Divorce can be a complicated process. Financial issues can make it more complex when one party fails to report income or assets accurately. When a divorce involves a business owner, individuals of high net worth, and families with foreign holdings and personal trusts it can seem impossible to put the pieces together for a clear picture. These cases can often involve allegations of hidden assets and even fraud which can trigger a divorce asset search.
In any of these situations, the party who wasn’t the financial manager of the family will be at a significant disadvantage when negotiating a settlement – unless they or their attorney had the forethought to hire a professional to find any missing income and assets that can’t be located through the ordinary avenues of legal discovery.
A hidden asset investigation conducted by an experienced investigator can be critical for ensuring the marital estate is fully and accurately accounted for and distributed equitably. Also, if there is a chance child support or spousal support will become a future issue, Assets can be identified for judicial enforcement.
Areas of Investigation
During a divorce, a properly conducted discovery process is crucial. Both parties prepare a financial statement which itemizes their “separate” assets and liabilities (those acquired before marriage and after separation, or as a gift or inheritance), “marital” property (acquired during marriage), and “comingled” property (marital and separate mixed together like bank accounts and retirement funds). Occasionally, significant assets will be omitted, or account balances will be understated, to make the party seem less wealthy in an attempt to retain the hidden assets for themselves preventing an equitable division of the marital estate.
For a discovery process to be effective, the attorneys need to ask the right questions during the deposition. Asking the right questions requires knowing what to ask.
To discover hidden assets, a private investigator can conduct a comprehensive financial investigation that covers a wide range of financial holdings.
The typical investigation of an asset search will include the following, but could expand based on findings.
Financial Accounts - Personal Bank, Brokerage, and Investment Accounts
Tangible Assets such as real estate, motor vehicles, aircraft and boats
Business Interests including shell corporations and special-purpose LLCs
When an individual has more complex and sophisticated holdings, other avenues will be pursued, such as identifying personal trusts, or the commercial assets of any privately-owned companies.
Locating the Financial Accounts
The most common assets types hidden during a divorce are stocks, bonds, mutual funds, and hidden cash. They may be entirely omitted from discovery, or the actual value will be misrepresented.
The financial accounts that will be identified include:
Checking and savings accounts at credit unions, banks, and savings and loan associations.
Retirement accounts, Brokerage accounts including 401(k) accounts, stock portfolios, mutual funds, and IRAs.
Mortgages for parcels of real estate.
Confirming the existence and accurate balances of financial accounts and discovering hidden accounts that were omitted from the financial statements is the primary objective of an asset investigation during divorce proceedings.
Other financial accounts and assets that could be identified include:
Life Insurance Policies
Safe Deposit Boxes
Company Benefit, Retirement, and Profit-Sharing Plans
Certificates of Deposit
Uniform Commercial Code (UCC) Financing Statements
Finding Hidden Assets
Occasionally more sophisticated methods are employed to actively conceal assets (beyond merely omitting them from disclosure) from being discovered during divorce. There are many creative ways assets can be hidden.
A common scheme is to transfer the assets to third parties including family members and business associates for temporary safekeeping. Investment certificates can be placed into the hands of a friend, for example, or they could liquidate an investment transferring the proceeds into a brokerage account owned by a friend. Creating custodial accounts for their child is another method for hiding assets.
Parties who own and control businesses have many options for cloaking assets. Transferring significant personal funds into the company’s pension, 401(k) and profit-sharing plans is one common strategy. Making needless ‘loans’ to the business then reporting a loss is another. The financial appraisal of a family-owned business can be manipulated to adversely affect the marital estate. Revenue can be underreported. Cash may be skimmed. Significant contracts could be delayed until after the settlement. Paychecks may be written to fictitious employees only to be voided after divorce, and family members could be added to the books to receive payments for services that were never actually rendered.
Shell corporations and LLCs can also be utilized to veil assets. Such entities could be domiciled in states like Delaware or Wyoming where reporting requirements are limited and allow corporate owners to shield their names from public disclosure. Some jurisdictions allow corporate entities to be established under the names of ‘nominee’ directors and officers to further conceal the spouse’s involvement. These entities can then open online bank accounts and acquire other assets like real estate without the name of the spouse appearing in the title history.
Coordinating an Asset Investigation and Legal Discovery
Ideally, an asset investigation will be well coordinated with other paths of legal discovery (interrogatories, depositions, and subpoenas) under the direction of the divorce attorney. If an asset search shows evidence of previously unknown accounts, then the transactional records of said accounts should be subpoenaed and reviewed which will possibly present further avenues of investigation. Identifying the beneficiaries of any suspicious transfers as an example.
The first stage of the discovery and investigation during the divorce proceedings is focused mainly on identifying any assets registered under the name and social security number of said spouse. If connections with any corporate entities or private trusts are discovered, the second stage of the investigation would include identifying the assets held by those entities. Likewise, if evidence of suspicious transfers is found, then the beneficiaries of those transfers are fitting targets for subsequent phases of the investigation.
Identifying the assets of related entities, and further transfers to other parties is more complex and has a higher threshold of evidence. As an example, the court may not find it to be relevant if a spouse’s sister recently bought a new house unless there is evidence the spouse’s assets were used for the purchase.
Coordinating the investigation with the attorney’s discovery can be the deciding factor in a successful settlement. It is unfortunate when the spouse has already been through discovery, and the right questions were never asked.