Hopefully, you’re never in a situation where you believe that your spouse has failed to disclose marital assets in your divorce proceedings. Unfortunately, there are times when one party to the divorce or domestic partnership dissolution has taken active steps to conceal money or property in an effort to preserve what they consider to be their own money and keep their former partner from gaining a share in it. Courts have uniformly held that willfully concealing assets from a spouse in a divorce action constitutes fraud. In some cases, the entire Divorce Judgment will be set aside. Other times, assuming the asset or account is found, courts have assigned 100% of that asset to the aggrieved spouse and/or awarded lawyer fees as sanctions. Bad faith financial activities often result in an unfair settlement (if they are not uncovered prior to resolution of the divorce action).
How are Assets Concealed?
The most common type of concealment we have seen in our practice occurs when one spouse considers separation months or years before the divorce action is filed and engages in a systematic ‘plot’ to hide assets or earnings from their ‘partner.’ For example, they might transfer money or assets to a family member, paramour or friend. Television and film want us to believe that a more common method of hiding assets includes funneling money into an offshore account. However, we find that more commonly, a spouse simply provides incomplete or missing information in their mandatory financial disclosures or ‘pays off’ non existent debts. Sometimes a spouse pays off a separate property asset or debt with joint funds or deliberately delays business profits, bonuses or raises until after separation. Untrustworthy spouses who own their own business may try more calculated methods to try and lower the value of a community property business by skimming cash off the top, paying nonexistent employees, inflating business expenses and paying close friends or colleagues money for services that were not rendered (with the intention of receiving the money back after the divorce is finalized).
Most People Do Not Engage in These Types of Behaviors
Ok, our readers are smart and know that not every ex is unethical. This is just a reminder that emotions get the best of us, and sometimes we spend good money after bad — trying to locate a non existent breach of trust. Sometimes, the best thing a distrustful spouse can do, is start by investigating documents that can be easily accessed (bank statements, tax returns etc) to see if anything looks ‘fishy.’ If that doesn’t produce anything but you are still feeling like something is ‘not right’, think about employing a forensic accountant / expert to review financials for a specified period of time – to see if anything turns up. More (expensive and expansive) legal techniques can be employed if necessary to help trace assets and missing funds.
Where to Start When Looking for Hidden Assets
1. Income: Go back a year a two through bank statements and identify wage deposits into bank accounts. Do they match with reported income?
2. Business owner income: Take a look at 5+ years of tax returns. Have their been any major changes in salary, expenses or excessive retained earnings that your trusted tax professional/business advisor cannot account for?
3. Cancelled checks: Take a look at several years of cancelled checks. Were their large expenditures that can not be accounted for?
4. Retirement accounts: Were large loans or withdrawals taken out during the marriage? Were they used for a specific purpose (like a home renovation or college tuition)? Is there a pattern of unaccounted for large distributions?
5. Children’s bank accounts: Were accounts opened in your child(ren)’s name(s)? Take a close look to determine if they were opened for the intent of hiding assets. Sometimes, interest is not reported as income on these tax returns and so one spouse might not even know they exist.
6. Investment account statements: Interest on certain bonds aren’t always reported on tax returns.
7. Public records: A check with local and state public records is fairly easy and may yield interesting results!
8. Loan applications: Sometimes banks require an annual financial statement to maintain a line of credit or financing. Check annual net worth statements through these banking institutions for changes in assets, income or liabilities from year to year.
9. Tax refunds: Who received them? Where were they deposited? How were they used?
10. Tax Returns, Tax Returns, Tax Returns: Best place to start and so much to look for. It is important to critically review the following (a non exhaustive list):
– interest and dividend income – where is it coming from?
– existence of deferred compensation plans
– retirement plan distributions
– stock option exercised?
– gain or loss from the sale of a business asset(s)?
– indication of income generated from assets in another state?
– deductible mortgage interest – does it match up with your records?
– casualty loss – did you or your spouse report a theft loss? What happened with the insurance proceeds?
– misc deductions could reveal the existence of other assets
Veiling, concealing, hiding or misstating assets and income during a divorce action is unlawful and unethical. Unfortunately, there are cases that involve these issues and they require a holistic, creative, problem solving approach. If you suspect this may be an issue in your case or have other questions regarding your spouse and assets, schedule a free 15 minute consultation with us today.