In the normal course of a divorce hidden asset investigation, one spouse (usually, but not always, the wife) makes a claim that assets have been taken by the other spouse or not disclosed as required by the divorce process. In this situation, the accusing party will hire an investigator or ask his or her attorney to make inquiries. The accusing party can be an invaluable source of information during these investigations.
Below is a mock interview with a wife in a divorce proceeding in which both parties accuse one another of hiding assets. Note that the investigator is seeking limits. That is, he is attempting to limit the scope of what has to be reviewed. The investigator also is seeking direction. A key part of this inquiry, and perhaps all inquiries of this type is, “Follow the money.”
Investigator: You have told your attorney that your husband is hiding assets.
Wife: Yes, and my husband says that I’m hiding assets.
Investigator: Are you hiding assets?
Wife: Well, there are some things my grandmother gave me that I haven’t listed. They are keepsakes. There are some figurines and some costume jewelry — nothing of any significant value.
Investigator: What makes you think your husband is hiding assets?
Wife: He makes a lot of money, but when we disclosed our assets there is hardly anything. I’m going to walk away with nothing.
Investigator: If your husband is hiding assets, do you know where he might be hiding them?
Wife: No, I don’t know.
Investigator: What does your husband do for a living?
Wife: He’s a branch manager for a communications company.
Investigator: Do you work?
Wife: Not since we moved here when my husband took the new position.
Investigator: Does the family have any other source of income, other than what your husband makes from the communications company?
Investigator: Does your husband have any hobbies? How does he spend his time off?
Wife: He shoots in contests.
Investigator: Like trap shooting?
Wife: Trap shooting, black powder, quick draw. You name it.
Investigator: What caused the divorce?
Wife: My husband is having an affair.
Investigator: When did you know you were getting a divorce?
Wife: When I caught my husband and the girlfriend together.
Investigator: How long ago was that?
Wife: About a year-and-a-half.
Investigator: Do you know how long the affair had been going on before you discovered it?
Wife: I’m not sure, but I think about three months.
Investigator: How was the marriage before the affair?
Wife: We had our ups and downs, but I thought everything was going pretty well. My husband got promoted to branch manager, so we had a lot more money.
Investigator: Tell me about your lifestyle. Did you take expensive vacations? Do you have domestic help? What kind of a house do you live in? Do you eat out or did you mostly cook for you and your husband?
Wife: We had taken trips to Europe and the Grand Caymans in the two years before we separated. I had a housekeeper who came in three times a week. I had to have help; the house is huge. She would prepare an ethnic meal for us at least once a week. We would eat at a restaurant two or three times a week.
Investigator: Tell me how you and your husband handled your finances.
Wife: His check would be deposited directly into our checking account. I would then write checks for the house. Any major expenditures that had to be made, we would decide together. We both had ATM cards and would take about a hundred dollars a week out for lunches and miscellaneous things.
Investigator: What kind of financial information do you have? Do you have the bank statements or the check registers? How about tax returns?
Wife: I have the bank statements for forever. He has the tax returns. What are the check registers?
Investigator: They are where you recorded each check that you wrote. They include the date, the payee, and the amount.
Wife: We had duplicate checks. Every time I wrote a check, a carbon copy was created. I don’t think I threw anything out.
Investigator: Bring them in for the last two years. We’re going to put you to work.
Investigator: Is your attorney getting the tax returns?
Wife: Yes, but it’s going to take some time.
Investigator: If they are joint tax returns, you had to sign them. You can go to your CPA and get copies. It might help to speed things up.
As noted above, in this example the investigator is seeking general information in order to create a framework in which to conduct an investigation. The information gathered not only gives the investigation direction, but also limits it to those areas most likely to produce results. Let’s see how this information helped to shape the investigation.
The investigator questions the source of the couple’s income. The wife’s response limits the investigation to the fiscal relationship between the husband and the employer. This relationship would include his base earnings and might include bonuses, perquisites, stock ownership plans, commissions, expense accounts, or any of the huge variety of fiscal incentives that employers offer to employees. The investigator learns that it is unnecessary to review the wife’s sources of income because she is not employed outside of the home. The investigator also discovers that the husband does not own a business that generates income, does not have a trust fund that is supplementing his income, and does not hold a second job.
