Sometimes, when a spouse anticipates ending a marriage, that spouse will go to great lengths to hide assets. Now remember, all property acquired during the marriage is marital property, to which each spouse has an equal claim. When a spouse takes marital assets and secrets them away, the spouse is knowingly trying to hoard marital property. One of the big challenges during a divorce involves tracing and uncovering all the hidden assets.
Where do spouses typically hide assets? Generally, they will take from a common marital pool and put them in an uncommon place, or if more clever, take them prior to where they would become part of the marital pool.
A rather obvious and traceable method is simply taking assets from a joint account and putting them in a separate account. If one spouse pays little attention to the joint finances, this can be readily done without detection. Or, if the spouse wants to be a little more devious, that spouse could transfer funds to a friend, usually in cash so no real paper trail exists. The spouse would later be asked to account for the missing cash, and could claim they were spent on household expenses or food (if taken in small amounts over time), only to build a large nest egg in someone else’s name.
Another common tactic: overpaying the IRS. Why? If you overpay your taxes, you are essentially paying it forward for yourself in future years. You have money on account with the government but only the spouse and government would realize it.
Spouses also can use their influence at their employment to stash funds. If a spouse works on a commission basis, that spouse could ask the employer to delay a bonus or commission until after the divorce is final, which has the effect not only of hiding that money for the one spouse but also understating income.
If a spouse owns a small business, it is easy to manufacture expenses, either imagined ones for the books to depress income or real ones that become ways to purchase personal items through the business.
Finally, a spouse can lend money to friends and family. Assets suddenly disappear to help someone out, and the debt does not get repaid until well after the divorce is final.
Reviewing all of these methods, it is clear that some are better than others, some more obvious – but all pose potential legal landmines for both the spouse and the other parties involved, particularly if those parties know what really is going on with the funds. In divorce proceedings, judges will penalize a spouse who secrets assets and force that person to pay the other spouse half of the secreted amounts and perhaps more as punishment for misconduct. A judge could also refer a case to the prosecuting attorney if the judge feels a crime, like fraud, had been committed.
Moral of the story: Do not hide assets in anticipation of divorce, and always see if your spouse has hidden assets once a divorce starts.
If you have questions about hiding assets during divorce, contact us – we can help.