Finding The Pot Of Gold

Vic Brown Hill, Attorney at Law

Settling or trying a divorce case is not hard as long as you have the evidence you need. There is only so much a practitioner can do about that. If we could write the evidence, we would all have the most wonderful and entertaining cases imaginable. Unfortunately, we are confined to the facts that our clients bring us, and to doing the best we can with the evidence that we have. Spin – spin – spin. Sometimes though there is more evidence than meets the eye, especially when it comes to assets.

Some people just cannot resist the temptation to hide assets when facing a divorce. Sometimes it is the result of outright selfishness. Other times, it’s born from the idea, “I earned it and its mine.” Then sometimes depriving the other spouse of assets is seen as punishment for perceived bad behavior.

Whatever the reason, hidden assets can be a problem in a divorce. The longer the hiding spouse has been planning the divorce, the harder it can be to find the assets. There are some tools at the practitioner’s disposal however.

When a spouse is hiding assets, it is almost always necessary to employ the services of a forensic accountant. There are two reasons. First, the forensic accountant is a specialist in analyzing financial documents and will probably be able to find evidence of hidden assets more efficiently that the attorney or the attorney’s staff can. Because of that, the cost to the client will probably be less. The second reason is that the attorney cannot testify at the trial as to what s/he found. The forensic accountant can. If the forensic accountant has a good reputation with the Court, the accountant’s testimony will be a tremendous benefit to proving the case. The accountant will examine the documents that are obtained through discovery.

Discovery: Thorough and thoughtful discovery can be a very a useful tool in uncovering hidden assets. If you are working with a forensic accountant, the accountant will tell you what kinds of documents s/her would like to have.

There are basic documents that are always necessary. These include complete federal income tax returns, complete state income tax returns (if applicable), and complete federal income tax returns for any business operated by the other spouse. A complete tax return will include all schedules and supplementary documents such as form W-2, form 1099, K-1, and the like.

The income tax returns can reveal the existence of assets even when they don’t disclose the extent of the assets. For example, the W-2 may reveal the existence of deferred compensation such as 401K account. The tax return may reveal the existence of tax-free municipal bonds — a favorite tool for concealing assets.

If there is an entry on the alternative minimum tax line. Form 65221 is the alternative minimum tax calculation form. It may show accelerated depreciation on real estate, mining exploration and development, and incentive stock options among other things.

The deduction of real estate taxes may reveal property that has not been disclosed otherwise. Comparing tax returns with other documents can show inconsistencies that eventually lead to discovery of other assets.

Other things that may appear on the tax returns that can point to undisclosed assets are fees for estate planning, gains/losses on the sale of property, gains/losses from an unknown business, or evidence of a foreign asset protection trust. There are many other potential clues to be found on a tax return. A skilled forensic accountant can help to trace those clues and find the answer.

It is obvious that you should review your spouse’s banking records. Of course, if the spouse is hiding assets, it is unlikely that those assets appear in the banking records, but they are worth a look. The skilled accountant can also assist with this analysis. Make sure to get copies of cancelled checks – the fronts and backs. With the front and back, you should be able
to identify if checks were deposited to a different, undisclosed bank account.

Sometimes parties have multiple bank accounts of various kinds. It is not unusual to see multiple transfers from one account to another that become confusing to follow. This is a strategy for hiding funds, so careful analysis of the banking records is necessary to trace the money coming in, its source, and the destination for any transfers going out. If a money secreting scheme has been going on for long enough, the transfers may appear to be ordinary legitimate transactions. Closer scrutiny may reveal however that the payments were sham transactions and the money was just converted to cash or is being held by a third party.

There is no reason to believe that a dishonest spouse actually produces all of the documents that s/her was noticed to produce. A willing liar can go a long way toward hiding assets – even from his/her own attorney. There are ways of locating undisclosed accounts. First, the client can look around the house. The mail or the garbage can be a great source of information. Look for banking institutions with which the client is not familiar. The client needs to be sure not to violate any privacy laws in looking for information. For example, the client should not open the spouse’s mail, or hack the spouse’s computer. However, it is not necessary to have the statement or account number of banking accounts. Knowing the institution is
enough. The attorney can serve a subpoena upon the institution(s) asking for any and all documents related to the suspected spouse.

Another extremely useful discovery tool is a deposition. At a deposition, the attorney can question the opponent about his/her behavior, assets, and income. The testimony is under oath and subjects the deponent to penalties for perjury if s/he is not truthful. Sometimes, the mere threat of a perjury charge is enough to garner some truth. The information gathered from the deponent, though not a mea culpa itself, may lead to the discover of hidden assets. The beauty of a deposition lies in the fact that the deponent does not get an opportunity to think about his/her answers. The questions are asked and must be answered on the spot usually. Frequently, inconsistent answers lead to discovery of information that can lead to finding hidden assets.

