If you are separated or are getting a divorce, learn 10 common strategies spouses use to hide assets.
Other articles you may be interested in:
Are you ready for this one? I’m going to talk about 10 ways you can hide assets from your spouse – in particular, if you’re getting a divorce. So why would you want to hide your assets from a spouse in a divorce? And why am I teaching you 10 secret ways? Well, it isn’t so you can hide the assets. It’s so you can be on the lookout in case your soon-to-be ex is hiding assets from you.
As a divorced financial planner, I’ve seen some pretty wild and crazy examples of people trying to be devious and oftentimes fraudulent when it comes to trying to protect their assets from the spouse in a marital separation and agreement. So here’s a few ways that you need to be aware of, so if you’re in a divorce or contemplating a divorce, you can make sure that you are protected against a spouse that’s hiding assets from you.
The first way is very simple: it’s basically when one spouse takes assets that are jointly owned and transfers those into a separate account, maybe in their name only. So for example, you have a joint account with your spouse. We’ll use “he” from now on, just because in my experience, it’s usually the guy. It doesn’t always have to be, but just for simplicity’s sake, I’m going to use the pronoun “he.” So he takes the joint money and he transfers it into a separate account in his name only, that you may not even be aware of.
Then, of course, when it comes time to disclose the assets and the income, he of course mysteriously doesn’t list this account. So that’s the one way; it’s very obvious and it’s very simple, but you would be surprised, because it is often something that does happen when someone wants to hide assets.
The other is even more devious. So instead of taking those joint assets in that account – maybe it’s an investment account – and instead of transferring those to an account in his name, nope, he goes a step further this time: he takes those assets and he transfers them to a friend, in a friend’s name, in a friend’s account. So what’s the advantage in doing this for him? Well, basically, when it comes time to disclose those assets, he doesn’t have to disclose these assets because they are not part of the marital property. They’re not his. They’re not yours. He simply gave a gift to a buddy.
And of course, once the divorce is concluded, he then requests that his buddy transfer those assets, those stocks, whatever it may be, back into an account in his name. Very, very shady. You have to watch out for this, and here’s how.
Basically, if you’re getting a divorce or in the middle of one, you need to get copies of all of the investment statements, all of the bank statements. Any account that you have jointly, you want a statement from, because what you’re going to look at is the transaction history. You want to see if there are big sums of money that are being transferred out of the account, so then you can trace it back to where those assets are going. You’re basically a financial CSI; you’re a detective here, trying to figure out where that money went, and the best way to do that is to get statements from the accounts, because it will show in the transaction history where that money went.
The third way – and this is one that really is not used that often, but for the most devious out there, they’ve come up with this one, too – so basically, when it comes time to pay the taxes, you might have a situation where your spouse, in having a decision between getting a big IRS refund, he may say “no thank you” and he may instead say “IRS, go ahead and keep the money and use it to pay future tax.”
So instead of getting $3,000 or $4,000 or $5,000 that of course would come to a joint account that you would both have to divide, he says “Nah, that’s all right. Leave it at the IRS so my spouse won’t know about it, and when it comes time after the divorce, I’ve got this bank of money at the IRS that I can use to offset any additional future tax that I might have to pay.” So that one is very devious, and you can prevent that by looking at previous tax returns. You will see, was there a refund due? Was it paid out? If not, the IRS still has it. That is now a marital asset that needs to be accounted for. It needs to be divided.
The fourth way – this one is interesting. You’re not going to get rich doing this, but if you do it often enough and do it for long enough, you can amass quite a little bit of money by going to grocery stores, going to other retail establishments, buying items, and then requesting cash back. So you might get $40 or $60 or $80 cash back from the grocery store.
What makes this so interesting is that on the credit card statement or on the debit card statement, it just shows a debit from Safeway or from Albertsons. It doesn’t break it down between groceries and a cash out. So this is an easy way to hide assets, and it’s very, very difficult to catch this. One way to do it is to, again, look at those debits to see if they seem a little excessive, a little high based on the amount of groceries or other items that you’ve been getting.
