news for Uncle Sam; bad news for you and your wife. She appears to be acting consistently, which is about the nicest thing I can say about this entire mess.

High-income tax evasion is on the rise. Unreported income as a fraction of true income rises from 7% in the bottom 50% of earners to more than 20% in the top 1%, researchers from the IRS, Carnegie Mellon University, the London School of Economics, and the University of California, Berkeley concluded in a paper released earlier this month.

Your wife appears to have you over a barrel. She knows you well enough to take this gamble. The worst that can happen is you say no. What your wife does next is anyone’s guess. She may do nothing but hold this over you for months and years to come. It’s not the kind of sentence the government might give you both (anywhere from one year to 20 years in New York).

You need an accountant (a new one), a lawyer and a mediator. You were the marital equivalent of Bonnie and Clyde, hiding revenue, buying properties with cash, and doing so on the advice of an accountant. That piece of the puzzle provides no escape for either of you. You both signed your tax returns, and you must take equal responsibility for that.

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