Divorce is a life-altering event. For many it is an emotionally charged situation. The person you had loved and intended to share a life with is now someone who you consider your “enemy” – viewing them from indifference to hatred. Any sense of trust has gone out the window. For some, notwithstanding the breakdown of the marriage, they sincerely want to resolve their marital issues amicably and in a fair and reasonable manner. However, for a significant number the raw emotions at the outset of the marital breakup seem to engender a need to “screw” the other person as much as possible. Depending upon your position in the relationship, you either want to “milk” the other spouse for all you can get, or want to pay the other as little as possible. One spouse may feel the need to “protect” one’s assets or income in some fashion from the claims of the other. One spouse may suspect that the other is hiding assets or diminishing income. In many cases, these feelings are borne out of the mistrust which exists and are not occurring in reality. However, in others these feelings or suspicions have some basis in fact. Claims of concealed or diminished income aside, this blog post will focus instead on concerns over the possibility of concealed or hidden assets in divorce, and provides a brief overview of what to look for and how to address them when such issues arise.
In divorce matters, New Jersey law provides for the equitable distribution of assets and property legally or beneficially acquired during the course of the parties’ marriage. In order to do so, marital assets first need to be identified, then they need to be valued, and after which they are to be distributed “equitably”. Unless the property was acquired by gift or inheritance from a third-party, it generally does not matter how or in whose name the assets or property was acquired if it was acquired during the marriage. Hence, if a divorce client suggests that because an asset or property is in his or her name alone the other spouse has no right to it or even to know about it, that person needs to be cleansed of that view right off the bat. Furthermore, if a divorce client tells his or her attorney about “secret assets”, the attorney/client privilege may not shield them from disclosure since the attorney code of ethics prohibits an attorney from facilitating a client engaging in fraudulent conduct or offering knowingly false testimony or statements under oath.
What if a divorce client suspects that his or her spouse has been secreting or hiding assets? Besides inquiring as to the basis for these suspicions, an attorney should obtain from the client their perception of the commencement date of any serious marital difficulties or their sense of when certain suspicious financial activity began, such as changes in the manner finances were being handled, records were maintained, or information shared. In most divorce cases, you usually ask for five years worth of financial records in discovery. However, if the suspicious financial activity has been ongoing for longer than five years, one should extend the time for which discovery is sought.
Suspecting that there may be hidden assets is one thing, determining whether those suspicions are true and then locating the “hidden” assets is another. First, there are some basic “searches” that can be obtained. If there is a belief that the other spouse has an interest in real estate, and there is a sense of where such real estate may be located, a title search can be requested for each county where any real estate held, whether in the other spouse’s name or in the name of others who may be holding same for his or her benefit. If there is a belief that certain vehicles may belong to the other spouse, motor vehicle searches can be requested. To the extent “public” records don’t allow for the search of other forms of assets, retaining the services of a private investigator or “asset locator” may be considered, and who may have access to other databases to possibly locate those other forms of assets.
Besides searches, good old-fashioned discovery may be used to establish whether assets are being secreted or concealed. A review of bank and/or investment account records may reveal unusual or unexplained disbursements or transfers from these accounts. These transactions should be investigated in greater detail, and which may lead to the disclosure of hidden assets. So too any unusual transfers or payments to third parties, be they relatives or friends, business associates or vendors. Consider subpoenaing banks in proximity to the spouse’s home or business since most people maintain accounts in banks which are convenient.
Tax returns are another excellent source to ascertain the possibility of hidden assets. First of all, one should be convinced that the copy of the tax return being reviewed is legitimate and is the actual one which had been filed with the IRS. If not, one should request a copy of the “as-filed” tax return directly from the IRS. Tax returns include schedules listing any reported interest or dividend income earned on any bank account or investments under the spouse’s name or social security number. The same is true for any capital gains or losses for investments on property bought and sold. They also include schedules of certain deductions claimed, or other types of “business income” reported. Entries on tax returns which do not correspond to known assets or accounts may reflect the existence of hidden assets warranting further investigation.
Had the spouse applied for or obtained any loans or lines of credit, whether personal or business? If so, persons seeking to borrow money have the incentive to present their financial position in the most positive and favorable light and thereby maximize the extent of their assets and income, to increase the likelihood of the loan being approved. Demand copies of any and all financial statements and loan applications in discovery, or obtain them from the financial institution directly by way of subpoena.
If a spouse has his or her own business, the opportunity to conceal assets, if not income, is even greater. Unusual disbursements or diversions of funds from the business, unexplained loans to shareholders, dramatic changes in a company’s retained earnings, accounts receivable or payables, pay checks issued to “questionable” employees, transactions involving business entities of similar names (possibly front companies) or accounts held by same, etc. If these sorts of activities exist or are suspected, given their complexity, it is strongly recommended that the services of a forensic accounting expert be retained to more thoroughly investigate and evaluate same.
The efforts utilize by some people to divert or hide assets from his or her spouse in hopes of avoiding splitting them in a divorce seem limitless. However, so too are the tools available to try and uncover same. This blog post is intended to highlight these issues. However, it should be noted that often the most difficult decision to make is whether a spouse’s suspicions about the existence of hidden or concealed assets are grounded in some reality, rather than a general mistrust of his or her spouse, so that those efforts don’t become a fruitless and expensive wild goose chase. The decades of experience the attorneys at James P. Yudes, PC have had in handling in such complex divorce cases can help litigants navigate through such weighty issues.