When a couple goes through a divorce, there are two major issues that need to be dealt with, one being child support and custody, and the other being property division. Sometimes, in an effort to keep more of their share of the marital property than they would normally get, one spouse may purposely fail to disclose, or “hide,” certain assets from the court.
This is not only dishonest behavior, it is illegal. Doing so can have serious consequences for the offender. Here is a short guide to property division in divorce and how someone may attempt to hide marital assets for their own benefit.
For the purpose of divorce, all property is divided into two categories: separate and community. Separate property is anything acquired by a spouse before or after a marriage, through gift, or through inheritance. During a divorce, separate property is not eligible for division. What is eligible is community property, which is anything acquired during the marriage. This is the classification that is assumed unless a spouse can show that falls under one of the mentioned exceptions. It is how this community property is divided that varies.
There are two schemes that states use for the basis of dividing community property upon divorce. The first, and most common, is known as equitable distribution. Under this scheme, courts look at a variety of factors like spousal earning power, accumulated separate property, health, and other needs to divide community property fairly. This does not mean that it will be split evenly, and often, it is not. This scheme looks to put each spouse on as even footing as possible after the divorce, and if unequal division is the best way to do so, then so be it.
The other states are known as community property states. Only a few jurisdictions (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) follow this type. Here, the default is to divide all community property evenly, and separate property is generally not considered.
In order to get more than their fair share of community property assets, sometimes a spouse will go through efforts to either not disclose or hide either separate or community property from the court during divorce proceedings.
If a spouse owns a business, they may try to manipulate debts and assets to artificially devalue the business. They can do this many different ways. They may allow customers to defer payment past a reasonable amount of time to decrease the amount of income on their books. They can also push off paying their own debts or under report sales, both of which further devalues the business.
In community property states, a spouse may attempt to hide community funds in a business classified as separate property to reduce the amount of community property that can be divided. For real property, a spouse may intentionally allow a building or other piece of property to either deteriorate or not pay taxes to reduce its overall value.
The most commonly used trick for hiding assets is through a secret account, bank account or otherwise. The spouse will set up a separate account without the other’s knowledge and siphon funds from community property accounts into these separate accounts. Then, when divorce proceedings begin they may either not disclose the account or claim them all as separate funds, depending on which state you live in.
- Watch all accounts. Keep records of all transactions having to do with your checking and savings accounts, as well as all other accounts that have any community property funds in them. This way, you can check all withdrawals that a spouse makes and if necessary force them to be accountable. You can also provide evidence that the withdrawals were legitimate and not for the purpose of hiding funds;
- Keep as many records as possible. Whether it is separate or community property, keeping good records can eliminate even the possibility of a spouse trying to hide assets in the first place. Stay two steps ahead and maintaining a paper trail on everything you can nip any fraud in the bud;
- Hire experts. Sometimes you need help to gather the right evidence. In addition to a divorce attorney, you may need to hire a forensic accountant to help discover hidden assets and make sure that you are receiving the right amount in the divorce decree or settlement.
A divorce can be an emotionally draining and frustrating experience for anyone, and cases can get complicated and complex in a hurry. That is why you need to hire a local divorce attorney to help you through the process. Not only will they guide through the legal steps, they will be your advocate at every possible turn and make sure your rights are protected.