Is Your Spouse Hiding Assets During Your Divorce?

Michigan State law is very straightforward: when you are getting divorced, you are under a legal obligation to present the court with a detailed accounting of all of their assets and debts. Failure to disclose an asset brings harsh penalties, including a charge of fraud, contempt of court, stiff financial penalties, or worse. In rare cases, discovered assets that were not listed voluntarily are simply given to the other spouse!

Despite all of that, a surprising number of people are simply too angry, too greedy, or too spiteful to heed the law, and they use a number of techniques to hide assets from the court. These tricks can include:

• the purchase of highly-portable forms of wealth like gemstones or art, which are then hidden or moved somewhere the court wouldn’t look,
• concealing evidence of securities, stock, bonds, or other financial vehicles,
• funneling income back into a business owned by a friend or family member, usually by making purchases that can be returned later,
• paying off fictitious debts (i.e. writing a colluder an I.O.U. for nothing and then paying it off with the agreement that you’ll get the bulk of the money back later), or
• selling assets far below market value with an agreement that the rest of the money owed will be transferred after the divorce is finalized.

The Cost-Benefit Analysis of Seeking The Money
Unfortunately, hunting down the money you believe your spouse may be hiding is, in and of itself, an expensive prospect. There are three phases of money-hunting, each one more expensive but more fruitful than the one before it:

• Informal Discovery, in which your attorney will make calls and send letters simply asking the obvious targets (local banks, close family members, etc.) whether your spouse has deposited a large amount of money, been giving away large gifts, or recently opened a new account.
• Formal Discovery, in which your attorney will send out releases, subpoenas, requests, and demands to various people and organizations that insist that any relevant documents be turned over, and also will call witnesses in for interrogatories (written) and depositions (oral).
• Expert Discovery, by far the most expensive of the three, in which forensic accountants are called in to pick apart your spouse’s finances. These are only regularly called upon in cases worth millions of dollars.

At every step, it’s the attorney’s obligation to sit down and go over the cost-benefit analysis again: how likely is it that pursuing further discovery is going to result in finding hidden assets? How likely is it that the costs of discovery will be greater than the value of those assets? Remember, if you discover assets worth $15,000 and it cost you $8,000 to find them, you’re probably going to lose money, because those assets will probably be split evenly between you and your spouse, resulting in your having spent $8,000 to make $7,500.

How Hidden Assets are Discovered
Generally speaking, the vast majority of hidden assets are discovered through simple paperwork: income tax returns, public records such as transfers of deeds or creations of trusts, and financial documentation like account statements. No matter how much someone wants to hide $10,000, if they have to withdraw it from the bank first, you can be certain that some record of that withdrawal exists at the bank!

When You Discover an Asset that Has Been Hidden
When your attorney comes to you with the news that a hidden asset has been uncovered, it’s time for a meeting. Depending on where you are along the divorce proceeding, it might be worth it to ask that the court move backwards a step or two and re-work the proceeding based on the new information — or not.

If the divorce is already complete (which happens fairly often, as financial discovery can take quite a lot longer than all of the rest of a divorce), your attorney will have to consider submitting a post-trial motion called “Grounds of Relief from Judgment.” This asks the court to consider the effects of your spouse’s unjust behavior and decide whether or not it was so unjust that the existing divorce settlement needs to be modified or set aside entirely.

Regardless of other circumstances, there is a one-year time limit on financial discovery — if you find out that your spouse hid a billion dollars inside a (very large) mattress, and it is 366 days after your divorce was finalized, you lose. You can consider a separate suit against your spouse, but the financial discovery aspect of the divorce settlement is now immutable.

Careful! Martial vs. Non-Marital Assets
One easy trip-up is believing that simply because an asset was discovered, it is automatically part of the martial estate and thus up for division by the court. That is not always the case. In fact, assets that your spouse obtained before the marriage began, after it was dissolved, or if you had nothing whatsoever to do with its acquisition, improvement, or accumulation. There is also the rare-but-present chance that a discovered asset doesn’t belong to your spouse at all, but is merely in their care while being owned by a third party.

In Conclusion
All things considered, unless you are approaching certainty that your spouse is hiding assets and that those assets are worth quite a bit more than it will cost to find them, do your best to keep a balanced perspective. Letting yourself become stressed out, spending money you might not have, and engendering what may be unnecessary bad thoughts about your spouse may very well not be worth the money you might find and might win in the settlement.

If you believe your spouse is the type to go hiding assets, and you’re nervous about what might happen if you file for divorce, call Gucciardo Family Law today. We can help.