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What is financial fraud and how can it impact your Texas divorce?

Do you and your spouse speak to one another on a regular basis about your finances? I don’t mean disagreements about how money is spent or complaints about less and less income coming into the house. I mean real discussions where you sit down at the kitchen table, with the television off and the kids in bed. Talking about your goals and what needs to occur in your lives that has not occurred in order to achieve those goals. What isn’t true today that needs to be true in order for a certain goal to be met? What changes do you need to make in your lives in order to put yourselves on track to be successful as a married couple?

These are just a handful of the questions that I think are relevant ones for married people to discuss. Putting your financial realities into concrete terms and then working on what you can to improve those realities are what you could have been missing from your marriage. That lack of transparency and willingness to engage in sometimes uncomfortable dialogue may have left you susceptible to your spouse acting without your consent to harm your personal finances

I am talking about fraud within your marriage in regard to finances. There is a great amount of pressure in a marriage to do well financially. If your spouse and you are not able to measure up to your own personal ideals of financial success, it can sometimes happen that the next step is for one of you to do things that are not ethical, legal or right. Many times, the decision to act in this way comes about after rationalizing the decision for some time. If the ends justify the means in your spouse’s mind, he or she may feel empowered to act fraudulently. 

Finally, when you and your spouse fail to discuss your finances it can lead to an opportunity for your spouse to engage in behavior that you are unaware of. How diligent are you about checking into the household finances? Have you left your spouse to “cover” that area of your lives while you “cover” another? It is so essential that both spouses have knowledge of the household finances. If you do not take this responsibility seriously it can lead to your spouse doing things that can harm you now and in the future. 

However, no matter what your actions were leading up to the divorce, nobody deserves to have fraud committed against them. In today’s blog post from the Law Office of Bryan Fagan, I am going to discuss the topic of financial fraud within your marriage. If you are just now learning about what your spouse has done to your finances through their bad acts, now is a great time to acquire some knowledge about this area of the law so you are better equipped to take action and protect yourself from further harm. 

Is it fraud or is it something else?

Before we get into our discussion today, I wanted to take a second to point out that just because you are hurting does not mean that your spouse has done something illegal or fraudulent. It is normal to feel hurt, anger, mistrust and a host of other emotions associated with divorce. Your life has been turned upside down by the divorce and you probably are not happy about it. Learning how much a divorce can cost and then thinking about the missed opportunities that you had during your marriage to secure your financial future probably doesn’t make you feel all that good. 

However, you need to learn more about your spouse and your marriage before you start to accuse him or her of having committed fraud within your marriage. This is a serious accusation, one that is often times difficult to prove within the context of a divorce. So, you should enter into your divorce with a fraud allegation unless you are prepared to back that accusation up with evidence. Today’s blog post is intended to help you to identify whether fraud was likely to have occurred within your home. 

Hiding assets that you were not aware of, taking out debt in your name without your knowledge or permission and other types of bad acts like this are the most common types of fraud within marriages that I have come across in my years as a family law attorney. The type of fraud that we are about to go over happens (thankfully) in relatively few divorces. However, there are lesser types of fraud that do occur on a more common basis. We will be discussing those as well.

My point in telling you all this is that you need to examine your financial life and determine what likelihood there was for fraud to have occurred. If you and your spouse both work typical 9-5 jobs where you are paid a salary, have a 401(k) and have no other sources of income then it is unlikely that your spouse has committed a significant act of fraud against you. However, he or she is still capable of committing small acts that degrade your marriage and break your trust. 

How can you become the victim of fraud within your marriage?

From my experience, fraud is most common within a marriage when your spouse has either hidden/secreted an asset that he or she did not want you to know about  or has lied to you about their income and where it is being spent. The effect of fraud, if proven, is that you may be in line to receive a disproportionate share of your community estate. This means that you could receive more than 50% of the assets in your divorce.

Fraud happens when your spouse is able to convince family members, friends, business associates and other people to help him or her in hiding assets. Often this is done with a lie. He or she would tell these people that it is you who has been draining bank accounts and otherwise acting irresponsibly. Once he or she has established that you are the one that is acting badly, these other people can be willing to preserve money or assets by keeping them for your spouse. 

