- 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.
FAQs
How do spouses commonly hide assets during divorce
Common tactics include underreporting income, moving money to new or joint accounts with others, overpaying taxes or debts to create future refunds, delaying bonuses or invoices, transferring assets to friends or family, and undervaluing or hiding business revenue.
What are warning signs my spouse may be hiding assets
Red flags include unexplained cash withdrawals, new debts, mail or statements going to a different address, sudden changes in pay, missing account statements, lifestyle that exceeds reported income, or pressure to settle quickly without full disclosure.
What should I do first if I suspect hidden assets
Start by gathering and organizing financial documents you can legally access, list all known accounts and assets, note specific concerns with dates and amounts, and consider speaking with a lawyer or neutral financial professional about next steps.
Can I use discovery tools to find hidden assets
Yes. Formal discovery can include interrogatories, requests for production, subpoenas to banks and employers, depositions, and in some cases court orders to preserve assets or compel disclosure.
Do I need a forensic accountant
Not always, but a forensic accountant can help trace transfers, analyze business income, and reconcile statements when finances are complex or records are incomplete.
What happens if a spouse is caught hiding assets
Courts can impose penalties such as sanctions, attorney’s fees, adverse inferences, reopening of settlements, and awarding a larger share of assets to the other spouse.
Step-by-Step: Uncover Hidden Assets During Divorce
Map the financial picture
List every known account, asset, income source, and debt. Include account numbers where available, ownership, and the institution holding each account.
Collect and compare records
Gather tax returns, pay stubs, and monthly statements. Compare deposits, withdrawals, and reported income across documents to spot gaps or inconsistencies.
Identify red flags
Look for unusual cash activity, transfers to new accounts, sudden debt paydowns, deferred bonuses or invoices, or expenses that do not match reported income.
Use formal discovery
If needed, request documents, submit written questions, issue subpoenas to banks or employers, and schedule depositions to obtain missing information.
Trace funds and value assets
Reconcile transfers between accounts and review business records. Consider a forensic accountant for complex transactions or closely held businesses.
Seek protective court orders
Ask the court to preserve assets, prevent dissipation, or compel disclosure if there is ongoing concealment or noncooperation.
Pursue remedies and finalize
Negotiate adjustments to the settlement or ask the court for sanctions, attorney’s fees, or a larger share of assets based on the findings.
.png)
Have Questions About Divorce? Don't Know Where to Start?
