Hiding Assets in Divorce: Red Flags, Searches and Penalties
Do you suspect your spouse of hiding income or assets? Or, on the flip side, do you feel tempted to hide income or assets because you believe that you will not be treated fairly in divorce? Bari Weinberger recently wrote about the hot topic of hidden assets in divorce in her latest article for the New Jersey Law Journal. Here are some tips from Bari for safeguarding yourself in your divorce…
Spouses, even spouses going through divorce, have a fiduciary duty to one another. This duty requires scrupulous honesty about property and finances during marital asset division. If you suspect your spouse of not being open and honest, and hiding assets in divorce, there are steps you can take to protect yourself. If, on the other hand, you are tempted to hide information from your spouse, you need to know that the penalties for such behavior can be harsh.
Looking for Hidden Assets
If you are financially dependent on your spouse, or if your spouse insists on staying in complete control of your marital finances, your lack of financial knowledge could hurt you because you may not recognize the signs that your spouse is hiding asset in divorce. In this kind of situation, it is crucial to consult with an experienced divorce attorney as early as possible.
If your spouse refuses to share information with you, you can start looking for it yourself. Your bank can give you information about any joint accounts. You can look for documents or small items like cash or jewelry in obvious physical locations like file cabinets, closets, dresser drawers, shoe boxes, or books. Spouses also sometimes stash assets or documents in a private office, a relative’s home, or even a clandestine apartment. More modern places to hide assets include cryptocurrency and other digital assets like NFTs and unexpected or overlooked assets like expensive handbags that can be resold after divorce. [See “6 places spouses hide assets” for more.]
The Divorce Discovery Process
Once you file for divorce, you will be able to obtain information through legal discovery. While the easiest route through divorce is usually an uncontested process, if you believe that your spouse will not be forthcoming with information, you may need to file a contested divorce. You and your spouse will then be required to exchange financial disclosures known as New Jersey Family Law Case Information Statements (CIS). The CIS requires a detailed accounting of income and expenses, assets and liabilities, and supporting documents like W-2 statements, 1099’s, K-1 statements, pay stubs, and tax returns. The CIS is a primary tool for uncovering warning signs that a spouse is hiding assets in divorce.
Analyzing the CIS
After your spouse completes the CIS, your attorney will review the information. Sometimes this review reveals clues to possible missing income or assets. Bank, brokerage, or credit card statements may reveal things like repetitive withdrawals or debit card “cash back” transactions, checks to friends or relatives for questionable purposes, or previously unknown expenses for travel, entertainment or gifts. The CIS may also reveal unknown separate or joint accounts in your spouse’s name. Other red flags include credit cards with credit balances, payments of separate debts with marital funds, or recent sales of property for low amounts.
The CIS must identify all assets. This includes not just ordinary personal property and real estate, but also intangible property such as cryptocurrency, patents, trademarks, copyrights, or royalties. It is important to verify the value of items like artwork, jewelry, wine collections, or antique furniture. Sometimes a spouse will try to avoid identifying accounts or property by moving them out of the state or even out of the country.
Your attorney will discuss follow-up options with you. More detailed questioning or requests for additional documents can be revealing. If the apparently missing money or assets are of high enough value, professional asset tracing or a formal lifestyle analysis may be appropriate. These steps generally require financial professionals, who can be expensive. If asset or income hiding is confirmed, however, a judge can order your spouse to cover payment (Von Pein v. Von Pein, 268 N.J. Super. 7 (App. Div. 1993).
Analyzing Tax Returns
Your attorney can also look for certain clues in your spouse’s tax returns, such as sudden drops in income; interest or dividend income that does not line up with the CIS; deductions for unidentified real estate tax paid in another state; foreign accounts and trusts; refunds or overpayments; payment of tax for a child; inflated Schedule C expenses; or large loss carryovers. A return can also show previously unidentified retirement account distributions, supplemental income, or sales of property or investments. If the tax returns show significant anomalies, or if asset or income hiding seems likely for other reasons, your attorney may recommend that a forensic accountant conduct a line-by-line review of the federal and state tax returns.
Business Valuations
If your spouse owns a business or is a business shareholder, it is important to carefully review any separate business tax returns as well as individual returns for any evidence of hiding assets in divorce. Your attorney may also recommend that a financial professional evaluate the business’s income and set a value on the business for purposes of distribution.
Other Searches For Finding Hidden Assets in Divorce
Public asset searches can be helpful in identifying property, such as bank accounts, stocks and bonds, and real estate, especially out of state real estate. Employment or criminal history checks are sometimes revealing. If you suspect that your spouse has transferred money to a child via a custodial account or a trust, an asset search needs to include the names and social security numbers of the spouse’s children. Trusts to look out for include offshore trusts and self-settled domestic asset protection trusts (DAPTs).
Lifestyle Analysis and Asset Tracing
A lifestyle analysis can uncover discrepancies between a person’s apparent lifestyle, and all identified incoming funds. A lifestyle that does not match identified funds points to the possibility of unidentified sources of income such as gifts or inheritances. Incoming cash that exceeds known expenditures, on the other hand, may indicate undisclosed purchases or diversion of funds to undisclosed locations.
Keeping Costs in Line
Expenses for searches can add up quickly so make sure your attorney provides you with detailed information about what they believe should be done and why. If discrepancies cannot be fully resolved in a cost-effective manner, it may be best to simply inform the court of the facts and request that missing assets be charged against the spouse who declines to explain what has happened to them.
Hiding Assets in Divorce: Penalties for Noncompliance
A court can award sanctions for hiding assets to the other party, including reimbursement of the asset’s value, attorneys’ fees, and appropriate monetary penalties. A judge can also award the innocent spouse a greater share of assets in the equitable distribution. In some cases, a defrauded spouse may have a claim for a marital tort. Hiding assets generally involves perjury, a third-degree crime under NJSA §2C:28-1(a).Third degree crimes can be punishable by fines of up to $15,000 (NJSA §2C:43-3(b)1) and three to fiveyears in prison (NJSA§2C:43-66(a)3).
Marital Settlement Agreements and Reopening Judgments
If you are entering into a Marital Settlement Agreement (MSA) your attorney should include language specifying that you and your spouse have each made full and complete disclosure of all income, expenses, assets and liabilities, and have relied on the accuracy of such disclosures in reaching the settlement. While it is difficult to reopen a settlement once there are final orders in divorce, it is not impossible. You would have to establish that 1) the fraudulent conduct was the basis of your decision to accept an agreement which was not fair and equitable; and 2) you were not otherwise aware of the deception, or you would likely have become aware but for your former spouse’s fraudulent behavior (Wiengarten v. Wiengarten, 234 N.J. Super. 318, 327-28 (1989).
Hiding assets or income is extremely serious. If this is a potential issue in your divorce, we can help you assess your options. Contact us for an initial consultation with an experienced divorce lawyer. Call us at 888-888-0919, or please click the button below.
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