Tom and Marie have been married for 14 years, but the marriage is on the rocks and divorce is imminent. Worse, Marie worries that Tom is trying to hide some of the family’s assets from her.
She has noticed things are different. Such as, they have less money at the end of each month, Tom’s salary from his business is lower, his taxes are higher, and they’re paying a lot more for all of their utilities. She has also been seeing mail from a couple of banks and investment firms she’s not familiar with.
Many divorces result in couples dividing the marital assets equally, so it’s not uncommon for one spouse to try to hide a significant portion of their money to exclude it from the property division. Some will even do it so they can inflict emotional pain as well. This means the one spouse can hide the money, divide what’s left, and then retrieve the hidden money.
When they finally file for divorce, Marie mentions her suspicions to her divorce attorney, who begins an investigation into Tom’s financials. They learn that Tom has definitely been shifting family assets to reduce the amount of money Marie gets. Not only has he been front-loading many of his business’ bills, he has been overpaying his taxes, and has even been skimming money off his regular salary and hiding it in a secret savings account.
This is called pre-divorce planning, which is the maneuvering of assets and cash in order to avoid them being available for distribution in a divorce settlement. It’s unethical, but what makes it appealing is that it can be very difficult to discover. However, once it is discovered, it can spell a lot of trouble for the person doing it.
When couples marry, typically one takes on the responsibility of managing the finances. This can create the ideal scenario for this kind of maneuvering because the other spouse is usually uninvolved in the day-to-day operations. To keep yourself from becoming the victim, there are a few things you can do to arm yourself against this unethical behavior.
Understand your tax return
One of the most common ways to hide assets is through overpaying estimated taxes when self-employed. In our story, Tom has overpaid his estimated taxes by several thousand dollars, and will then “discover” the error after the divorce is final. He would then request a refund and have the cash back in hand. Overpaying estimated taxes makes it look like any currently available income is less, which also denies you access to it.
Know how the bills are paid on the family business
Make sure your spouse isn’t prepaying the routine business bills for rent, utilities, or even his or her car payment. This is often done to create large credits that not only make the household income look smaller than it is, but it frees up cash for the future. After the divorce is final, there’s no need to pay these bills, which allows the income to be used elsewhere until the credits are used up, while making the family business look a lot less profitable and having much higher expenses.
Pay attention to business dealings.
Savvy business owners will sometimes use similar tactics as a way to hide thousands or millions of dollars from their company’s earnings. If their revenue suddenly falls off, that could be a sign of asset shifting. Or they may put off closing a large business deal or even defer a bonus or commission. They may also have clients pay cash in exchange for a discount, which can help deprive you of that asset or income stream.
Keep track of their salary
Your spouse may also engage in such trickery as using check cashing stores to cash their paycheques and then hide the money. Or they may divert some of their salaries to relatives’ accounts, and ask them to hold onto it for a while. They may even divert some of their salary to a CD or savings account you never knew about, especially at a different bank from yours. They may even go so far as to put it in someone else’s name. Keep an eye out for mail from a new bank or an investment firm.
Watch for unusual purchases on your bank statements
Many people simply skim using ATM Cards and go from using their ATM infrequently to suddenly using the card as a regular source of spending, which they may believe is untraceable. They may also increase the amounts they remove from the ATM, going from $1,000 per week to closer to $2,000 and hiding the additional funds in a shoebox, a bank account, prepaid credit cards, AMEX traveler’s checks, or another form of holding assets. Some people even buy Australian Perth Mint certificates to hide their cash in gold and then convert it back to cash when he or desires down the road.
If you want to prove these misdeeds, someone will need to examine the household and business accounts, going back at least five years. The more complex your financial portfolio, the easier it is to hide this dishonesty, but it may be worth checking into it all.
Levoritz Law Firm can help families going through a divorce navigate the system properly, as well as to protect yourself if you believe your spouse is acting in bad faith or trying to hide your assets. For more information, or to talk with an attorney, please call us at (718) 942-4004.