Finding Hidden Assets in Divorce

Some of the most complex cases we handle involve "premeditated divorce planning", i.e. cases where one spouse undermines his unsuspecting partner by hiding away assets for months and even years before the proceedings start. Once the lawsuit is filed, it can take months of investigation, subpoenas, restraining orders, not to mention tens of thousands of dollars in legal and expert fees to track down the missing dough.

I estimate that 10 to 20% of cases involve the need to trace and locate missing funds and property. In the rest of the cases, divorcing couples are reasonably honest and above board in disclosing their finances.

In high net worth cases, it is imperative to have a cohesive strategy to locate mssing funds, which may include hiring a forensic accountant and investigator. Here are some of the obvious places to look:

• Antiques, artwork or hobby equipment: Your husband may convert cash into an expensive asset and then under-report its value. Look for new purchases, like furniture, artwork, watches, etc., especially at his office.
• Delayed bonuses, stock options, or raises: If your husband gets stock options or a bonus before the divorce, that extra money will be included in the martial estate, which he might have to split with you.
• Unreported income: If your husband is involved in any type of cash enterprise, he may be able to pocket the cash without reporting it on his tax returns and financial statements, which means you might never even know it exists! If you’ve ever felt that your lifestyle costs are greater than your combined income or that your husband always seems to be flush with unexpected cash, this suspicion is worth pursuing.
• Custodial account: Your husband may try to hide cash by setting up a custodial account in the name of a child, using the child’s social security number.
• Debt repayment: If your husband has an outstanding debt, he may decide it’s better to use his savings to pay it off rather than split that money with you. Men will sometimes pay a phony debt to a friend, with the pre-arrangement that the friend will hold the money until after the divorce and then return it.
• Salary paid to a nonexistent employee: If your husband owns a business, he may funnel assets in the form of salary to a fake employee. To get the cash back after the divorce, all he has to do is void the checks.
• Fake payments: In collusion with a family member, friend, or new girlfriend, your husband may pay for fake services or products. He can do this out of his private accounts or funnel revenue out of his business this way. The money will no doubt be given back to your spouse after the divorce is final. It is in your interest to carefully review all business and personal transactions.
• Delay in signing long-term business contracts: A new business contract could mean a lot of money for a business; money your husband doesn’t want to share with you. If he purposefully delays the signing of a new contract until after the divorce, that can be construed as hiding assets.
• Expenses paid for a girlfriend: This includes such things as gifts, travel, jewelry, rent or college tuition.
• Investment in bonds with no interest: This includes municipal bonds or Series EE Savings Bonds for which no interest is reported on tax returns. If it isn’t reported, you may not realize it exists.
• ATM withdrawals and wire transfers for small amounts: Cash transfers in small amounts can go undetected for years.

If you think your spouse is taking steps to undermine your financial and legal interests, seek a consultation without delay. I can be reached at [email protected]. For more info, visit: lawjaw.com. As always, the first consultation is free.

Adapted by an article written by Candace Bahr and Ginita Wall, CPA, CFP?