Dividing community property is an important divorce issue, especially if the divorce has been planned for a long time because that gives one spouse time to conceal funds. How can you be certain your spouse has disclosed all marital assets during a divorce?
The answer depends on how you divorce. In a litigated divorce, there is no duty to disclose, while in a collaborative divorce spouses agree to voluntarily produce all relevant information. A complex divorce generates conflict and may produce dishonesty as each spouse tries to get what they feel is their fair share of the marital estate. Collaborative attorneys require their clients to disclose all requested information, but there is no similar obligation in a litigated divorce. Instead, litigation attorneys hide information and resist discovery.
What Types of Assets Are Commonly Hidden?
The most frequently hidden assets are cash, real estate, jewelry, art, collectibles, vehicles, or investments in privately held businesses. Generally, third parties help the dishonest spouse hide assets by holding securities in their names.
Common Ways to Hide Assets
There are several ways to hide assets: stash cash in a safe deposit box, prepay income taxes, or deposit funds in a numbered offshore account. It’s difficult to discover cash hidden in a safe deposit box. You can question your spouse under oath during a deposition and analyze the books to see if they balance, but these methods are not fool-proof. Prepaid income tax is easy to find if you remember to look. Finding money hidden in a numbered offshore account is nearly impossible. Other common strategies are to delay payment of compensation or establish trusts to hold assets outside the marital estate. If the dishonest spouse owns and operates a business, he or she can skim cash, delay collection of receivables, overpay taxes, and fraudulently undervalue the business.
How to Discover Hidden Assets
In a collaborative divorce, the parties sign a Participation Agreement that obligates them to disclose all relevant information. Upon request, the collaborative parties can be required to sign an affidavit stating they have fully disclosed all marital property. Also, a paragraph can be included in the Divorce Decree automatically awarding any undisclosed marital asset to the party who did not possess or control the property prior to divorce. Ask for a sworn inventory and look through tax returns because few individuals will lie to the IRS. Look for income that has no apparent source and for property tax deductions to discover hidden real estate. Another good source is public records for property deeds and corporate records.
The Neutral Financial Professional
Collaborative financial professionals are trained to detect hidden assets. By comparing information from tax returns, brokerage and bank statements, employment contracts, pension plans and analyses of cash flow and net worth, collaborative financial professionals can determine if there are hidden assets. For example, if a tax return shows dividend or interest income but there is no corresponding brokerage or bank statement showing assets that earned the dividend or interest, there may be assets missing. Also, you can accumulate income generated during a marriage, subtract expenses and compare the balance with reported marital assets. If the two values don’t roughly match, that’s an indication there may be hidden assets.
In a litigated divorce, there is no duty to disclose. Instead, litigation attorneys force the other side to submit formal discovery requests. Formal discovery doesn’t guarantee you will uncover hidden assets, because only information specifically requested need be disclosed. In a collaborative divorce, the parties voluntarily disclose everything.
The most common question asked by clients considering a collaborative divorce is: how can I be certain my spouse isn’t hiding assets? It’s natural to be concerned that your spouse may have hidden money if he or she has been planning the divorce for months. The collaborative process contains several safeguards to ensure all assets are disclosed, while there are no guarantees in a litigated divorce. Collaborative attorneys make certain their client discloses all significant information; litigation attorneys force the other side to search for assets. If a collaborative attorney believes his client is hiding assets, he will order his client to disclose the asset or he must withdraw from representation. This usually convinces a collaborative client to cooperate. Litigation attorneys have no such duty.
Discovery disputes are costly and litigation encourage hiding assets, because there is no obligation to disclose relevant information. By contrast, collaborative clients agree to full disclosure and engage a single financial professional trained to spot discovery problems. Most important, by agreeing to a collaborative divorce, you and your spouse have signaled you want to reach an amicable settlement of your dispute without court intervention. The Participation Agreement guarantees you are getting the fullest disclosure possible during a collaborative divorce.