Tips and Strategies for Finding Hidden Assets During a Divorce

Divorce can be a complex and emotionally charged process, and one of the most contentious aspects of it is the division of marital property. In some cases, one spouse may attempt to conceal assets to reduce their financial obligation or gain an unfair advantage in the property settlement. Whether intentional or unintentional, hidden or undisclosed assets can significantly affect the fairness of the divorce process. It is crucial to approach this situation with a clear strategy to uncover all assets and ensure an equitable division. Below are some key tips and strategies to identify and locate hidden or undisclosed assets during a divorce.

1. Understand Common Methods of Hiding Assets

Before you begin searching for hidden assets, it’s important to familiarize yourself with the common techniques that individuals use to conceal their wealth. Some of these methods are more sophisticated than others, but they all share the goal of making assets difficult to find. Common tactics include:

• Fake loans or gifts: One spouse may claim to have “loaned” or “gifted” money or assets to friends, family members, or business entities to make it seem like those assets are no longer part of the marital estate.
• Business interests: Ownership interests in businesses can be underreported or intentionally undervalued.
• Underreporting income: A spouse might understate income through self-employment or freelance work, making it seem as though they have fewer financial resources.
• Shifting assets: This could involve moving assets into the name of a third party, such as a family member or friend, or even converting assets into forms that are harder to trace, like cryptocurrency, jewelry or art. CNBC reports that over 50% of men between the ages of 22-49 have invested, in some way, in cryptocurrency. This is a growing concern for divorce attorneys and forensic accounts as accounting for these funds can be difficult.

2. Use Financial Forensic Experts

One of the most effective strategies for uncovering hidden assets is to hire a forensic accountant or financial expert who specializes in divorce cases. These professionals are trained to detect inconsistencies in financial records, trace asset transfers, and identify irregularities in business dealings. A forensic expert can:

• Review tax returns, bank statements, and other financial documents to identify discrepancies or hidden income.
• Look for signs of asset concealment, such as unusual large withdrawals, payments to third parties, or sudden changes in lifestyle.
• Investigate business ownership, investments, and any offshore accounts or entities.
• Help trace any funds that may have been transferred to family members, friends, or unrelated businesses.

While hiring a financial expert can be costly, it is often necessary to uncover hidden assets and can save you significantly if/when hidden assets are revealed and considered for the property settlement.

3. Scrutinize Financial Documents

The first step in uncovering hidden assets is to thoroughly review all financial documents provided by your spouse. This includes:

• Tax returns: Both personal and business tax returns can reveal discrepancies in reported income, investments, or deductions. If your spouse has underreported income, it may show up as an issue on the tax returns.
• Bank and credit card statements: Look for any unexplained withdrawals or transfers to other accounts. Pay special attention to any transactions that seem irregular or excessive.
• Pay stubs and employment records: Compare the pay stubs with tax returns and bank statements to ensure that the income is consistent and accurate.
• Investment and retirement accounts: Ensure that your spouse has disclosed all retirement accounts, brokerage accounts, and other investment vehicles. Missing accounts may indicate hidden assets.

If the financial documents are incomplete or you suspect that something is missing, you may need to request additional documents or go to court to compel disclosure.

4. Conduct a Lifestyle Analysis

Sometimes, hidden assets can be revealed through a lifestyle analysis. This involves comparing the standard of living during the marriage with the financial disclosures made by the spouse. If your spouse is living a lifestyle that exceeds the reported income or assets, it may suggest that they have undisclosed funds or assets.

To conduct a lifestyle analysis, consider the following:

• Review the marital home: Has your spouse made significant improvements to the home or purchased high-end items (cars, furniture, etc.) that do not match the disclosed income?
• Look at spending habits: Are there discrepancies between reported income and extravagant vacations, dining, or shopping habits?
• Evaluate debt: If your spouse has accumulated significant debt that is not supported by their reported income, it could be a sign that they are funding their lifestyle with hidden assets.

Lifestyle analysis can be an indirect way of uncovering hidden wealth, as it relies on contrasting visible behavior with disclosed financial information. For both spouses, to avoid a potentially expensive undertaking of hiring forensic accountants, “your divorce team is best served when you provide them with accurate records. False information will likely be seized upon by opposing counsel, and if the case goes to trial, the judge will not be impressed. Honesty is the best policy” (Kiplinger).

5. Conduct Discovery and Depositions

During divorce proceedings, both parties are required to disclose relevant financial information through a legal process known as discovery. This can include the exchange of documents, answering written questions (interrogatories), and providing sworn testimony during depositions. If you suspect your spouse has hidden assets, the discovery process can be a valuable tool for obtaining more information and compelling further transparency.

Key actions in discovery include:

• Requesting specific documents: If you suspect that your spouse has hidden assets in a particular area (e.g., a business, offshore account, or retirement fund), you can specifically request documents related to those assets.
• Sending interrogatories: Interrogatories are written questions that your spouse must answer under oath. If you believe your spouse is hiding something, you can ask detailed questions about specific assets or financial dealings.
• Depositions: In a deposition, your spouse will testify under oath, and you can ask them questions about their financial holdings. Depositions can sometimes reveal inconsistencies in their statements that may lead to further investigation.

If you believe your spouse is being dishonest or evasive, the discovery process can be a powerful tool to uncover the truth.

6. Investigate Digital Assets

In the digital age, many assets and transactions can be hidden in the virtual world. Online banking, cryptocurrency holdings, and investments in digital assets like NFTs (non-fungible tokens) can be difficult to trace if a spouse is trying to conceal wealth. Investigating these digital assets involves:

• Reviewing online accounts: Look for email accounts, online banking, and investment platforms that may have been hidden.
• Checking cryptocurrency wallets: If you suspect your spouse has invested in cryptocurrencies, use a blockchain tracing service or hire a professional to help track down digital currency holdings.
• Social media activity: Your spouse’s social media accounts can sometimes provide clues about their assets or lifestyle that may not be apparent in financial documents.

By expanding your search to include digital assets, you can uncover sources of wealth that might otherwise go unnoticed.

7. Examine Business Interests

If your spouse is involved in a business, it is crucial to conduct a thorough investigation of the business’s financials, ownership, and operations. Hidden assets may be buried in business interests or assets that your spouse controls but has not disclosed.

• Business valuation: If your spouse owns a business, hire an expert to perform a valuation of the business. Sometimes businesses are undervalued or manipulated in order to conceal assets.
• Check for undisclosed investments or income: Ensure that all business revenue and assets are disclosed. Look for off-the-books payments or undeclared profit streams that may indicate hidden assets.
• Ownership structure: Your spouse may have transferred assets into a business entity or may own part of a business under a different name. Investigate the ownership structure to determine whether your spouse has intentionally or unintentionally hidden assets.

Penalties for Hiding Assets

It’s important to note that the court system has methods for penalizing spouses who intentionally hide assets during a divorce. According to Justia.com, the guilty spouse may be required to pay a fee to the other. For example, if $20,000 in marital assets were hidden, the judge may order the spouse who hid the assets to pay $10,000 to the other spouse. Additionally, some states can institute jail time for the offender.