This blog article is inspired by several consults I had over the last two days where the topic of asset hiding came up in the context of a divorce. Asset hiding is one of the most popular dirty tricks during a divorce.
The phrase asset hiding probably conjures up imagery from the movies in which spouses hide money in offshore accounts. While I am sure that happens, there are some more mundane yet effective tactics you should be on the lookout for.
Red Flags that Your Spouse May be Hiding Assets
Clients are often concerned that their spouse may be hiding assets. Some red flags to look for include:
- Refusing the share financial information.
- Diverting mail
- Decrease in income
- Controlling behavior
Refusing to Share Financial Information
If your spouse does not share financial information with you such as how much money is in an investment or bank account, this could indicate they are hiding assets.
If your spouse starts sending mail to another location, this is another good indicator they are trying to hide something. This could include a secret bank account they do not want you to find out about.
Decrease in Income
If there is a sudden decrease in your spouse’s income, this is another good indicator they are diverting money elsewhere. It is really easy these days to set up direct deposit into multiple accounts. So, if your spouse’s is depositing less money into a joint account, this may mean there is other money going elsewhere.
If you notice any of the above signs or any other signs that set off alarm bells, you should consult with a Texas divorce lawyer. An experienced divorce lawyer will help you determine what your rights are and steps you can take to protect yourself.
Hiding assets can take many forms including:
- Hiding income
- Moving money to a family member or friend’s account
- Hiding money in offshore accounts
- Overpaying taxes
- Hiding money in sneaky investments
- Undervaluing business interests
In one consult, the individual had a second job where they were compensated largely in cash. They were bragging in the consult how their spouse had very little knowledge of how much money they made from this job and so it would be easy to hide that money from them.
I cautioned this individual that if it were discovered they were trying to hide assets, a judge could severely punish them during the divorce in various ways including awarding their spouse a disproportionate share of the marital property along with other sanctions.
One of the things a Texas divorce lawyer will be on the lookout for is a spouse trying to hide income. Our office has caught more than one spouse trying to understate their income. The last time this came up, they were self-employed and tried to say they only made a certain amount a month. However, when we got ahold of their bank statements, we saw they were depositing 10 times the amount they had said each month.
Moving Money to a Family Member or Friend’s Account
In another consult, a husband asked me a couple questions regarding hiding assets that are worth addressing for our readers. The questions were:
- As an attorney, can you help me hide assets from my wife?
- Can I move money into a family member or friend’s account to hide money from my wife?
Can an Attorney Help Their Client Hide Money from Their Spouse?
Per the Texas Disciplinary Rules of Professional Conduct Texas divorce attorneys have an ethical duty to not “engage in conduct involving dishonesty, fraud, deceit, misrepresentation”
A spouse has a similar duty to their ex. It is highly likely at some point each spouse will have to swear an oath as to all the assets and debts they are aware of. If a spouse hides assets and their attorney finds out, their attorney may be obligated to withdraw from representing them in further proceedings.
Hiding the Money from Their Spouse in Another Person’s Account?
As my answer to the question above implies, hiding money in another person’s account is not permissible during a divorce. Prior to a divorce, there are no court orders that would prevent a spouse from engaging in that activity.
However, I also explained that one of the first things his wife’s divorce attorney will probably do during the divorce is ask for two years’ worth of bank statements to look for large sums of money being moved around.
If it is discovered that money has been moved, his wife could ask to be awarded 100% of the money that he tried to hide based on his fraud on the marital estate. This would also paint him in a very unfavorable light with the court and call into question the truth of everything he said or presented to the court.
Hiding Money in Offshore Accounts
Hiding money in a foreign country seems like something you might see in the movies or read about in a newspaper or magazine about some rich celebrity. However, this is a dirty trick you should still be aware of. One of the biggest problems associated with this dirty trick is that even if discovered, it can be very difficult to recover the money.
Foreign Accounts Easy to Open
In today’s world of the internet and ease of travel, it is incredibly easy to set up foreign bank accounts. The foreign banks also often make accessing this money incredibly easy with ATM and debit cards. Often times a spouse does not even consider that their spouse may be doing such a thing during a divorce as was the case an ex-wife I met with not too long ago.
Within the last month, an ex-wife contacted our office regarding her suspicions that her former husband had hidden money in another country. Her husband had run into problems with the IRS and convinced her in order to protect her they should divorce. He also told her that he was giving her everything.
He later moved to a foreign country. A few years later after the divorce she found out that her ex-husband was back in the United States and had a very lavish lifestyle and was living in manner that lead her to believe that her ex-husband had lied to her about the money they had during the marriage and probably had some hidden accounts.
What Can be Done?
This ex-wife wanted to know what could be done. I explained post-divorce discovery and the legal remedies that were available should we discover hidden assets. If fraud is discovered in a reasonable time, you can file a motion to set aside the Final Divorce Decree. Alternatively, if the time period for filing such a motion has expired, a separate post-divorce lawsuit can be filed to divide up any undisclosed assets.
