Discovering Your Spouse’s Hidden Assets During the Divorce Process

As surprising as it may sound, hiding assets happens more often than you think in a divorce. Although illegal and unethical, spouses may try to hide assets before or during a divorce to avoid splitting them with their soon-to-be ex. They can also try to show deflated income to reduce the alimony or child support amount.

Most couples have a complex financial portfolio, includingmarital residence, vacation properties, bank and brokerage accounts, retirement and pension plans, stock options, life insurance with cash value, and perhaps a business or a professional practice. Navigating through this complex financial web gets even more difficult in high net worth cases. However, there are several hidden assets laws that can help divorcing spouses to discover hidden assets and income during the divorce process.

Methods of Hiding Assets and Income

Your spouse is required to produce all financial records during the discovery process in the divorce procedure. Unfortunately, most spouses do not do so because they are hiding assets. There are several ways in which your spouse can hide assets.

Usually, spouses can involve relatives and friends who may or may not be aware of their purpose to divert personal assets. They may stash valuable art and antiques at a friend's place and claim they don't exist. Transferring assets, such as property or land, in the name of another family member, friend, or corporate entity is a popular way of hiding assets. Your spouse may also try to transfer large sums of money to a trust account in an attempt to disguise assets. Another method is to gift large sums of money to individuals who will return it at a later date.

If your spouse is self-employed, he/she can easily manipulate the ledger to make it appear as though the business is doing poorly. Delaying the signing of long-term contracts, paying salaries to non-existent employees, and paying close friends for services that were never rendered are a few common tricks used to hide assets and income. The perceived value of a business can be reduced using unreported income tax returns and manipulative financial statements.

Techniques to Discover Hidden Assets and Income

In each state, the divorcing spouse can use the discovery process to locate the hidden assets and income. You can also hire an independent investigator to search for hidden bank accounts, property deeds, and trace the business cash flow. The discovery process can vary slightly from state to state. However, for the most part, it includes document demands, submitting requests for admission, inspection demands, and deposition. This is a great way to gather information from an uncooperative spouse. Deposition, in particular, is the best way to get information from a dishonest spouse.

1. Start with Tax Returns

There is no better place than tax-return records to begin your hunt for hidden assets. If you were an out spouse, you may not have checked or filed tax returns during your married life. However, you should examine these during the discovery process. Chances are, your lawyer will advise you to hire a forensic accountant to review the income tax records. Make sure to check the following information:

a) Income from Wages

This section shows income from all reported sources including, but not limited to, wages, salaries, tips, interest and dividend income, business income, capital gains, IRA distributions, pensions, and annuities.

b) Income from Interest and Dividends

Income from interest and dividends exceeding $400 will show up here with the identified source of the income. This may include information about savings accounts, bonds, money market accounts, and other investment accounts.

c) Schedule A, B, C, D and E

If possible, have an expert look at the following five schedules:

• Schedule A – This shows itemized tax deductions, including state and local taxes paid on income, real estate, and personal property.

• Schedule B – This section shows interest and dividend income coming from your spouse's foreign accounts and foreign trusts.

• Schedule C – This shows all business transactions including profit and loss. It will reflect if the business was used to fund a Keogh plan to increase the retirement plan deductions.

• Schedule D – This reflects capital gains and losses, such as selling a property for gain or loss.

• Schedule E – This section shows incoming generating assets such as rental real estate, royalties from copyrights and patents, investments in partnerships and S-corporations, as well as estates and trust.

2. Check the Carry-forward

It is a state income tax or an IRS rule that allows you to save an unused deduction, credit, or loss and use it in a later tax year. Plenty of people use this method, known as overpaying taxes, to deflate their income.

3. Bank Accounts, Loan Applications, and Financial Statements

Usually, loan applications require recent financial statements, such as pay stubs, account records, and a signed declaration regarding all assets and debts. If your spouse has applied for a loan, these details can provide you his/her financial information. You should ask the lender for a copy of the loan application, as it may reveal hidden assets. Although complicated, most finances are interlinked. For example, deposits in a savings account can point to a hidden asset such as a stock that pays a dividend.

4. Trace the Cash Flow

Your lawyer or the forensic accountant will need accurate personal identification details of your spouse. You should provide the investigators with a list of your spouse's full legal name including nicknames, abbreviations, and common misspellings. Although most searches require only the name, it is always good to have your spouse's current address information. To trace the cash flow thoroughly, you should collect records of all his/her accounts, whether held individually, jointly, or with a third person. However, tracking cash flow can take considerable time because most people have a complicated financial portfolio.

5. Check Public Records

Checking public records is an effective way to find hidden assets. However, you should hire a professional investigator who knows how to find the documents that can point to hidden asset holdings to save time and efforts. Alternatively, you can search the local county records office for property deeds and records to trace hidden real estate and property. You can also check county court records for information about any liens, judgments, bankruptcy, or business licensing in the name of friends and relatives.

When it comes to hidden assets, knowledge and vigilance are your best friends. Unfortunately, assets can be hidden or transferred without any suspicion. Although illegal and unethical, several spouses tend to hide assets before and during divorce. The sheer complexity of today's finances makes it difficult to trace hidden assets and income. However, private investigators and forensic accountants can help you find meaningful clues that can point to hidden asset holdings. State family laws also provide divorcing spouses with powerful legal tools to discover hidden assets and income during the process.