Techniques for discovering hidden assets and unreported income during the divorce process

Posted in Divorce.

Financial issues involved in a divorce – especially high net worth cases – can often become rather complicated.   Unreported income and hidden assets are often alleged in divorce proceedings, usually by the spouse who is either not running a business or has not been in charge of the family finances.

It is not uncommon for a spouse to hide assets, especially if the divorce has been planned for quite a while.  People hide assets for a variety of reasons, but essentially, they have property or money that they do not want to have discovered.

There are numerous ways to find hidden assets, but typically assets are either placed in the hands of third parties or behind false documents. The process of finding assets or proving unreported income is often one of the most difficult assignments during the divorce process. Being familiar with ways individuals move assets into the hands of third parties or behind false documents and techniques to find those hidden assets can result in the discovery of this property.

The cost of such discovery work must be weighed carefully against the potential benefits.  It is important for a budget to be planned for two levels of investigation. At the first level, formal discovery procedures such as interrogatories, depositions, subpoenas, requests to produce and motions to compel can provide information to review and analyze the marital and non-marital estates.

If an individual does not have a detailed list of assets and debts along with documents to prove the whereabouts of these assets, the discovery in identifying the “easy to find” estate can become costly.  At this point, a decision has to be made as to whether further money should be spent on the second level of discovery, which investigates and traces transfer of ownership of assets into  other individuals’ or entities’ names.

Is the cost of the investigation worth the potential value of the assets which are assumed, at this point, to be hidden? Through diligent and effective preparation, it is possible to discover assets not disclosed or acknowledged by the other party. It is important to create realistic expectations with the client as to the ability to discover assets which have been actively concealed, and the reality that – despite best efforts – it is sometimes impossible to locate willfully hidden assets.

In divorce situations, careful consideration must be given to answer any questions about about potential hidden assets.  What types of assets may be hidden? How are assets hidden? What techniques can be used to locate hidden assets?

WHAT ASSETS MAY BE HIDDEN?

The most common types of assets hidden are cash, bonds, mutual funds, cash value in insurance policies and variable annuities, stocks, travelers’ checks, Series EE savings bonds, and bearer municipal bonds.

Conversion of cash into personal property such as art, jewelry, collectibles, antiques, vehicles, boats and planes are also possibilities.  Hobby equipment, gun collections, original paintings, collector quality carpets and tools are examples of asset conversion that often are overlooked or undervalued.

HOW ARE ASSETS HIDDEN?

Methods of concealing assets are as varied as the personalities of the individuals involved. In their attempts to veil assets, spouses may often involve relatives or acquaintances who may or may not be aware of their complicity in the diversion of personal assets. It is not unusual to discover the placing of personal possessions or investment certificates into safety deposit boxes in the name of a family member or friend.

Paying down mortgages and credit card balances is yet another method of hiding funds in plain sight. Repayments of phony debts to friends or relatives can appear to be legitimate use of resources. Expenses for paramours such as gifts, travel, rent or tuition for college or classes may be disguised as valid outlays of funds.  Assets may be transferred into the name of another family member, friend or corporate entity.

Custodial accounts established under a child’s social security number as well as transfer of assets into pension, profit-sharing, 401(k), and Keogh plans are all strategies for cloaking liquid assets from the opposing party’s view. Employees can work in collusion with their employers to delay business contracts, raises or bonuses until after the divorce.

The transfer of large sums of money to trusts is one way individuals may attempt to disguise assets. Another is to gift money to individuals with the anticipation of having the money returned at a later date. These patently deceptive strategies may be fraudulent as well.

Spouses who own businesses may use the corporate entity to conceal assets. Skimming cash

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