Is Your Soon-to-Be Ex Hiding Financial Assets?

Divorce settlement laws vary by state, but one thing is true everywhere—hiding assets is illegal no matter where you live, not to mention unethical. Despite that fact, many people going through a divorce attempt to hide assets from their soon-to-be ex, and it’s more often husbands than wives.

Legally, both spouses are required to openly and honestly disclose all financial information—including income, debt, expenses, and assets—in a legal document called a Financial Affidavit. The Financial Affidavit is used by the court to determine how resources and debt should be divided, as well as the amount of alimony and/or child support that is paid. However, around one-third of adults in the U.S. who have been through a divorce admit to hiding assets during the dissolution of their marriage. Reasons include revenge, greed, and fear of not having enough, but whatever the reason, hiding assets during a divorce can result in serious consequences.

 How Financial Assets Are Hidden

Assets can be hidden in almost countless ways. It’s important to be aware of the most common ways people hide assets so you know where to look if you suspect your spouse is keeping a financial secret.

• Hiding cash – This is probably the most obvious way to hide assets; it’s surprisingly easy to hide cash in a private safe deposit box, at the office, or elsewhere. Cash is difficult to trace.
• Creating new accounts – Assets can be put into accounts set up under the names of children and later reclaimed. Money can also be hidden in new retirement accounts, municipal bonds, traveler’s checks, or savings bonds.
• Underreporting income – Income can be underreported on tax returns or financial statements, or it can be deferred (especially in the case of bonuses and commissions) until the divorce is final.
• Transferring stock – Stocks and other investments can be transferred to a family member, business partner, or dummy account and then retrieved later.
• Overpay the IRS or creditors – After the divorce, the person who overpaid can get a refund that’s not reflected in the Financial Affidavit.
• Undervalued or new property – Certain collections or artwork can be worth a significant amount of money and a spouse can either underreport the value, or buy new property that is easily hidden or overlooked without reporting it.

Consequences

When you sign a Financial Affidavit, you are swearing under penalty of perjury that you have disclosed everything. Although penalties vary by state, they can be severe, including imprisonment for contempt. At the very least, you face fines and could potentially have to pay your ex’s attorney’s fees. In some cases, the judge may even award the full amount of the hidden assets to the other spouse. This can occur even if the deception isn’t discovered until after the divorce is finalized.

How to Protect Yourself

Unfortunately, the burden of proof in a claim of hidden assets usually falls on the party with fewer resources, so financial awareness early on is critical. Women in particular should have full knowledge of all marital finances, even if the husband usually handles them. This is important in all marriages in case something happens to your spouse and you need to take over. If you are splitting from your spouse, having your own qualified counsel is crucial. You should also hire a divorce financial strategist, who will help you organize your personal finances and create a Lifestyle Analysis to provide the court with a picture of the spending habits and living expenses during the marriage. Finally, be sure you tell your attorney if you have any suspicion whatsoever that your spouse may be hiding something. He or she is there to help and make sure you get a fair settlement.