Techniques Used to Hide Income and Assets in Divorce Cases

This article was originally printed in the ABA Section of Family Law eNewsletter, September 2012.

While it is common for one spouse to have control over the money in a marriage—be the major breadwinner, manage spending, and maintain control of financial documentation—family lawyers and their clients can increase the chances of finding hidden assets during a divorce by being aware of some of the schemes used to hide money.

Understanding the common schemes that may be used to hide assets and income can help the spouse in the lesser financial position protect himself or herself in the divorce; and, by knowing about these schemes, you can look for signs and hopefully limit the success your client’s 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, he or she is hoping their spouse will not 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, or the sale of assets with no paper trail or no deposit to known bank 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 pay close attention to these types of things, many do not; this is a 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 his or her share of the income. However, forensic accounting techniques can be used to uncover such a scheme.
  • Having an employer withhold regular pay, commissions, or bonuses – Particularly in closely held businesses (where the 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 one 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 other 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 the risk that a 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 he or she 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.

A forensic accountant can help evaluate these red flags and investigate further, if necessary. The sooner the red flags are detected, the greater the chance of finding and recovering the assets.

Tracy L. Coenen, CPA, CFF, is a forensic accountant and fraud investigator with Sequence Inc. in Chicago and Milwaukee. She specializes in cases of embezzlement, financial statement fraud, white collar crime, securities fraud, and family law. She can be reached at 312.498.3661 or tracy@sequenceinc.com.

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Comments (1)

  • Kerrie

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    I do believe the McKinneys used every single one of these techniques to hide income & assets. They didn’t bank on the skill of Gene Doeling though.

    Fools.

    Reply

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