Divorce and Hidden Assets
Decisions regarding the division of marital assets upon divorce may be made either by the divorcing spouses themselves or by a judge. State law governs which spouse is entitled to receive which assets in the distribution. Typically, each spouse will receive a percentage of the total value of their joint property. Although it is illegal to do so, one spouse may try to hide their assets in an effort to protect the assets from property division. There are numerous tactics that an individual might try to use to veil their assets. However, it is possible to find hidden assets to make them available for a fair distribution in a divorce.
Two Schemes to Divide Property
Appropriate division of property between divorcing spouses varies by state. Generally, a court will divide assets under one of two schemes, depending on the jurisdiction. In an "equitable distribution," or "separate property" state, any assets and earnings that were accumulated during the marriage are distributed equitably, or fairly. That does not mean that the assets are divided equally. In fact, as applied, two thirds of the property is typically awarded to the spouse with the higher income with the remaining one third going to the other spouse.
In contrast, in one of the nine "community property" states (AZ, CA, ID, LA, NV, NM, TX, WA, WI), property is first characterized as community or separate property and then it is divided. Generally, community property is any property that was acquired during the marriage and it is owned equally by both spouses. Community property is divided fifty-fifty regardless of which spouse acquired it or earns a higher income. Separate property is typically all property acquired by only one spouse before marriage, or through a gift, inheritance or a personal injury award. As such, separate property is awarded entirely to the spouse to whom it belongs
Preventing Hidden Asset Harm
Hiding assets to shield them from equitable or equal division upon divorce is both financially harmful to the innocent spouse as well as illegal. One way spouses may protect themselves is by being aware of all financial information before the divorce proceedings begin by making copies of financial documents such as tax returns, bank statements, and pay stubs. Another way to protect assets is to set up individual accounts that can only be accessed by the person named on that account.
Common Ways to Undervalue or Disguise Marital Assets
There are numerous ways in which a spouse may attempt to hide some assets to prevent their inclusion in the divorce property distribution. Tactics used to hide assets of a business include:
Locating Hidden Assets
Hidden assets are sometimes difficult to locate and their existence may be difficult to prove. Typically, formal discovery procedures in divorce litigation can assist in finding assets that have been hidden by one spouse. For example, the court can order certain financial records to be disclosed, which may reveal the hidden assets. Further, forensic accountants may aid in locating hidden assets since they are trained to assess the value of investments or businesses, interpret and evaluate various financial records, and can testify on their findings in court. Finally, a private investigator might be necessary to help discover such assets.