Sadly, going through a divorce brings out the worst in some people. Whatever the reason, some spouses will take steps to hide assets from the other spouse during the divorce process. This article was written to discuss the issue in depth, and what the victimized spouse can do to make sure their marital estate is protected.
As with all aspects of the law, these options should be explored with the guidance of a qualified family law attorney.
What the Law Says About Hiding Assets in a Divorce
Most folks are aware that California is a community property state. California Family Code §760 states:
“All property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.”
This means that money earned during a marriage, whether it was earned primarily through the efforts of one spouse or both, is considered community property. In California, property is part of the community estate even if one spouse earns the money without the other spouse’s knowledge.
The law is also very specific when it comes to how community property is to be divided. Family Code §2550 states that absent a written agreement (such as a prenuptial agreement), the court must divide the community estate of the parties equally. This rule applies to all items purchased during a marriage — cars, boats, furniture, real estate, stocks, bonds, etc.
Marital Assets Can Be Complicated
One of the key questions that is often settled during a California divorce is whether an asset is community or separate property. In most cases, items purchased prior to a marriage are considered separate, not community. However, exceptions apply to this rule.
For instance, equity accrued during a marriage on a home purchased before the marriage can be considered community property. This is also the case with pension fund earnings and interest from bank accounts.
During the early stages of the divorce, both couples will be required to make disclosures of the community property. This includes all assets, debts and relevant financial circumstances.
What Happens If A Spouse Hides Assets During A Divorce or Fails to Disclose?
Before getting into a real life example of a spouse who hid assets during a divorce, let’s briefly discuss some of the reasons why it’s a bad idea to attempt to engage in this type of behavior. For starters, the party who hides assets could be hit with civil penalties.
This could include the court ordering the dishonest spouse to pay the other spouse’s attorney’s fees. In California, the Family Code is set up to encourage the divorcing parties to settle their divorce and cooperate whenever possible.
California Family Code §271 allows the court to sanction the obstructionist party by ordering them to pay the other party’s attorney’s fees.
In addition to paying the other side’s legal fees, the spouse that tries to conceal assets could end up forfeiting more assets to the other side in the process. Section 1101(h) of the Family Code notes that married couples have a fiduciary responsibility to one another. If this responsibility is breached, such as when one spouse intentionally hides community assets, the law allows the court to award the other spouse 100 percent of the value of the undisclosed asset.
But perhaps more grave a scenario than civil penalties, the spouse who attempts to conceal assets during a divorce could potentially face criminal charges. This could include charges of perjury, which carry potential jail time, as well as charges of fraud.
Long story short, it’s not worth the risk to try and hide assets from a spouse, or the court.
A Woman Tried To Hide Lottery Winnings From Her Husband, Paid a Big Price
In 1999, the Los Angeles Times covered the story of a couple that decided to divorce after 25 years of marriage. In court documents, husband Thomas Rossi described being caught off-guard by his wife Denise’s request for separation. He said he was particularly blind sided by her sense of urgency in wanting to dissolve the marriage.
It wouldn’t be until years after the marriage was finalized that Thomas found out Denise’s reason for wanting to divorce was because she had won $1.3 million in the lottery that she didn’t want to share.
This was something she failed to mention during the mandatory asset disclosure portion of the divorce. Had it not been for a twist of fate in Thomas’s favor, he might not ever have learned about his ex-wife’s winnings — which legally qualified as community property.
Luckily for Thomas, two years after the divorce was finalized, he received a mysterious solicitation in the mail, addressed to his ex-wife. It was from a company called Statewide Funding, which offered lump sums to lottery and lawsuit winners.
The letter stated that the company
“helped hundreds of lottery winners like you around the country receive a lump sum payment for the present value of their future annual lottery payments.”
After some initial confusion, Thomas and his lawyer did some research with the State Lottery Commission, which confirmed that Denise had won a $1.3 million reward, payable in monthly installments of $66,800.
