- How are assets concealed?
- Most people don't do this
- Where to search for hidden assets
Hopefully, you'll never be 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 a divorce or domestic partnership dissolution has taken active steps to conceal money or property. This is done in an effort to preserve what they consider to be their own money and to 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 or awarded lawyer fees as sanctions. Bad faith financial activities often result in an unfair settlement (if they are not uncovered prior to the 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
Of course, not every ex is unethical. Sometimes, a divorcing spouse spends good money trying to locate a non-existent breach of trust. And sometimes, the best thing a distrustful spouse can do is start by investigating documents that are easily accessed (bank statements, tax returns, etc) to see if anything looks fishy.
If that doesn't produce anything but you still feel 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. If necessary, more expensive and expansive legal techniques can be employed to help trace assets and missing funds.
Where to start when looking for hidden assets
Income
Go back a year or two through bank statements, and identify wage deposits into bank accounts. Do they match with reported income?
Business owner income
Look at 5+ years of tax returns. Have there been any major changes in salary, expenses, or excessive retained earnings that your trusted tax professional or business advisor cannot account for?
Canceled checks
Take a look at several years of canceled checks. Were their large expenditures that cannot be accounted for?
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?
Children's bank accounts
Were accounts opened in your child(ren)'s name(s)? Take a close look to determine if they were opened with the intent of hiding assets. Sometimes, interest is not reported as income on these tax returns, and one spouse might not even know they exist.
Investment account statements
Interest on certain bonds isn't always reported on tax returns.
Public records
A check with local and state public records is fairly easy and may yield interesting results.
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.
Tax refunds
Who received them? Where were they deposited? How were they used?
Tax returns
This is the best place to start, and there is so much to look for. It's important to critically review the following (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?
- Miscellaneous deductions, which 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 phone call with us today.
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