The personal and adversarial nature of divorce litigation is a potent combination that can cause emotions to run high, sometimes leading the parties to lash out and punish the other financially. This can take the form of deliberately wasting marital assets, but also concealing marital assets, which we will discuss here.
Family law attorneys should know how to spot the red flags for hidden assets in a divorce, and what to do if one of the divorcing parties is suspected of doing so.
Concealing marital assets from the court is a form of divorce fraud. As with other types of fraud, three “ingredients” are necessary to perpetrate the fraud: motivation, opportunity and rationalization.
These are in no short supply in contentious divorces. There is ample motivation and often, a lot of opportunity. Sometimes one spouse is more involved in managing the family’s finances and has access to logins for the family’s bank, credit card or investment accounts. Also, spouses frequently manage their own separately titled accounts. Either scenario could enable one party to easily conceal transactions or activity from the other in a contentious divorce.
Rationalization is also evident in the language some people use in divorce. They may think, “My spouse is stealing from me,” or “I don’t want to give him/her what’s mine.” Although legally each spouse has rights to marital assets, people can view the redistribution of assets that can occur in a divorce as theft of assets to which they’re entitled. This mindset can lead them to justify hiding assets in an attempt to “defend” what’s theirs.
Red Flags of Potential Hidden Assets
There are a number of red flags that could indicate hidden assets. Those red flags include:
- Guarded control of finances
- One person has access to bank, credit card and investment account logins and refuses to share them
- One person refuses or is reluctant to provide statements for relevant accounts
- Statements are mailed to the office or another address rather than the marital home
- Spouse gets agitated or angry about questions regarding finances
- Unusual or unexpected transactions are found on statements
- There are large or frequent transfers to unfamiliar accounts or institutions
- There are large or frequent transfers to friends and family
- Transactions that should be reflected on statements are missing (e.g., the other spouse’s biweekly salary is suddenly not appearing in the joint account)
- Answers to questions about finances or assets are unusual or unexpected
- There are inconsistencies between the tax return and what has been disclosed
- W-2s show contributions to retirement accounts that aren’t disclosed
- A business or an asset was sold and the proceeds don’t show up on statements
In general, sudden changes in financial patterns starting from when the marriage becomes contentious or when parties decide to separate should be something to watch out for.
What If I Suspect a Party Is Hiding Assets?
If a party in a divorce is suspected of hiding assets, the first step is to gather as much support as possible. If a forensic accountant is engaged, this information will be crucial for them to evaluate the situation and perform an analysis.
Some important items to obtain are:
- Copies of personal and business income tax returns, preferably for the past 3 -5 years
- Copies of W-2s or 1099s
- Copies of paystubs
- Copies of bank, credit card or investment statements; if those can’t be obtained, try to get pictures of statements (preferably including an institution name and account number)
- Copies of checks, wire transfers and deposit slips, especially for suspicious transactions
- PayPal, Zelle or Venmo transaction histories
In general, retain any documentation that can help support the argument of hidden assets.
Hiding assets in divorce is not uncommon and complaints about hidden assets should be taken seriously. The spouse who is concerned about hidden assets likely has a much more intimate knowledge of the family’s finances and what transactions are routine versus non-routine.
Nevertheless, it is also important to note that, on occasion, accusations of hidden assets do not have a good basis. Sometimes spouses don’t have a good understanding of the family’s financial situation and are disappointed with the potential alimony or assets to be distributed. When reality does not match their expectation, they can become confused or angry, accusing the other spouse of hiding assets or money that does not exist.
In contrast, some parties may be hesitant about engaging a forensic accountant. They may be unfamiliar with what a forensic accountant does and what help a forensic accountant can bring to their case. While not every divorce case necessitates engaging a forensic accountant, a forensic accountant can add tremendous value when there are signs of hidden assets (or other financial misdeeds). Forensic accountants are experienced in investigating these claims and have the necessary analytical and investigative skills to effectively analyze financial information and communicate their findings.
In any case, parties who are considering engaging a forensic accountant should carefully weigh whether the anticipated benefits of an investigation justify the cost.
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