One of the biggest issues that can arise during a dissolution of marriage is when a spouse believes there should be money or assets available—and then poof! During the discovery phase, the money just disappears. Most of the time, it is gradual and intentional, and the other spouse barely notices the slow siphoning of funds. Or the other spouse was never a part of the financial picture, and when divorce is imminent, the money moves far away from the oblivious spouse. The very first step is to sit such clients down and have them make a detailed list of assets they believe were owned prior to the date of filing of divorce.
Conducting discovery and having your client come to this realization and trying to track down the missing assets or funds can turn into an overly expensive treasure hunt. But if you are tuned in, you can find crumbs that lead to the location of these assets. The starting point for many cases is to conduct a lifestyle analysis to help draw a clear picture of the parties’ standard of living during their marriage. During this first analysis of a couple’s marital living expenses, any discrepancies in expenses versus known sources of income reveal themselves as red flags.
The financial affidavit is your foundation document for your client’s and spouse’s living expenses, assets, and liabilities. Many parties will omit or “forget” to add assets to the affidavit. Or they may overstate expenses to the point that the financial affidavit will show a deficit every month. How can that be? Should there be corroborating debt that matches the deficit incurred each month? How can you verify if this is real? One of the first places where an attorney should look to determine this is the clients’ joint or opposing party’s bank statements.
Depending on your jurisdiction, you may be able to obtain more than 24 months of statements. Within each statement it is important to look at the inflow and outflow of the monies deposited each month. Many times, parties will transfer monies out to another account or wire-transfer them to another person. Keep track of the accounts where the monies are transferred and cross-check them with the accounts provided to you during the discovery process. Frequently, parties will transfer to a family member’s or a business partner’s accounts. In this case, you have information readily within the account to either depose the parties regarding the account to which the money was sent or ask for additional discovery regarding the specific account found with no matching statement. Also, keep track of all cash withdrawals within each statement so you can ask how the monies were spent. Many times, the expenditures lists on the financial affidavit are corroborated with the bank statements, and if there is an excessive amount of cash withdrawals above and beyond the listed bills, then you have another nugget of information to help when you inquire about its location. Also, try to cross-check the amount of each paycheck versus the amount deposited into the known accounts. Some parties like to deposit only a portion and keep the rest as cash to hide either in an undisclosed account or spend on a secret purpose.
Expenses related to a safety deposit box are also worth searching out. If the existence of the safety deposit box was not revealed during the discovery process, tracking it down now could lead to the recovery of cash or small assets such as jewelry previously claimed to have been lost.
Bank statements can also reveal the existence of other accounts, including Cash App, PayPal, and Venmo. Look for exchanges from these platforms, as this is another place to store money that many parties will conveniently forget. If the statements show a transaction from an account such as this, require these statements as bank statements because they technically are bank accounts owned by the party.
Many times, existing debts may be missing from the financial affidavit; a great way to check all outstanding debts is through review of the credit report. It will have all the open and closed cards for the parties for at least the last seven years. If a card is listed and not provided for in either the financial affidavit or discovery, then the credit report can be utilized to inquire further about the “forgotten” credit card or loan.
A loan might represent the purchase of a larger item such as a car, a piece of jewelry, or home furniture that has substantial value but was not listed on the financial affidavit.
Another great resource to look at is, of course, the parties’ tax returns, especially when one party owns a business. Below are relevant portions to review.
The ledger is a goldmine of information. Often, transactions on this ledger—and how they are deducted—can shed light on the possible dissipation or diversion of funds designed to lower apparent income. The ledger can also reveal why there might be a decrease in personal income but not a corresponding decrease in monthly spending. Business owners may try their best to divert funds to keep the other party from their rightful share or dilute the value of the business overall. Examples of ledger manipulations include (1) payments of personal expenses; (2) large purchases that are not business related; and (3) inappropriate write-offs.
Some businesses that offer a service utilize a calendaring system to track appointments. Some systems indicate forms of payment, whether credit card, cash, or check. Being able to access the calendaring system and cross-check against the business ledger and/or bank statements can reveal if there is an inaccuracy in reported revenue.
Be aware of any tangible asset a business may hold (e.g., vehicles and heavy equipment). Some owners will deflate or undervalue the asset to reduce the business value overall. Other owners may sell the asset at rock-bottom prices to business associates or family to remove it from the valuation only to reacquire the asset after the divorce is finalized.
If your client feels that monies were received but that there is another account out there that is not disclosed, you have another option to hunt it down. Although not cheap, some private investigators can run a search through Docusearch.com to see if any accounts are open under the party’s name anywhere within the United States. This can even be done internationally, but the cost is high; there really needs to be a large amount of funds missing to justify the cost. If the expense is worth it, private investigators can locate accounts opened all over the world under a party’s name, and that information can also be used to inquire further, either through additional discovery requests or through a deposition.
If an account is found, assets overseas for victims of fraud in divorce cases can be recovered under the Mutual Legal Assistance Treaty (MLAT). If a spouse lies about an asset in court or there is some indication of fraudulent activity, then MLAT could be utilized to secure the hidden asset. An attorney can pursue enforcement and freeze an account through an MLAT order.
These accountants can also work to trace funds and determine if there are any irregularities that suggest fraud. They can create spreadsheets to show the flow of income coming in and going out for the time frame provided to them. Forensic accountants have access to databases that can locate assets ranging from real property to boats, investments, and corporate interests. With this information they help sniff out intentional depreciation of assets.
If the other party overpays, the party can get the refund after the divorce is final. Be sure to review the amount owed for taxes against the amount paid.
Spouses may do this with credit cards that are listed in their own name. Look to see if there are any overpayments here and the date that the payment was made. If the payment was made during the marriage, it could be considered a marital asset as well.
Many spouses show up with newly minted IOUs to family members and/or friends to establish phony loans or expenses. The party proceeds to pay this “loan” to the family members or friends, knowing full well that all the money will be returned after the divorce is final.
These documents are a wealth of information as they require parties to list all assets and liabilities. The parties are also required to list all sources of income, so if there is a revenue stream that was not previously listed, this is a great starting point to find it.
Some parties are turning to opening cryptocurrency wallets or placing their investments in cryptocurrency exchanges. Many owners of cryptocurrency use a third-party service called an “exchange” to hold the private keys. Alternatively, a spouse could place keys in offline wallets that could be difficult to find. Keep track of any hard drives in the home, don’t assume that they have no value, and don’t throw anything out. If you see any cryptocurrency exchange apps, hear your spouse talking about crypto investments, or see that your spouse suddenly has access to funds that are not originating from known income sources, then a forensic expert could be brought in to search for cryptocurrency tickers or keys for digital wallets.
Some spouses use social media to document their stories and “show off.” So many people feel the urge to post every high-end purchase, vacation, and overall lifestyle for the world to see. If you are able to dig through a party’s social media account on platforms such as TikTok or Instagram, you might be pleasantly surprised at how much information is provided to you on a silver platter.
Before the marriage faltered, the financial picture had a certain look and a steady flow of income. There is a point where it changed, and, as the divorce professionals, our job is to locate when and where the change began to occur. Once the point is found, it can be clear when the deceptions started. You have the road map now showing where to look so the hidden assets can reveal themselves easily. Once you reveal them, the other party will struggle to maintain credibility. By this time, it is too late. Checkmate.
