The Problem of Hidden Assets in Divorce

When you start hiding things, that’s when darkness creeps up.

Steve Kazeebusiness-cartoon-biz-095

At the time two parties are divorced, a court will divide your marital assets in some fashion.  In Montana, the court is charged with making a “fair and equitable” division of the marital estate, i.e., the assets and liabilities acquired during your marriage.  The issue of inherited, gifted or premarital property is a subject for an entirely different post, but suffice it to say there are some different considerations for the division of these types of assets.  While much has been made about the difference between “community property” states and non-community property states, the truth is that the end result is really very similar in most cases.

But how can you divide what you don’t know exists?  The simple answer is: you can’t and too often deceptive spouses get away with squirreling away assets that they don’t want divided.

Montana, like most states, requires that the parties to a divorce disclose all of their assets and liabilities regardless of whether or not they were acquired by inheritance, earned during the marriage or otherwise.  Failing to disclose assets is unethical, unfair and illegal.  Executing a disclosure statement that is  knowingly incomplete  or inaccurate is perjury.

Still, people do it all the time.  So how do you protect yourself from a spouse determined to hide assets?  First, it is wise to have a basic understanding of your finances before you are in a divorce setting.  I am frequently surprised to find that one spouse has been left completely in the dark regarding finances throughout the course of a marriage. Having at least a working knowledge of your financial situation is probably a good idea for a wide variety of reasons that have nothing to do with divorce.  As a collateral (and, hopefully, unneeded benefit) it will also help you know the nature and extent of your marital estate in the event that the worst happens.

If you know that a divorce is likely or imminent, begin gathering financial information as quickly as possible.  If you sense that a divorce is likely, your spouse probably does as well and it is during this time that  assets are most likely to be hidden. You should also know that, before a divorce filing is made,  there is nothing illegal about a spouse moving funds around, selling assets, incurring additional marital debt or closing accounts. The earlier you get a bead on your finances, the less likely it is that assets will be hidden in the first place and the more likely you will be to find them later on. Once you suspect that a divorce is on the horizon, start gathering  as much information as you can, including pay stubs, bank records, tax returns, credit card statements and investment/retirement account statements.

Bear in mind that some assets  are not necessarily hidden but  rather devalued in some way to avoid equalization in the division of the marital estate.  This is particularly true where an individual is self-employed and/or operates his or her own business.  For example, funds from a business may be “laundered” through a family member or close friend for phony services, then returned to the spouse after the divorce.  Cash may be skimmed from the business, bonuses delayed until after dissolution or simply not reported on tax documents or financial statements.  Mechanisms for hiding income and assets are limited only by the imagination and creativity of the party seeking to avoid disclosure.

There are many effective ways to uncover hidden assets and income. Often, basic discovery  procedures will reveal telltale clues to the existence of hidden assets. Having  financial records produced during discovery analyzed by a competent forensic accountant is typically the best way to locate missing assets. It may also be  necessary to hire a private investigator to locate these assets. Sadly, if you are unsure whether or not there are hidden assets, it may cost you a significant amount just to find out.  If hidden assets are located, however, the court will likely require the party hiding assets to pay those costs.

If you are considering hiding assets, my advice to you is simple: don’t. Not only is this kind of behavior illegal, wrong and unfair, but it can very likely end up backfiring on you. If your spouse discovers that you have hidden assets — even after a final decree has been entered — the court can reopen your case to divide those assets that were hidden. In addition, as a punitive measure, the Court can award the entirety of those assets to your spouse. Finally, the court will take a dim view of your behavior, a circumstance that can have disastrous results for the outcome of your case.

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The Problem of Hidden Assets in Divorce

Should I File First?

“The present time has one advantage over every other – it is our own.” – Charles Caleb Colton

When divorce is imminent, is there any advantage to being the first to file? The short answer is yes.

From a legal standpoint, there really should be no advantage as both the parties stand on the same legal footing.  But as a practical matter, the Petitioner (the filing party) will generally present his or her case first, thereby getting the opportunity to make the first impression on the court.  Additionally, once the Respondent has presented his or her case, the Petitioner will once again have the opportunity to present rebuttal testimony, thereby also gaining the advantage of having the last impression with the court.  We all inherently know the importance of first and last impressions; social scientists call these the primacy and recency effects.

But there are more significant advantages to being the filing party.  The party that files has the ability to select the timing of filing, giving them the ability to prepare both emotionally and financially.  The filing party may have more time to investigate and select a lawyer or to protect marital assets from dissipation. By filing, there is control over the possibility of foot-dragging and delay.

It is my firm belief, however, that the biggest advantage of filing first is the impact that being proactive has on the Petitioner’s mindset and attitude towards the divorce process.  By filing, you are taking action; by taking action, you are taking control. There is nothing worse than waiting for something awful to happen to you and no better cure for that “Sword of Damocles” feeling than to be the one to rip off the bandaid.

The sense that you are in control of your own destiny – rather than at the mercy of your now-adverse spouse – can be an enormous relief and advantage throughout the divorce process.

Should I File First?