When a couple undergoes a divorce, two significant issues must be addressed:
- Child support and custody; and
- Property division
Occasionally, in an attempt to keep a larger portion of the marital property than they would typically receive, one spouse may deliberately conceal or “hide” specific assets from the court. This behavior is dishonest and illegal and can have severe repercussions for the perpetrator.
This article serves as a guide to property division in divorce and how an individual might attempt to hide marital assets for personal gain.
What are the Fundamental Concepts of Marital Property?
For the purpose of divorce, all property is categorized into two groups: separate and community property.
Separate property refers to anything acquired by a spouse before or after marriage, through gifts, or by inheritance. Separate property is typically not subject to division during a divorce because it belongs solely to one spouse.
Examples of separate property include:
- Personal gifts: Items given specifically to one spouse during or before the marriage, such as a piece of jewelry, artwork, or a car.
- Inheritance: If a spouse inherits money or property from a family member or friend, it is considered separate property, even if received during the marriage.
- Property acquired before marriage: This includes any real estate, vehicles, or investments purchased or obtained by one spouse before the marriage.
- Compensation from personal injury lawsuits: If one spouse receives compensation from a personal injury claim, it is considered separate property, except for the portion attributed to lost wages or medical expenses during the marriage.
- Property designated as separate through a prenuptial or postnuptial agreement: If a couple has a valid prenuptial or postnuptial agreement that clearly defines specific property as separate, it will be considered separate property during a divorce.
Imagine Jane and John got married in 2015. In 2016, Jane’s grandmother passed away and left her a considerable inheritance, which Jane placed in a separate account. In 2018, Jane purchased a rental property using funds solely from her inheritance. In 2020, the couple decided to divorce. During the divorce proceedings, the rental property purchased by Jane using her inheritance will be considered separate property and not subject to division, as it was acquired with funds from her inheritance, which is also separate property.
On the other hand, community property, which includes anything obtained during the marriage, is eligible for division. This classification is assumed unless a spouse can prove it falls under one of the aforementioned exceptions. The method of dividing community property varies.
Examples of community property include:
- Income: Any earnings by either spouse during the marriage are considered community property, including salaries, wages, bonuses, and commissions.
- Property purchased during the marriage: This includes homes, vehicles, furniture, and other tangible items acquired using marital funds.
- Retirement accounts and pensions: Contributions made to retirement accounts, such as 401(k) plans, IRAs, and pensions, during the marriage, are considered community property.
- Debts: Any debts incurred during the marriage, including mortgages, credit card debts, and personal loans, are considered community property, regardless of which spouse is responsible.
Now, imagine Jane and John got married in 2015. They purchased a house, two cars, and furniture during their marriage using their combined income. They also contributed to their respective 401(k) accounts. In 2020, the couple decided to divorce. During the divorce proceedings, the house, cars, furniture, and portion of their 401(k) accounts contributed during the marriage will be considered community property and subject to division.
States use two schemes as the foundation for dividing community property upon divorce. The first and most prevalent is equitable distribution. Under this system, courts consider various factors such as spousal earning potential, accumulated separate property, health, and other needs to divide community property fairly. This does not imply an equal split; often, it is not. This approach aims to place each spouse on equal footing after the divorce, even if it requires an unequal division.
The remaining states are referred to as community property states. Only a few jurisdictions (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) follow this model. Here, the default procedure is to evenly divide all community property, with separate property generally not considered.
What are Some Widely Employed Techniques for Concealing Assets?
To secure a larger portion of community property assets, a spouse may sometimes choose not to disclose or hide separate or community property from the court during divorce proceedings.
A business spouse might manipulate debts and assets to devalue the company artificially. This can be achieved in various ways. They may permit clients to defer payment beyond a reasonable period, reducing the income recorded in their books. Additionally, they can delay paying their debts or underreport sales, further diminishing the business’s value.
In community property states, a spouse may attempt to hide community funds within a business classified as separate property, reducing the amount of community property available for division. For real property, a spouse may deliberately let a building or other property deteriorate or neglect to pay taxes to decrease its overall value.
The most frequently employed tactic for concealing assets involves using a secret account, such as a bank account. The spouse will establish a separate account without the other’s knowledge and transfer funds from community property accounts into these separate accounts. During divorce proceedings, they may either fail to disclose the account or claim all the funds as separate, depending on the state in which they reside.
How Can I Identify and Prevent Hidden Assets?
- Monitor all accounts: Keep records of all transactions related to checking and savings accounts and any other accounts containing community property funds. This enables you to examine all withdrawals made by your spouse and, if necessary, hold them accountable. You can also provide evidence that withdrawals were legitimate and not intended to hide funds.
- Maintain thorough records: Regardless of whether the property is separate or community, keeping accurate records can prevent a spouse from attempting to hide assets in the first place. Staying ahead and maintaining a paper trail on everything can quickly thwart any fraudulent activity.
- Seek professional assistance: Sometimes, you may need help gathering the appropriate evidence. In addition to a divorce attorney, consider hiring a forensic accountant to help uncover hidden assets and ensure you receive the correct amount in the divorce decree or settlement.
Do I Need an Attorney for Assistance with Divorce Issues?
A divorce can be an emotionally draining and frustrating experience for anyone, and cases can quickly become complicated and complex. This is why hiring a local divorce lawyer to guide you through the process is essential.
Your attorney will not only help you navigate the legal steps, but they will also advocate for you at every possible turn and ensure that your rights are protected. Having an experienced professional on your side can better safeguard your interests and work towards a fair outcome in the division of assets during a divorce.
Use LegalMatch to find the right lawyer for your hidden assets case today.