Something to keep in mind is that although a court may make an order that off-shore assets be divided between the spouses, it can be very difficult, time consuming, and expensive to try and convince the foreign jurisdiction to obey a United States order.
Although foreign accounts can be easy to open, they are becoming more difficult to hide. Due to concerns regarding terrorism, the United States and several foreign countries cooperate regarding reporting certain information to each other.
Many foreign banks will send the IRS information regarding United States citizens. This makes reviewing tax returns an important tool for trying to detect foreign bank accounts.
Another thing to consider when deciding if your spouse may have hidden money overseas is the financial resources of the marriage. If you and your spouse are living paycheck to paycheck and you have a good handle on where the money is going, then this probably not a dirty trick your spouse is engaging in.
Unfortunately for the husband in one of my cases, his wife became convinced that her husband was hiding money offshore. In this particular case, the husband was just scraping by as a music teacher. Nothing in the case would have indicated that he had engaged in this underhanded trick. The couple was severely underwater with credit card and other debts. Despite this, she and her attorney went on a witch hunt with legal discovery to find the hidden assets and turned what should have been maybe a $3,500-$7,000 divorce in a $40,000 divorce.
In one case where I represented the wife, the husband had tried to hide marital money by overpaying the federal income taxes. He had set it up with his employer where more money than necessary was being taken out from his paycheck for taxes.
During settlement negotiations in mediation, we had settled all issues except the spouses filing taxes together and splitting any tax refund. When we suggested doing just that, the husband hit the roof and said no. We pressed the issue and said that we were either willing to walk away from the agreement and proceed with going forward to trial.
After hearing that this case may be going to trial, the other side relented and parties agreed to split any tax refund. We later found out what the husband had done and that the refund was $25,000.
Hiding Money in Sneaky Investments
Another tactic for trying to hide money is to place it in an investment vehicle the spouse may not suspect; one such investment vehicle is a children’s 529 plan.
A 529 plan is supposed to be used to help families save money for their children’s college education. These plans offer certain tax benefits as incentives to encourage parents to save.
A 529 plan is set up so that:
- The parent is the account owner and
- The child is named as beneficiary
However, 529 plan funds can be withdrawn at any time by the owner, usually with tax penalties. This freedom to withdraw makes them possible vehicles to hide money during a divorce.
One example of this would be to put money that normally would be divided during a divorce in a 529 and pretend that it was for the child only to withdraw it later after the divorce. This would be much like the tactic described above of overpaying taxes so you do not have to divide it with your spouse. You then later get that money back after the divorce.
There was a concern in at least one of my cases that this tactic was being used. We solved the problem during our mediation by dividing up two similarly funded 529’s between the two spouses. They were then made constructive trustees of the funds that were only to be used for the benefit of the child’s education.
Under-Valuing Business Interests
For purposes of calculating child support, it is relatively easy to calculate when a person is an employee. However, as discussed above regarding hiding income, it can be more difficult when that individual is self-employed or an entrepreneur. This is because an entrepreneur can more easily manipulate things within a business to show less income.
During a Texas divorce involving a business, the value of the business is often a major focus of the division of property. There are several different approaches to valuing a business. One dirty trick is to try and undervalue the business so there is less to provide. If your spouse is in control of the business, they are in the best position to know what it is actually worth.
If you are not the spouse in control of the business, rather than rely on your spouse as to the value of the business, you may want to hire an independent business appraiser who is accredited in business valuation to help you evaluate what the business is worth.
How Can I Find Out if my Spouse is Hiding Assets?
One way to help detect if your spouse is hiding assets is to conduct discovery. Discovery usually involves one or more of the following documents:
- Request for Disclosure
- Request for Production
- Written Interrogatories
- Requests for Admission
- Sworn Inventory and Appraisement
One of the unique and important forms of discovery in a Texas divorce is to require spouses to prepare and file a sworn inventory and appraisement of all marital assets and debts. This inventory and appraisement will itemize all financial accounts of the marriage.
Another helpful form of discovery is a request for production. This request forces the spouse to produce statements for financial accounts including bank statements and other written documentation.
It is often helpful to compare these statements to the inventory and appraisement. If this comparison raises questions or needs clarification, additional discovery can be conducted including a request for interrogatories that asks questions or to conduct a deposition of the spouse.
If more expertise is needed, an attorney can employ a forensic accountant to review the financial records in a divorce to try and detect anomalies, irregularities, or hidden assets.
If you want to know more about what you can do, CLICK the button below to get your FREE E-book: “16 Steps to Help You Plan & Prepare for Your Texas Divorce”
If you want to know more about how to prepare, CLICK the button below to get your FREE E-book: “13 Dirty Tricks to Watch Out For in Your Texas Divorce, and How to Counter Them" Today!”
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Law Office of Bryan Fagan, PLLC | Spring Divorce Lawyer
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with ar Spring, TX Divorce Lawyer right away to protect your rights.
A divorce lawyer in Spring TX is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.