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.
There are a number of red flags that could indicate hidden assets. Those red flags include:
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.
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:
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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