Hiding assets during a divorce is sneaky, unethical and illegal –but it happens much more frequently than most expect. Unreported income and hidden assets are often alleged in divorce proceedings, especially in high net-worth cases, and are usually quite complicated. It is common for a spouse to hide income and assets, especially if the divorce has been planned for a long time.
There are numerous ways to find hidden assets, but typically assets are either placed in the hands of a third party or behind false documents. The process of finding assets or proving unreported income is often one of the most difficult assignments during the divorce process. Being familiar with ways individuals move assets into the hands of third parties or behind false documents and techniques to find those hidden assets can result in the successful discovery of this property.
What Assets Might be Hidden?
The most common types of assets hidden are cash, bonds, mutual funds, cash value in insurance policies and variable annuities, stocks, travelers' checks, Series EE savings bonds, and bearer municipal bonds.
Conversion of cash into personal property such as art, jewelry, collectibles, antiques, vehicles, boats and planes are also possibilities. Hobby equipment, gun collections, original paintings, collector quality carpets and tools are examples of asset conversion that often are overlooked or undervalued.
How Are Assets Hidden?
Purchase items that could easily be overlooked or undervalued. Maybe no one will notice that expensive antique/carpet that’s now at their office? Were you wondering why they recently made several significant additions to their coin/stamp/art collection?
Stash money in a safe deposit box, somewhere in the house or elsewhere. Think through your spouse’s recent habits and activities. Does anything lead you to believe they are hiding assets in actual cash?
Underreport income on tax returns and/or financial statements. If it’s not reported, it can’t be used in a financial analysis.
Overpay the IRS or creditors. If your spouse overpays, they can get the refund later, after the divorce is final.
Defer salary, delay signing new contracts and/or hold commissions or bonuses. This sneaky trick means this income won’t be “on the books” during the divorce proceedings.
Create phony debt. Your spouse can collude with family members and/or friends to establish phony loans or expenses. Then, they can make payments to the family members or friends, knowing that they’ll get all the money back after the divorce is final.
Set up a custodial account in the name of a child, using the child’s social security number. They could also use their new significant others social security number, in which case it might be difficult to locate the account.
Transfer stock. Your spouse may transfer stock/investment accounts into the name of family members, business partners or “dummy” companies. After the divorce is final, the assets can be transferred back to them.
The list goes on and on . . . and it certainly begs the question: Why would a spouse do any of these things? There are many possible reasons. They may fear not having enough money after the divorce. They may feel they're getting revenge for an infidelity. Maybe they're just greedy and feel that they deserve it! Whatever the reason, hiding assets, income and debt is not only unethical; it’s also illegal and subject to severe penalties IF discovered.
Locating Hidden Assets
Prior to searching for hidden assets, the investigator must have accurate and timely personal identification information for the other spouse. This includes full legal name and variations (nicknames, abbreviations, common misspellings) as well as known aliases. Current and recent address information is essential. While some searches only need the name and not the address, it is always good to have both pieces of information.
Because assets may have been transferred to family members, the names and addresses of close relatives, their social security numbers and dates of birth will be valuable information in tracing movement of property or cash between the spouse and family.
Specific questions may reveal the likelihood of hidden assets evident through lifestyle. Does the spouse travel? If so, where? In what type of hotels do they stay, and what are their activities as they travel? Who makes up their group of friends and what type of people are they? Does the spouse get an automatic transfer of funds or an allowance? Does the spouse deposit a paycheck into a separate account?
Other telling information can be gleaned from answers to questions such as these. Is a credit card statement being mailed to the spouse's work address? Are large amounts of cash floating around? Is cash used to pay for purchases? Who are the spouse's accountant and lawyer? Has the other party provided honest reports on prior tax returns? Is there ownership of a business? If so, is it a cash business? Is there a Subchapter S Corporation?
With this basic information in hand, the investigator can pursue specific information from many sources.
Income Tax returns: This should be the first place to look for possible clues as to the existence of hidden assets. The return provides the roadmap to the discovery of income earning assets and asset sales. The return should also describe the source of income, whether it be interest, dividends, rental income and gain or loss from the sale of a stock. Each page of the tax return should be carefully examined for information.
Savings accounts and money market funds: Observe deposits and withdrawals in savings accounts or money market funds. Deposits could point to a hidden asset such as a stock that pays a dividend or a bond that pays interest.
Checking account statements and cancelled checks: Notice cancelled checks and to whom they are payable. The purchase of an investment or property might be revealed. Request that the front and back of the checks be copied by the financial institution in order to understand into what account the checks were deposited. This can provide additional account number and financial institution information.
Lifestyle analysis: Look at the lifestyle of the other party and match the income being reported. What kinds of clothes are being purchased? What kind of car is being driven? Is there a disparity between lifestyle and reported income? If there is, then the question arises as to how the more lavish lifestyle is being funded if the reported income could not support it. If debt has not increased, was money inherited? If neither of these are answers to the question, then there is a good possibility that unreported income is funding the lifestyle. This analysis might lend significant support to the existence of hidden assets.
Cash flow procedures in a business: How does money come in and who receives it? If one person opens the mail and records the payments with a second person making the deposit, then there is probably good internal control over the funds being recorded correctly. If, however, the same person opens the mail, writes the deposits and makes the deposits, then a red flag might be found. Determine whether the checks are made payable to the name of the business or to the owner of the business. In situations where the owner might open the mail and where checks could be payable to the owner, one should compare the accounts receivable records to the cash receipts records. Write offs of significant amounts should be reviewed to see if the write offs are valid or merely cover ups for receipts that were deposited into a personal bank account instead of the business account. The write offs should be supported by documents that indicate that there were attempts to collect, such as correspondence from the owner or from the business' attorney.
Off shore accounts: Assets and money sent offshore are can be difficult to discover. Offshore banks have secrecy laws that can make it virtually impossible to obtain information. A copy of the party's passport can reveal travel destinations where offshore accounts might be located.
Public Records Check: Public records are available in county courthouses, city halls and at state repositories. These records contain valuable information that is public and available to anyone who inquires. However, to be efficient with time and resources, one needs to be familiar with how to obtain the types of documents that will reveal asset holdings.
Whether termed as obscuring, hiding, obfuscating, veiling or concealing assets, the many methods used by one spouse to prevent access by the other to cash, real, personal or business property can present a seemingly insurmountable wall for attorneys seeking parity or equitable division of marital assets for their client. Due diligence demands exhaustive measures when unethical and/or fraudulent arrangements exist or are suspected. While it may be difficult to bring to light unreported income and hidden assets, clues can be found which are very meaningful to a trained eye, and can open the facts for fair final property settlements.
Parts of this article were sourced from:Here