Techniques Used to Hide Income and Assets in Divorce Cases

One way to foil your spouse’s plans to hide income and assets from you during your divorce is by being aware of some of the schemes that can be used. It is very common for one spouse to have control over the money in the marriage, be the major breadwinner, control the spending of the money, and maintain control of financial documentation.

The spouse in the lesser financial position must take immediate proactive steps to protect herself or himself in the divorce. One of these steps is understanding some of the common schemes that may be used hide assets and income. By knowing about these schemes, you can look for signs and hopefully limit the success your soon-to-be ex-spouse will have with them.

Some of the more common schemes used to hide money in divorces include:

  • Stashing cash – It is not uncommon for an estranged spouse to start stashing money around the house, in a safe deposit box, or with trusted friends or relatives. By not keeping the funds in a bank or brokerage account, the spouse is hoping you won’t know of the money’s existence. Pay close attention to transactions that involve cash vaporizing into thin air: large ATM withdrawals, depositing checks but receiving a large amount of cash back, the sale of assets with no paper trail or no deposit to known accounts.
  • Purchasing items that are easily overlooked or undervalued – Everyone notices a new home or a new car, but who is paying attention to works of art, valuable home furnishings, or technological toys? While some spouses are paying close attention to these types of things, many are not, and  this is one great way to reduce cash while secretly increasing hidden assets.
  • Underreporting of income on income tax returns – Divorcing spouses may deliberately underreport income on their income tax returns, hoping to deprive the other spouse of her or his share of the income. Forensic accounting techniques can be used to uncover such a scheme, however.
  • Having an employer withhold regular pay, commissions, or bonuses – Particularly in closely held businesses (whether your spouse is the owner, or an employee) the danger exists that management will withhold pay at the request of the spouse to negatively impact any child support or alimony that may be owed. Once the divorce or child support action is settled, the employer pays out all of the withheld pay. Be aware of this issue, particularly if your spouse suddenly had reduced pay or failed to receive a normal bonus or commission.
  • Overpaying creditors – It is not unusual for a creative spouse to overpay the IRS or other creditors during a divorce, with the intention of receiving a refund after the divorce proceedings end. The money is shifted away from the marital estate so the spouse can’t lay claim to it, and later the overpayments are refunded to the benefit of the scheming spouse.
  • Establishing accounts in the names of others – Beware of the risk that your spouse may put assets in the name of a child, a girlfriend or boyfriend, a family member, or a friend. The intention is to hide money in the account and then get it back after the divorce is finalized. It may be hard to find out about such accounts, but there are often financial clues left behind as these accounts are established.
  • Transferring assets – It is not uncommon for a spouse to give or sell assets to a friend or relative during a divorce. Often the “sale” will be at less than fair market value, suggesting it is a sham transaction which will be reversed after the divorce is final.  Making lists of known assets early in the divorce process is critical, so the non-moneyed spouse has a better chance of tracking down the assets of which she or he may be entitled to a portion.
  • Other sham transactions – Divorcing parties may “loan” money to friends or family, “start a business” with someone (which coincidentally eats up tons of cash and valuable assets that are part of the marital estate), or otherwise participate in transactions designed to reduce or hide assets from the spouse.

Being aware of the red flags of fraud in divorce is the first step to uncovering your spouse’s misdeeds. The second step is involving a competent forensic accountant who can help investigate these matters. You’ll need an expert in tracing funds and looking for clues to the diversion or dissipation of assets. An independent forensic accountant like Tracy Coenen can complete this analysis, write an expert report, and testify in deposition and trial.

 

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One comments

  • dead postdivorce says:
    8 September 2012

    You are not eoing the best possible job for the cutomer. You are not exposing price, time frames, or how to prevent fraud done by attorneys! Who or how to deal with death threats. How to recognize charator witness sdden death during or just before divorce or corporate take over.

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