Divorce brings out the worst in the best people. On occasion, it can even drive angry spouses to be less than forthcoming about certain assets that belong to their community estate. However, it’s never a good idea to deliberately hide, divert or misrepresent assets because the penalty for hiding assets in divorce can be quite severe.
As a divorce attorney, I see people do crazy things every day, and quite honestly, it’s understandable. When emotions get high—as they do during divorce—people do desperate things, like hiding assets, because it’s probably one of the most desperate times of their lives.
Another reason people do desperate things during divorce is they want to hurt the person who hurt them. Their spouse doesn’t love them anymore, and they can’t get any sort of reaction out their spouse unless they do something desperate. That “something desperate” could be trying to prevent the spouse from seeing the couple’s children or messing with the financial side of things.
How some people going through divorce hide assets
We’ve established the fact that people do crazy things during divorce, including hiding assets in a divorce. People attempt to hide assets in a variety of ways. This typically falls into three categories: diversion of assets; nondisclosure of assets; and misrepresentation of assets. Some examples include:
Diversion of funds, where one party knows divorce is imminent begins making several cash withdrawals from a shared bank account over time. Before the divorce is filed, the party slowly hands that cash over to a relative and asks them to buy a truck or other big-ticket item in the relative’s name, which the relative then returns to the party after the divorce is finalized.
We also see prepayment of taxes come into play in these hiding assets during divorce scenarios. Say you own a business but don’t owe taxes until the end of the year. You have $100,000 in the bank account. Your taxes are going to be $30,000 but you go ahead and pay $100,000, and you say, “Well the $100,000 is gone because I just paid the taxes.” Well, what taxes did you pay?
Did you (A) pay the taxes owed for this year? Or did you (B) pay next year’s taxes? If the answer is (B) and your divorce will be finalized this year, you’re going to get a refund on this year’s tax return—after the divorce case. If your spouse and their attorney catch wind of your actions prior to divorce, the judge could penalize you heavily in the divorce settlement. If your spouse finds out after the divorce is final, he or she could file an undivided asset case post-divorce.
Misrepresentation of assets often comes up in divorces where larger assets or businesses are involved. Unfortunately, we often see cases where one spouse has minimal working knowledge regarding the couple’s finances, what property and businesses the couple owns or what income those assets may bring in.
An unscrupulous spouse with intimate knowledge of the couple’s finances could try to misrepresent or downplay the value of those assets. To ensure your spouse isn’t hiding assets in divorce through misrepresentation, it’s essential to hire experienced asset tracking and valuation experts in the early stages of your divorce.
Blatant nondisclosure of assets does occur from time to time. For example, a party could try hiding assets in an overseas account their spouse doesn’t know exists. However, aside from bitcoin, it’s pretty difficult to keep assets like financial accounts under wraps because the paper trail is usually easy for an experienced attorney and tracking expert to follow.
Scenarios involving bank accounts often play out like this in court: “You testified, sir, that there was $1 million in your bank account and, in fact, here’s another bank account you neglected to mention with $3 million, and you just signed a check on that account yesterday. Clearly, you knew about the $3 million and denied knowing about it.” If this comes to light in court the spouse who deliberately did not disclose the bank account will likely face a severe penalty for hiding assets in divorce.
Bitcoin and other cryptocurrency accounts will be an area I expect to be very challenging for lawyers to be able to discover in the future. The main way that we discover bitcoin is when we find transfers of bitcoin to brokerage accounts. As it relates to cryptocurrency, people often ask, “Hidden assets in divorce are they discoverable?” Yes! That’s why we now ask for all bitcoin financials during our discovery requests. Of course, we have to rely heavily on the party being forthcoming and providing information on their bitcoin assets, which again, poses a challenge.
You also have some cases where an attorney helps their client hide assets. In these situations, the attorney may take a big retainer or a prepayment of a massive amount. Asking the opposing client’s attorney what they were paid may be considered a faux pax but you have to ask that question.
What is the penalty for hiding assets in divorce?
Judges in Texas have no patience or tolerance for parties who are intent on hiding assets during divorce. Texas is a community property state, which means all property and assets acquired from the date of marriage through the date of divorce are subject to just and equitable division upon divorce.
From a financial perspective, the penalty for hiding assets in divorce can be severe because judges really take offense to such behavior. What often happens in the midst of a divorce case—where there’s a diversion, a nondisclosure or a misrepresentation of assets—is the courts will shift control of that asset to the other party.
For example, say you own a business and you’re pulling money out of the company on the side. You’re trying to hide or diminish the value of the company or pay down debts, and I—representing your spouse—discover it. The first thing I do, and I did this five times last year, is convince the judge to flip control of the company over to my client. It’s really easy to get the court to do that because the whole purpose of temporary orders is to ensure the parties do not diminish the value of the community estate. It’s an easy argument.
When it comes to hidden assets found after divorce, you can file an undivided asset case. Say there was a bitcoin account or overseas account, those assets can get overlooked. If the asset wasn’t awarded during divorce, it becomes an undivided asset.
If you win an undivided asset case, the court will typically award you the entire asset—if it’s still intact—as well as attorney’s fees. At the Sisemore Law Firm, our divorce lawyers Fort Worth TX usually include a clause that specifies that award right in the decree. That one sentence in the decree can change the honesty nature of the case. In fact, I’ve heard people say, “Well, I’m not putting that in the decree, because I can’t remember every single thing.” That’s when I say, “Well, then we’re not getting a divorce today. Okay?”
Of course, there are situations where a party accidentally overlooked an asset—it happens. The penalty in those cases usually isn’t quite as extreme. The judge will look at the evidence and weigh both sides to determine whether the party was deliberately hiding money in a divorce and decide how to divide the asset from there.
When there is blatant misrepresentation or perjury in a divorce, your attorney can certainly expose that, too. Some courts will contact the DA’s office right there on the spot, ask for charges of perjury and contempt of court divorce and have the offending party hauled off to jail. It’s not something that comes up a whole lot anymore, but it does happen.
It’s important to be thorough when preparing the list of sworn inventory during divorce
At our Fort Worth law firm, we take the discovery process very seriously and are diligent about being as accurate as possible when preparing a sworn inventory of marital assets for our clients.
If you don’t have a sworn inventory, and you divide up retirement accounts, bank accounts, perhaps each party keeps their own accounts, and you don’t know what money is where, you cannot come back for an undivided asset case after the divorce. You and your spouse’s assets have been divided as you both agreed—end of story.
A good divorce lawyer will do his or her due diligence to make sure you have a sworn inventory in the decree that awards the specific assets that align with the decree based on documentation that backs it up. Now, might there be an asset or financial account that the client or lawyer overlooked? Absolutely. But if you don’t award it, it’s an undivided asset.
Do you believe your spouse is hiding assets in a divorce?
A wife or husband hiding money before divorce can face stiff penalties, including losing all rights to those assets and possible jail time. If you live in Texas and want to protect the assets in your marital estate or have questions about the penalty for hiding assets in divorce your spouse might face, contact us.
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