The Problem of Hidden Assets in Divorce

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

Steve Kazee

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.

Don’t blow your privilege!

“Silence is a true friend who never betrays.”

Confucius

The attorney- client privilege is an important ally in your case. It allows you to communicate openly and honestly with your attorney without fear that your communications will be revealed to the other side.  It can be a fragile thing, however, and care must be taken to preserve the privilege.

Most importantly, the attorney-client privilege is afforded only to confidential communications between the attorney and the client. To be confidential, the communication must not be intended to be disclosed to a third person other than those to whom the disclosure is made in order to provide legal services to the client, such as the attorney’s associates and other staff. For example, an eavesdropper would not be able to testify about communication that is otherwise subject to the privilege, given that a third person’s eavesdropping is not a breach of confidentiality, because that disclosure was not intended.

Of particular concern in family law matters is the frequent desire of clients to have a friend or family member present during meetings with the attorney. I recently litigated a case in which the other side’s attorney had (at the client’s request) copied the client’s family members on all correspondence. Surprise!  All of those communications were now discoverable. I’ve also had the issue of waiver of the privilege arise where documents were kept by a party in a location to which the other side had ready and regular access and under conditions clearly not designed to maintain the confidentiality of the documents.

In other words, maintaining the privilege takes some effort and thought. If a communication between an attorney and a client is made in the presence of someone else, then it would not be considered to be confidential. Likewise, communications between an attorney and a client that are made in a public place would not normally be intended to be confidential, and therefore generally do not fall under the privilege. Similarly, the privilege can be waived where the contents of the communications are later disclosed to third parties.  For example, an attorney’s advice contained in an email to the client loses its privileged status if the email is copied or subsequently forwarded to a third party.

Accordingly, you should not allow others to see any mail that your attorney sends to you because it might no longer be considered a confidential communication between you and your attorney. You should take appropriate and reasonable steps to maintain the confidentiality of all documents related to your case by keeping the documents in a secure location. Similarly, no e-mails from your attorney should be forwarded by you to anyone else. Neither should you discuss with others the advice you receive from your attorney regarding your case.

The privilege belongs to you, the client, who may prevent an attorney’s disclosure of confidential information as a witness or of production of evidence in a legal proceeding regarding the client. That also means, however, that the responsibility to not to waive the privilege lies in your hands.

There are, of course, limits to the scope of the privilege and it is narrowly construed because it is in conflict with the general principle that the legal process should seek the truth and full disclosure of important facts. For example, the privilege only protects communications in which legal advice was sought or rendered. In other words you can’t protect facts from being discoverable simply by incorporating them into a communication with your attorney.

If you have any question as to the confidentiality of your communications with your attorney, you should have an open and frank discussion with him/her. But the take home message here is to avoid the temptation to share what you discuss with your attorney with your friends and family.  Unless you want those discussions to be discoverable by your ex.

Take a deep breath before you click “send”.

“Speak when you are angry – and you’ll make the best speech you’ll ever regret.”

Laurence J. Peter

Although email, text messages and other forms of electronic communication are a necessary evil, I am a big fan of letters. While clearly text messages have their place, they are rarely a good forum for meaningful communication about issues relating to your family law matter.

The biggest problem with electronic communication is the absence of human context. As a species we have developed the ability to communicate complex concepts and emotions; but that communication is not just verbal or written. It has been said that up to 90% of our communication is nonverbal – our facial expressions, hand gestures, tone and body language all play a huge role in expressing what we feel and intend to communicate. Emails and text messages are obviously devoid of any such nonverbal communication. It is for that reason that so many electronic communications are misunderstood or misinterpreted, resulting in anger, resentment and frustration.

And the fact that electronic communication does not require the sender to face his or her recipient in person adds to the willingness of most people to say hurtful things.

When my daughters were about 12 years old, AOL Instant Messenger had become all the rage. Neither they nor I were familiar with this brave new world of instant written communication.I could hardly pry them away from the computer and it seemed that virtually all of their friends were now . . . well, virtual. Undoubtedly, many painful and nasty things were said under the cloak of anonymity. However, many a tear was shed over what appeared to me to be completely innocuous communications. In the tortured minds of my sweet adolescent daughters, virtually every comment was an insult.

It is, of course, true that a written letter also fails to incorporate elements of nonverbal communication. However, they generally tend to be far more thought through than the average text message or email. If there is something important to talk about with regard to your children, your spouse or your case, dignify the importance of the message by either communicating in person, through a counselor or in a well thought-out written communication.

There is something about the instantaneous nature of text messages (and, to some extent, emails) that tempts us to use them to respond when we are angry or hurt. When we receive a text message that seems insulting or derogatory, we rarely ask ourselves if the sender meant to say what we heard. Worse, we can instantly strike back with a nasty text message of our own.

Text messages are regular fodder for court exhibits in my practice. It is because they are often not well thought through that they often reflect the raw emotion, pent-up frustration and sheer animosity of the litigants. In other words, people often say stupid things in their text messages and these often become Exhibit A in their court case. And I’m not the only family law attorney doing this. 92% of AAML divorce attorneys cited an increase in cases using evidence taken from smart phones during the past three years. In that same survey, 94% noted an increase in text message evidence. And, as discussed in a prior post, 81% of AAML members say they have seen increased use of evidence from social networking websites during the past five years, mostly from Facebook.

Angry electronic communications are often used in court to show the inability of two parents to coparent their children, to rebut other testimony or to establish a litigant’s state of mind or attitude towards the other party. So long as the text messages are properly transcribed and complete, there is little your attorney can do to prevent them from being shown to the judge.

Aside from the impact that such communications can have on your case, try to think of the impact your communications will have on your relationship with your ex, particularly when children are involved. I have rarely seen an angry series of text messages between two parties that resolved a dispute or convinced one of the parties that their position was somehow irrational or wrong. So really: what’s the point?

Think before you text. If you really have something important to say, stop, take a deep breath, and write a letter.