Often in high-asset divorces, one spouse may not have a full understanding of how the other spouse takes in money – particular income streams, different sources of income, delayed earnings – or actually spends money – asset transfers to foreign accounts, shell corporations, gifts to family members. All income earned during the marriage qualifies as marital property; consequently, one of the most important tasks a lawyer faces in a high-asset divorce is uncovering the true earned income and accumulated assets of the marriage.
Unfortunately, it is not unusual in high-asset divorces for a wealthy spouse to seek to hide funds from the other spouse in a myriad of ways, some rather obvious and some not obvious at all. In these cases, you and your divorce attorney might retain the services of a specialist – a forensic accountant, essentially a detective of sorts with experience and training in uncovering hidden assets.
Just because a spouse has a W-2 listing a certain salary does not mean that the spouse has no other sources of income. The spouse may choose to hide certain funds in a variety of ways that go unreported on a W-2, from “under the table” payments to expense accounts that become a funnel for investments. Spouses who own their own business require even more attention because those persons have full control over the operation of the business and can divert a wide amount of funds in ways that escape salaried income the other spouse sees but still represent earned income through the business.
During discovery, the attorney and the forensic accountant work as a team to make sure all documents are turned over by the wealthy spouse. After close investigation, the forensic accountant will report “red flags” that seem like hidden sources of income or questionable expenses, and the attorney will follow up with more document requests or a detailed deposition of the spouse. Deferred compensation, hidden bonuses, slush funds, phony expense accounts, and fraudulent transactions – all could be possible targets for hiding assets and therefore investigative points for the forensic accountant.
In the forensic accounting process, the key to the most reliable conclusion is starting with accurate and complete information. Under the best of circumstances, the primary source of this information is you. Why? Because you are more likely to be accommodating and to fulfill your lawyer’s request in a timely manner. Additionally, multiple conversations between you, your attorney, and your forensic accountant can take place to ensure you provide exactly what is needed.
On the other hand, when your spouse or his business is who you are needing documents from, there is little incentive for cooperation. Your spouse will often tend to be very literal, providing only the specific documents asked for, or object to the request stating a lack of possession or control. As a result, you may need to request some or most documents from third parties such as banks, lending institutions, tax preparers, or businesses in custody of the needed information.
Examples of the types of discovery procedures available in divorce cases when a forensic accountant is involved are requests to produce, interrogatories, oral depositions, business record depositions, and letters of authorization.
Request for Production of Documents
A written request for documents is sent from one party to the other during the discovery process. The documents requested must be available as the responding party is not required to create a document for the response. If the requested documents do not already exist, the responding party may simply state that fact. You and your lawyer when discussing a request should be careful in the wording, time frame, and breadth of each request. For example, if you know of specific bank accounts, you may want to include account numbers, title holders, and possibly a reference to where you saw a deposit or wire transfer or a copy of a check from the account. However, as a safeguard, you can then also ask for all accounts open during the requested timeframe, whether they are still open. This would then allow you to receive any new accounts opened or old accounts closed since you may not know what accounts exist or existed.
Interrogatories are written questions sent from one party to the other party that are used to obtain facts or opinions related to the divorce. Under Missouri Supreme Court Rule 57.01(a), unless otherwise agreed to, each party may serve up to 25 written interrogatories with a turnaround time of 30 days in which to answer. This gives the responding party time to research, gather, and prepare complete answers. This is where it is permissible to ask for lists of items that may (or may not) already exist. The answers provided may lead to additional discovery requests by your attorney.
Depositions are a sworn witness’s testimony taken out of court, under oath, and in the presence of lawyers and a court reporter. The deposition process is a line of questioning that the deponent must answer honestly, on the spot, without specific preparation. Unlike interrogatories, the deponent must answer from memory or based on exhibits presented during the deposition. This form of discovery is useful to preclude the deponent from conferring with his attorney or other witnesses to corroborate a story in line with their goal(s). However, deponents are typically prepared for the deposition by their attorney and may be anticipating certain lines of questioning.
Business Records Depositions
A business records deposition (also known as a subpoena duces tecum) is used to request documents from non-parties to the litigation. Examples of a business records deposition would be to subpoena banks, lending institutions, employers, accountants, and other custodians of business records where you and your spouse do not have a controlling ownership interest. Like the request for the production of documents request, it helps you when your lawyer is precise by listing as many details of assets as possible, including account numbers and title holders. It also helps you when your lawyer includes a broad catch-all request for all additional _____ in the name of _____ for the requested timeframe. This may result in the production of additional documents you may not be aware of. If the other attorney refuses to sign a Consent Form, the subpoena will require the recipient to appear before a court reporter to explain and authenticate the documents being produced.
Letter of Authorization
When one spouse is not in possession of records, but attorneys agree they will be necessary in the case (e.g., bank statements, retirement account statements, credit card statements, etc.), a letter of authorization can be provided from the spouse title holder to the bank or other financial institution authorizing the requested records to be produced directly to the requesting attorney. This route is less expensive than a deposition but is not often provided by the opposing party.
Public Record Searches
The State of Missouri and most counties make public records available to search online. Business searches with the Secretary of State can provide corporate documents, registered agents, managers, directors, etc. Real estate deeds, mortgage notes, real estate tax, and personal property tax information can be found on county property assessor websites. Civil and criminal case dockets are available through case.net.
Using these different discovery tools, the forensic accountant has a greater chance of getting complete and accurate information with which to perform the analysis and reach a conclusion to assist the judge in your case.
Should you need the advice of an experienced divorce attorney or have questions or concerns about your situation, know that we are here to help and ready to discuss those issues with you.