The fifth way is to turn down promotions and raises. For example, let’s say your husband is employed, and he knows and you know that you’re going to be getting a divorce in the next three, four, five, six months. So devious husband decides, “All right, I know I’m up for a big raise. I know I’m up for a big promotion. But if I get this raise or promotion, that means I’m going to have to pay more marital support. Ugh, I don’t want to do that. So I’ll just talk to HR, I’ll talk to my buddy, my boss, and say ‘you know what? I’m going through this divorce, and it would be best – I really want the promotion, I want the raise; can you hold off on it for a few months?’” That’s something that also happens, and it’s very hard to detect and to prevent.
The sixth way, again, talking to your husband talking to his boss, who is maybe his buddy, and maybe your husband is in sales, and he is due quite a bit of commissions. Well, instead of taking those commissions, instead of getting paid out on those – because as soon as they get paid out and hit your joint account, those become part of the marital property and would need to be divided – so to prevent that, husband says “hold off on paying me those commissions until the divorce has been complete, and then as soon as it is, then you can pay me all that cash.”
The seventh way is not really so devious; it’s just something that often gets neglected. It’s one of those assets that you kind of forget about, and these are stock options that maybe your spouse has through his company, or even you may forget about retirement accounts. Maybe it’s a 401(k) or a 403(b). Make sure you get an accounting of all of the assets that your spouse owns through his or her employer. That way, you can make a list of those, figure out what the value is, and include that in the division of the marital property.
The next three are really exclusive to people who own their own business. If you’re married, you’re getting a divorce, and your spouse owns his or her own business, you’ve got to be careful, because this is ripe for abuse.
First way: husband has a business; he wants to limit the amount of assets and the amount of income that he has until the divorce is over. So what does he do? He tells his clients, “You know what? I’m not going to invoice you for the next three or six months. We’re just going through an accounting change, so don’t worry about paying us now. We’ll go ahead and invoice you maybe in six or seven months.” Of course, six or seven months later, the divorce is over; he invoices the clients, and all this cash comes in.
So you want to try to prevent that as much as possible. There are ways to do it; it gets a little bit more complex, but you can look at the books of the business, look at the invoicing, look at the aging of the accounts receivable. Accounts receivable is the accounting that takes into consideration what is owed the company. So if you see that figure growing, then you know that the business is owed quite a bit of money. Of course, the husband may not even include the invoicing in accounts receivable to try to prevent this, but it’s at least something to look into.
The next issue is to create fake expenses. Sometimes business owners will do this to basically get their net income to be as low as possible. So if they have fake expenses, it offsets all of this nice income that’s been earned, and it basically results in very little income that flows through to the marital estate. That’s something you have to look out for. It’s very hard to detect.
With all of these, if your spouse has a business and you suspect fraud or these kinds of maneuverings, then you can hire a forensic accountant. A forensic accountant is typically a CPA; they go in and they analyze all of these things to try to detect fraud and to basically help you get what you deserve.
The tenth way – and again, this is if your spouse owns a business – is for often the spouse who owns the business will simply start buying lots of assets, things like artwork that can be later sold, computer equipment, maybe leasing a new car, buying a new car. Basically inflating the expenses so it shows that the business is worth very, very little, because it produces very little income.
These are 10 ways – 10 of many; there are literally thousands of ways one can be defrauded in a divorce. So these are 10 pretty common ways to look out for. You want to be aware of these, not so that you can perpetrate these, but that you can be aware of them and you can make sure that your spouse is not engaging in any of these.
So if you are going through a divorce or separating, make sure that you pay attention to these. Work with a divorced financial planner, work with a forensic accountant if you need to. You basically want to get what is fair, what is equitable, and really what is coming to you.
Until next time, if you have any questions, feel free to call us at (949) 305-0500, or visit our website and send us an email, send us a question. We’d love to hear from you.