Depositions are not limited to the opposing party. A litigant may take the deposition of any party if there is a good faith reason to believe that the deponent has information that is useful. In order to be discovered, evidence does not have to be admissible. It has only to be likely to lead to the discovery of admissible evidence. Thus, the associates of the suspected
spouse may have information about the hidden assets.

Some associates may be subject to a privilege, and thus cannot be forced to give a deposition. However, golf buddies, family members, and others are usually unwilling to risk perjury charges to protect a litigant. Frequently they have pieces of information that can lead to discovery of hidden funds. Getting their depositions will require a subpoena for deposition to the deponent with proper notice given to opposing counsel. If the associate to be deposed is out of state, it may be necessary to obtain a commission for the taking of an out of state deposition. Obviously, this can become costly, so the cost/benefit analysis must be considered.

Depending upon the litigation budget, a private investigator can help to find hidden assets. Searches of public records can disclose real estate that may be in distant jurisdictions – somewhere the attorney would never know to look. Private investigators can also discover institutions where accounts are held. They are not usually able to determine an account number or balance, but they can provide a name and address. The attorney can take it from there.

It is very important when working with private investigators to choose one that is familiar with privacy laws, and is scrupulous about complying with them.

“Asset searches, which may include bank and investment accounts, are not illegal;
however, certain actions to obtain this information, such as pretexting, are illegal. And although there are methods that can be used to obtain financial information covertly, most if not all, are questionable and often futile. There is no clear way for anyone other than the account holder, a designated representative, or a party with a valid court order to get account information without violating the law.”

1 Scherzer International Manage Your Risk, Asset searches: who can get bank account information and why (2011), available at
http://www.scherzer.com/asset-searches-who-can-get-bank-accountinformation-and-why.

You do not want a private investigator violating civil or criminal privacy statutes in doing your bidding. Good investigators are highly professional and know what they can and cannot do legally.

A good old-fashioned way of finding hidden assets is lifestyle analysis. It may not tell you where the money is, or exactly how much there is, but it can certainly indicate that there are undisclosed funds. Do the spouse’s disclosed income/assets match the lifestyle that s/he lives? To figure this out, look at spending habits. What hotels does s/he stay in – especially on
business travel? Where does s/he like to eat? Where does s/he shop? What kind of car does s/he drive? How does s/he present himself/herself in public, or to friends? If the answers to these questions do not match the assets or the level of debt, that can be a signal that there are assets somewhere. A Court can infer the existence of assets from the lifestyle of a party.
Where there is smoke, there is usually fire.

A great source of information is a loan application. If a party is inclined to tell the truth on anything, it is an application for money. Greater income or assets can affect the loan amount and the interest rate charged. Sometimes, a party even exaggerates his/her income or assets on such an application – an admission against interests that is admissible at trial. Best of all, they are signed under penalties of perjury.

Of course, if you ask for copies of loan applications, parties rarely have them or admit to having them. Find out where the car or boat was purchased. Chances are they got the financing right there. If not, there is a lien on record for that vehicle unless it was bought for cash. If it was bought for cash, that’s perfect, just get the sale contract from the dealer.

Not so old fashioned is the use of social media. Immediately send a spoliation letter to the opposing side, and then request production of a complete download of the party’s social media. There is a wealth of behavior information to be found there, but there may also be evidence leading to financial information. For example, are there photos that were taken in an undisclosed home, or on an undisclosed boat. Perhaps the party “liked” a financial institution that has not been disclosed.

Some spouses resort to hiding assets off-shore. This is usually accomplished over an extended period. It may have commenced as a tax evasion scheme and morphed into hiding assets from the spouse. Either way, finding assets that have been hidden off-shore can be very difficult. Several jurisdictions’ laws are constructed so as to protect the privacy of off-shore account holders. Finding these funds can be quite difficult or impossible. The first place to start is the other spouse’s passport. Where has that spouse traveled regularly? That may indicate where to look at a minimum.

Clearly, when looking for undisclosed assets, the devil is in the details. The work can be long and tedious which means it can be expensive. So once more, the litigation budget must be considered.

All of these methods, especially the use of other experts, are like fishing in a strange pond. You may or may not catch something, but you will always lose your bait. When you find that hidden pot of gold however, the search is worth all of the trouble.

SOURCES

Darlys S Harmon-Vaught, Association of Divorce Financial Planners, Techniques For Discovering Hidden Assets and Unreported Income During the Divorce Process (2014), available at http://www.divorceandfinance.org/news/284737/echniques-for-discoveringhidden-assets-and unreported-income-during-the-divorce-process.htm.

Scherzer International Manage Your Risk, Asset searches: who can get bank account information and why (2011), available at http://www.scherzer.com/asset-searches-who-can-get-bank-accountinformation-and-why.