During a subsequent deposition, she came clean and admitted that she concealed her winnings because she didn’t want her ex-husband “getting his hands” on them. As it turned out, she had requested the winnings checks be sent to her mother’s house so that her husband wouldn’t find out about them.
Once these facts came to light, the family court judge in the case made another ruling in which he determined Denise acted out of fraud or malice. As a result, he awarded every penny of the winnings to Thomas. The moral of the story here is that when it comes to legally required disclosures, it pays to be honest.
Common Ways Spouses Hide Assets
While there are any number of ways a spouse might hide assets during a divorce, this section contains a short list of some common methods.
It’s important to remember that every marriage is different, and every divorce is different. Depending on the specifics of a particular case, there may be any number of different combinations of techniques used to hide property:
Rerouting checks or payments to another address
This technique was highlighted in the previous section, when the wife who won the lottery attempted to hide the winnings from her husband by re-routing award payments to her mother’s address. Similar scenarios could involve a spouse hiding property from the other spouse by putting money in safe deposit boxes, P.O. boxes, or taking out loans in their name alone.
Undervaluing investment property
If the couple owns property together, such as rental units, it might be possible to temporarily diminish the value of the property by leaving it vacant, or allowing it to fall into disrepair.
This often happens in cases in which the couple owns a business. Perhaps one spouse is in control of the businesses’ day-to-day operations. He or she might make efforts to inflate certain business expenses. Or, he or she might create a fake expense account making it look as if he or she has more debt.
Money transfers to a separate account
Perhaps you and your spouse have a joint checking account, and he or she is making transfers from that account to an account under his or her name only.
Purchasing fine art or other expensive items
Believe it or not, people will sometimes purchase esoteric and expensive items hoping that others won’t immediately recognize their value. It’s important to remember that an expensive painting or sculpture might not have the same recognizable value as a Ferrari or a Rolex watch.
Luckily, there are steps that can be taken during a marriage to prevent a spouse from hiding assets. These include monitoring account activity, reviewing cancelled checks, and paying attention to any changes in spending. Unfortunately, by the time a couple files for divorce, it’s often too late to take these preventative measures.
What’s important is that once you file for divorce, you assess the situation with help from a good family attorney.
What Legal Options Are There When The Ex is Hiding Assets?
There are a number of legal tools available to a person going through a divorce when the ex might be hiding assets.
One of the primary tools in this sort of investigation is known as discovery, a process used in both civil and criminal cases to obtain information in preparation for a trial.
There are a number of different types of discovery that will allow you to request information about your spouse’s assets including marital and separate assets.
By tracking these assets, it might become possible to learn if your ex is hiding anything.
Here are some of the different types of discovery, all of which are legally available to folks going through divorce proceedings:
Request for Inspection
This type of request involves you asking your spouse to physically allow you to inspect a particular piece his or her property. The type of property inspected could range from automobiles and rental properties, to safe deposit boxes and other items.
This is just a fancy word for written requests asking for information. Interrogatories could be used to request financial records and other documents.
This type of discovery involves lawyers asking questions of the spouse in a formal setting. While oral depositions don’t typically take place in a courtroom, they are recorded under oath by a court reporter. If the spouse attempts to lie about his or her assets during a sworn deposition, he or she could face serious penalties.
Hiring a Forensic Accountant
A forensic accountant is a special investigator skilled at uncovering hidden assets. Though their services are not cheap, you can hire a forensic accountant to look into your spouse’s assets. Once the investigation is complete, the forensic accountant will give a report to the court on the findings.
Contacting a Family Attorney
There can be so many facets to a divorce — from division of community property —to issues of child custody. This article discussed just one facet of the process. Hopefully after reading this page, readers understand the importance of having a good lawyer looking out for their interests during a divorce.
If you are going through a divorce and have questions about community property, or are concerned that your spouse is hiding assets, consider scheduling a consultation with our office.
You are entitled to your fair share of the community estate. See how we can help you.