If you believe that your spouse has engaged in behavior like this there are two steps that you need to take right away. The first is to hire yourself a family law attorney who has experience not only with divorce cases but with cases that involve fraud. Your attorney can guide you based on your specific circumstances both to make sure that no additional fraudulent acts occur and to help you to prove that the fraud happened in the past. 

The next step would be for you and your attorney to hire someone to review financial documents that can help lead to evidence showing that the financial fraud has occurred. Typically the sort of person that you would need to hire is a forensic accountant. These are professionals who can look at the paper trail that your spouse has left in order to determine what your actual family income is. 

Your divorce will also come down to what assets and debts are considered part of your community estate and which belong to you or your spouse as your separate property. A forensic accountant can also look at bank accounts to determine what degree of comingling has occurred of your marital and non-marital assets, if any. What do your tax returns have to say about any of these allegations of fraud? Have you filed tax returns at all? Do not be surprised if you learn that despite your spouse’s assurances that taxes have been filed, that the IRS hasn’t received a tax return from you or your spouse in years. 

Statements from your credit cards, retirement account statements, bank and credit union statements and other financial documents will need to be reviewed. Any of these sources of funds could have been utilized by your spouse to commit fraud. 

If your spouse owns a small business that you are not really a part of, this could be a likely source for your spouse to hide assets that otherwise should have been clearly part of your community estate. If your spouse believes that he or she is likely to be awarded the business in the divorce it could be that they have secreted community income into a bank account for the business where you could not readily locate it. 

Generally speaking, if you and your spouse have a high net-worth then the likelihood for fraud increases. This is the case, at least in my experience. Generally speaking wealthier people have more places where money can be kept out of sight and out of mind of the other spouse. Bonuses that your spouse earns that you were never aware of, accounts where your spouse is able to defer compensation and keep it hidden from you and other benefits that should count towards your community estate are just a few of the ways that certain people can commit fraudulent acts. 

Small business owners and fraud in the context of a divorce

If your spouse owns a business then their financial dealings will need to be reviewed very closely. The reason I say this is because business owners have many ways that they can hide income and assets from you and your attorney. A person with some experience in reviewing business records would need to be able to do so in order to make a judgment as to whether or not fraud has occurred. 

Individuals with a high net worth may be more prone to committing acts of fraud

What is your net worth? You can figure it out by taking everything that you own (assets) and subtracting from that number anything that you owe (debts). The result of doing this will be your net worth. If you have individual retirement accounts (IRA), 401(k)s, other investment vehicles or simply invest a great deal in stocks then you have a greater likelihood of fraud being committed. This is due to the large amount of places that you and your spouse have to hide money and assets. 

The more complicated an investment or savings arrangement is the more complex it becomes. As a result, complexity makes it more difficult to track deposits into the account and would make it more complicated to figure out whether or not fraud has occurred. Do you know if your spouse has safe deposit boxes in various banks? What about online accounts through financial houses where money can be stored and invested without your knowledge? These are just a few of the places that will make it easier for your spouse to commit an act of fraud against you if he or she chooses to do so. 

Ultimately the goal of fraud is to rob you of the chance to collect on money and assets that you are entitled to in the divorce. Community property laws seek to protect both spouses from one missing out on the benefit of having been part a part of a financially successful marriage. Depending on the opportunities that your spouse has to have committed fraud you need to be aware of what your spouse could be doing if you don’t hold him or her accountable for their actions. 

How can you tell that fraud may be occurring? Read tomorrow’s blog post to find out more 

In tomorrow’s blog post we will discuss warning signs of fraud. In the meantime, if you have any questions about the material that we covered today, please do not hesitate to contact the Law Office of Bryan Fagan. We offer free of charge consultations six days a week with our licensed family law attorneys. These consultations are great opportunities for you to ask questions about your specific cirucmstances and to receive direct feedback from our lawyers. 

Thank you for the opportunity to serve you and your family. We appreciate you spending part of your day with us here on our blog. 

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