During divorce when emotions are careening out of control, one spouse often believes that the other could be hiding assets.
In 2011, The National Endowment for Financial Education (NEFE) released a study finding that 31% of people who combined finances with their significant other have been deceptive with their spouse/partner about money. Of those who committed a financial deception:
- 58% say they hid cash from their partner/spouse.
- 54% hid a minor purchase from their partner/spouse.
- 34% say they lied about finances, debt, money earned.
If these statistics indicate what happens on a regular basis, then in divorce--when trust is already damaged-- financial deception could be more prevalent. Whenever you have one party continuing to delay or refusing to turn over financial documentation that could signal they may have something to hide, or that they are trying to control the flow of the information. One thing is for sure, money usually leaves a trail, so if you are looking for possible hidden assets you should follow the money trail.
The first place to look for information is the couples’ tax return. A complete copy of the return should always be supplied. If only the first few pages are supplied it could signal that there might be information that one spouse doesn’t want the other spouse to see. A thorough review of all the various schedules and forms could provide significant information on certain types of income, interest/dividends earned and various deductions. Look for any overpayment of taxes, which could be a source of funds to be refunded after the divorce. Occasionally when one party is intent on hiding information, they may prepare a “dummy” tax return and try to pass it off as the original that was submitted to the IRS. If you question the validity of the tax return supplied you can always have your client request a tax transcript from their local IRS tax office (https://www.irs.gov/help-resources/contact-your-local-irs-office) to be sure that what was submitted to the IRS matches the tax return supplied. This is also a way to find out if any amended returns were filed.
Always request complete statements for all financial accounts. It is not enough to have an online screen printout, because in today’s day and age of technology, it is easy for one spouse to alter the document to have it appear to be valid. Sometimes you can spot altered information by noticing subtle changes in font or size of the text. If text lines don’t exactly match up to their margins this could also signify that something has been cut and pasted over top of existing data. In addition, when one party only supplies a one page screen print it may not contain all the relevant information on the account.
Look for any loans obtained in the last several years. Before a lender approves a loan, they will ask for detailed financial information. Request a copy of any personal financial statements submitted to the lender to determine the assets, debts, income and expenses disclosed when the loan was obtained.
Review all business and personal transactions. This is especially important If one spouse has a business. Look for checks written but never cashed. This could be in the form of salary paid to ghost employees, or in collusion with a friend or family member in which the money will be returned to the individual after the divorce. Look for expenses paid for a paramour such as gifts, trips, gift cards, rent/utility payments or invoices paid to non-existent vendors. Business bank statements should always be reconciled with income/expense statements in an attempt to discover discrepancies.
Existence of a PayPal account. This is a great way for a spouse to keep money off the marital radar since everything happens online. Third party payments are received into the account and then products or services can be purchased with the balance. Having your client check the browsing history on the family computer may help identify whether an account exists. In addition, if they see visits to other unfamiliar bank or financial websites this could indicate the existence of other accounts.
Cash is often hidden at home. Although it is not the smartest idea, many people will hide cash in their home to keep it close and accessible. Contrary to popular belief, putting it “under the mattress” is not the obvious choice. Some of the more popular places used are in drop ceilings, air vents, envelopes taped to the back of wall decorations, in a folder in a file cabinet, inside books on a bookshelf, or in DVD cases. Money can be rolled up and hidden in hollow drapery rods, small containers in the garage or inside pill containers.
If any of the above “red flags” are discovered, this should signal further financial investigation.