Separating from your partner and deciding to divorce can be painful in the best of circumstances.
However, having suspicions of financial fraud can cause more emotional pain and potentially derail the entire process. In a high-stakes divorce, a party may try to hide money or assets to minimize the potential settlement.
Imagine this scenario: it has taken you some time to embrace the idea of divorce, and you prepare to negotiate in good faith. As part of the legal process, you share your financial information, believing that your spouse is ready to do the same. You likely also believe that you understand your spouse’s finances well. However, you soon discover that money is missing or certain assets were left out from their affidavit.
Financial fraud doesn't happen overnight. Your spouse may have gradually moved funds to a secret account or "forgot" to tell you about a property they bought. And it's easy to miss the signs, especially if they handled all the financial work in the household.
Let's explore how hidden assets affect the divorce process and what you can do to find them.
What is financial disclosure, and why is it important?
"Financial disclosure" is a phrase that you will hear often during a divorce, and for good reason—it's the full accounting of each party's financial situation, resources, and future needs.
To ensure a fair settlement and an equitable division of assets, both parties must fully disclose all their financial resources, including:
- All current sources of income, including rental income and alimony
- All current assets, both individual and jointly held
- All current liabilities, such as credit card debt
- Business, savings, and investment accounts
- Significant physical items, such as fine art and cars
- Digital items of value, such as NFTs or cryptocurrency
- Insurance policies
- Budgets and forecasted expenditure
The typical process begins with both parties making a detailed list of assets they each held prior to the date of the divorce filing. Once that information is exchanged, the parties can examine and interrogate the statements until an agreement is reached.
California state law requires each party to a divorce to disclose all community and separate assets. Ideally, both parties work together and agree to the facts of the financial disclosure between them before the process can proceed. But if they can’t come to an agreement, they can ask the court to decide and risk an expensive and protracted legal battle.
In what ways do spouses hide assets?
It's not uncommon for parties to minimize their financial exposure during or in anticipation of a divorce, especially if high-value assets are involved. It’s important to remember that withholding information from the courts may constitute perjury, contempt of court, and fraud and can lead to substantial penalties and even jail time.
However, that hasn’t deterred some people from hiding assets. There are many ways to disguise the true state of their finances, and the methods vary depending on the asset class. Here are some of the most common tactics.
Concealed transactions
The uneven division of financial labor in a household can make it easier for one spouse to make undisclosed transactions and conceal assets. With little oversight, they could siphon money to secret accounts or purchase high-value investments without the other spouse's knowledge.
Hidden/undervalued items
Spouses who own significant physical holdings (e.g., fine art, jewelry, automobiles) may attempt to downplay the value of these assets or omit them from disclosure altogether.
Sheltering assets in the business
Some parties may use their businesses to hide assets until the divorce is finalized. For instance, they may delay new business deals until after the divorce. While this may seem like a savvy business strategy, the courts will see this as a method of hiding assets.
Business owners may also invent expenses and pay salaries to ghost employees to make it seem like the money was legitimately spent.
Trusts and gifts
Another popular method of hiding assets is to set up a trust for a party who will return the funds after the divorce. Parties may also transfer money and property to friends, family members, or romantic partners, disguising them as gifts.
Digital assets
In recent years, digital assets like NFTs and cryptocurrencies have been used to conceal funds from interested parties and the courts. Crypto assets are, by and large, disconnected from the traditional financial system, and the industry lacks federal oversight. These regulatory gaps have led to exploitative practices and a lack of transparency.
What steps should I take if I think assets are being hidden?
While you may not be able to track down missing assets without outside help, you can take steps to support your suspicions with facts.
Any investigation should begin with a lifestyle analysis to paint a clearer picture of your household's standard of living during your marriage. After a careful analysis of the expenses, you can begin identifying discrepancies and use them to guide you to the right path.
It's also essential to obtain and examine certain financial documents, as they may raise red flags or reveal clues that may assist you in recovering concealed assets.
Bank statements
Check the inflow and outflow of funds deposited each month, and make sure to list all accounts where the funds were transferred. Highlight all large withdrawals so you can ask how the money was spent. The information from a bank statement may also reveal the existence of places where assets can be hidden, such as PayPal, Venmo, and safety deposit boxes.
Tax returns
Another great source of information is your spouse's tax returns, especially if they file separately or own a business. Individual sections may uncover unreported sources of income and assets that generate interest and dividends, such as capital gains and retained earnings from other income sources.
Social media
Some people feel the need to share their purchases on social media for the world to see. Any information shared digitally is admissible in court, and you may be surprised by how much usable evidence is publicly available on platforms such as Instagram and Facebook.
Find hidden assets with a CDFA
If you suspect that your spouse has concealed assets, your first step would be to talk to a CDFA as early as possible. Using forensic accounting methods, they can assist you in uncovering your spouse’s full financial picture.
An experienced CDFA can also take steps to protect your financial interests during the divorce process and create a sustainable post-divorce plan that allows you to move forward with clarity and confidence.
Have any questions? Unsure about your next steps? Book a consultation today.
