What Is the Penalty for Hiding Assets in a Divorce?
With so many emotions flying high in a divorce, people don’t always make the best decisions. Attempts at hiding assets would be one of those decisions one should not make. Read on to see why.
In California, you and your spouse have an equal claim to the assets in your marital estate. All property gained during the marriage becomes community property to be split 50% to each spouse. But what if one spouse doesn’t want to share with the other?
California divorce has a rigorous discovery process, where both spouses must provide a full and honest report of all their assets, liabilities, and other relevant financial circumstances. The process includes both a preliminary and final disclosure, where you must communicate any financial changes you’ve experienced since you first filed for divorce.
In addition, you’ll have to sign a financial affidavit. By signing this document and filing it with the court, you swear that your disclosures are true and accurate to the best of your knowledge. If you sign this document knowing it’s not true, you’ll be committing perjury.
Even though lying in your financial disclosures carries heavy legal consequences, hiding assets in a divorce is more common than you might think. If you suspect your soon-to-be-ex is hiding assets from you, you might have to enlist the help of a forensic accountant or investigator.
Lying in Divorce Financial Disclosures
California’s divorce disclosure process requires both spouses to act in good faith. The court relies on each party to be honest with the threat of sanctions if they aren’t.
Unfortunately, people still lie. For whatever reason, your spouse may feel entitled to more of a certain asset than you. They may have an emotional attachment that gives them a feeling of ownership over something that’s actually shared marital property.
Your spouse may want to reduce the amount of child or spousal support they’ll have to pay. They may even have assets or business interests that might not be worth much now but are set to vest later, like stock options or other investment profits. By under-reporting the value of their holdings now, they can cheat you out of the full amount that belongs to you.
Lying to the court by deliberately failing to disclose financial information during a divorce carries both civil and criminal penalties.
- Civil Penalties for Perjury in Divorce – If the court determines a spouse has been hiding assets, they may be ordered to compensate the other spouse for any legal fees or costs they incurred investigating their finances. In addition, a court may award more of that asset to the other spouse than they would’ve gotten otherwise.
- Criminal Penalties for Perjury in Divorce – Perjury, or knowingly lying to a court, can carry a jail sentence of up to four years. The lying spouse may also get charged with fraud, which carries additional criminal consequences.
The threat of penalty for lying in financial disclosures doesn’t end with the divorce. A lying spouse doesn’t simply “get away with it” if they manage to hide their assets long enough to file the divorce decree. If an ex-spouse finds out about hidden assets after the divorce is finalized, they can file a post-judgment motion under California Family Code Section 2556, asking the court to adjudicate on the omitted assets with penalties on the line.
You may want to trust your spouse to honestly disclose all of their financial information, especially if you generally have an amicable relationship. However, you should always carry out your own due diligence when it comes to your spouse’s reported income. Your divorce attorney can help with the process of uncovering hidden assets if necessary.
Common Ways People Hide Assets in Divorce
Hiding assets doesn’t just mean stowing cash away somewhere, although that certainly also counts. There are as many ways to hide assets as people’s creativity can think up. Your spouse may even try to hide their real worth in plain sight.
Divorce attorneys and forensic accountants who work with high-net-worth clients know what to look for when searching for hidden marital assets. A spouse trying to hide assets might:
- Hide billing and account statements from the other spouse
- Transfer money from joint to private bank accounts
- Store assets in unknown locations, personal safes, or safe deposit boxes
- Take out loans or buy property in only their name
- Undervalue the marital home or investment properties such as rental units by deliberately failing to repair them or find tenants
- Overstate their debts or withdraw cash through credit cards
- Report lower income or higher expenses, especially if they own a business
- Accept cash as payment and not report the cash (this is very common with cash businesses such as restaurants and/or bars)
- Ask their boss to defer salary payments, bonuses, commissions, or stock options
- Create secret bank or credit accounts in their children’s names
- Transfer funds or assets to friends or family to be returned after the divorce
- Give expensive gifts with marital funds to other people in their lives
- Sell marital property at a loss with the plan to buy it back later
- Overpay taxes one year to get a larger refund after the divorce
- Put assets in a relative’s name
- Place assets abroad
Under California law, one spouse cannot sell or gift marital assets without the other spouse’s written consent. Tracking down hidden assets usually requires looking through all of the financial records for anything unexpected or out of place. That could involve:
- Reviewing expenses to see if income and assets comport with the amount of expenses (e.g. if expenses are much higher than income in a year, but expenses are not being paid out of savings, it’s likely there are hidden assets).
- Compiling a list of all your income, including wages, rent payments, interest from stock holdings, annuities, retirement accounts, or other investments
- Examining all of your financial documentation over the years
- Comparing tax returns, pay stubs, and bank statements
- Reviewing your spouse’s compensation agreement for any retirement or fringe benefits
- Checking stock holdings to see when they vest or pay out
This task is often left to professional forensic accountants who specialize in analyzing financial information. Forensic accountants lend their expertise to high-net-worth divorces and testify their findings in court. Your divorce attorney may also call on the help of business valuation experts, tax specialists, and other professionals as necessary.
If your spouse has been hiding their wealth from you, you could have no idea to what extent. When it comes to uncovering hidden assets in a divorce, you may find yourself in a situation where you don’t even know what you don’t know. Obscuring assets often involves intricate financial schemes. You may not even know where to start looking. An experienced high-net-worth divorce lawyer can help with a team of professionals specialized for the job.