Unfortunately, many spouses attempt to hide assets when they anticipate a divorce proceeding. Finding hidden assets can be a difficult process that requires comprehensive discovery. The cost of a forensic accountant is often well worth it to insure that you are not missing assets. Since most financial transactions are electronic and leave a trail, litigants often find creative methods to deceive his/her spousal. In my practice, I have found some common tricks set forth below.
1. Over-payments to the IRS. If a spouse anticipates that he/she will be divorcing before the end of the calendar year, paying extra tax to the IRS may increase the refund in April the year following the divorce, despite the fact that the funds were earned during the marriage. Another trick is to apply any refund during the divorce action year to the following year’s tax payment, again possibly increasing the tax refund in the year post-divorce.
2. Funds Deposited into Children’s Custodial Accounts. A parent can deposit funds into a child’s custodial account to avoid detection. If the account is held jointly with the child it can easily be depleted post-judgment.
3. Bonus Checks Redirected. Although a spouse direct deposits his/her regular paycheck into the parties’ joint account, when a yearly bonus is received in a separate check, it can be redirected to another account. However, this bonus could be discovered if year to date pay stubs are reviewed.
4. Prepayment of Individual Credit Cards. A spouse can prepay credit cards so that he/she will have a credit due post-judgment presuming he/she will be able to use the credit card. The credit card payment would look routine in the bank account but actually it will dissipate the marital estate.
5. Return of Purchased Items for Gift Cards. A spouse can purchase clothing or other items that appear to be in the normal course of business on a credit or debit card. These items are then returned to the store and the spouse receives a gift card or cash. Alternatively, a spouse may go on a spending spree and then return the items purchased.
6. Cash Withdrawals from Credit or Debit Cards. When making a purchase of groceries, it is easy to ask for extra cash withdrawal. The charge would appear normal on the credit card – as if it was from the grocery store – and the extra cash would not be apparent.
7. Putting Assets in Safety Deposit Box. Opening a safety deposit box and putting cash or other valuable items in the box is a straight forward method to hide marital assets.
8. Hidden Assets in Spouse’s Business. When the spouse owns his/her own business, the list of ways to hide money is endless. For example, one could create and pay fake expenses; one could pre-pay vendors that are friends holding the assets until after the divorce; one could delay invoicing clients for payments to reduce gross business receipts. Some businesses have specific asset hiding places. An attorney can leave income in his/her trust account and not take the income until after the divorce. A salesman can accrue commissions and delay receipt of them until after the divorce. An executive can delay receipt of a bonus or stock option. Of course, most employees can delay a promotion or raise until after the divorce is concluded.
Finding hidden marital assets is difficult and it is important to ask the right questions and look at the right financial documents during the discovery process to find them.