The investigator attempts to develop a sense of the couple’s lifestyle, including hobbies and leisure activities. He recognizes that comfortable living is expensive, and that the wife may have an inaccurate perception of how expensive the couple’s lifestyle was. Therefore, the possibility exists that the wife’s claims are without foundation. Assets cannot be hidden if they have been spent. The wife also provides the investigator with a clue in the form of the girlfriend. The investigator is aware that husbands often spend considerable sums of money to conduct affairs of this type. He also knows that husbands usually try to conceal these expenditures from their wives. Therefore, it is possible that there was a means of funding the affair that did not involve the couple’s joint checking account. Finally, the investigator discovers that the husband’s hobby, guns and competitive shooting, could serve as a repository for hidden assets. Competitive firearms can be incredibly expensive. The failure to disclose or the undervaluing of these assets could materially misstate the value of the marital estate.
The investigator understands that in order to misdirect or conceal assets, a party must have control of those assets. Through this interview, the investigator discovers that the husband had control of his earnings until they were deposited in the couple’s joint checking account. After the earnings were deposited, both parties had equal access to the funds. This means that a misappropriation may have happened either before or after the funds were deposited, but only the husband could have misdirected funds before the earnings were deposited.
The investigator learns that the affair which destroyed the marriage was discovered about eighteen months ago. He also learns that the wife suspected that the affair had been going on for three months prior to that. If the investigator assumes that the date of first indication is eighteen months ago, then he knows it was highly likely that any activity detrimental to the martial estate occurred since that time. However, he also knows that the affair had been going on for some time before its discovery. Therefore, the husband may have had considerable incentive for misdirecting marital funds prior to the date the affair was discovered. Armed with this information, the investigator can initially limit his investigation to the previous two years.
Following their first meeting, both the investigator and the wife do some digging. When they meet a second time, the interview proceeds as follows:
Investigator: I asked you to go through your bank statements looking for unusual items like transfers to other accounts or anything unusual that you didn’t understand. Did you find anything that we should ask about?
Wife: No, everything looked pretty normal.
Investigator: I didn’t see anything, either. How about the check registers? Did you see any expenditures that you didn’t understand or that we should look into?
Wife: No. I wrote virtually all of the checks. All of them were for living expenses. It looks like we spent everything that came in. We spent a lot more than I thought.
Investigator: If everything that was deposited in the checking account was spent on living expenses and that was your only source of money, how were you able to take any money from the marital estate and hide it?
Wife: I couldn’t.
Investigator: So what is your husband’s basis for claiming that you are hiding assets?
Wife: He hasn’t told us.
Investigator: Was there any evidence that your husband took money from the joint checking account?
Wife: No. Any checks he wrote were for things we both knew about.
Investigator: Let’s review what we know. You and I both went through the bank statements and the check registers. Neither one of us found anything unusual. That means that whatever went into the account was spent on living expenses for you and your husband. This means that if assets or income are being taken or hidden, it isn’t being done through the checking account.
Wife: So we spent everything that he made?
Investigator: It’s possible, but we haven’t confirmed the income side of the equation.
Wife: How do we do that?
Investigator: We know that the only source of income was from your husband’s salary. Did you get the tax returns?
Investigator: The tax return shows income for last year of $205,000. Does that agree with what you know?
Wife: I didn’t even look at it, I just signed it, but he never told me that he made that much.
Investigator: Let’s do a quick calculation on what we have for last year:
|Medicare wages (Box 5 W-2)||||205,000|
|Federal taxes (Federal return)||||(43,144)|
|State taxes (State return)||||(12,137)|
|Social Security (Box 4 W-2)||||(5,841)|
|Medicare (Box 6 W-2)||||(2,973)|
|Total deposits from bank statements||115,456|
Investigator: We know the total income from the W-2 that came with the tax return copies. We also know the total employment taxes that were paid on the earnings. We know the income taxes from the tax returns. The net is what should have been deposited to the account that you used to pay household expenses.
Wife: So more than $25,000 is missing?
Investigator: Maybe. There may be other deductions from your husband’s income that are legitimate. Do you have copies of his pay stubs?
Wife: No. My attorney asked for them, but my husband said that he never gets one because everything is direct deposit.
Investigator: Employers give employees records of what they earned, what was withheld for taxes, and what they paid in employment taxes. The representation made by your husband is probably untrue. Pay stubs are also common discovery items. The failure to disclose them is a red flag. It’s possible that he is hiding something. We can use the unexplained difference that we just computed to force the issue.
Wife: I’ll call my divorce attorney.
In this case, the investigator was able to achieve at least two objectives from basic information that was easily obtained through normal discovery. The first narrowed his investigation from two persons to one. Both parties had claimed that the other was hiding assets. Both had access to the couple’s checkbook. However, the review of the bank statements and checkbook revealed no expenditures that would indicate that either party was using the account to take or conceal assets. Since the wife’s only access to marital funds was the checking account, the husband’s claim that the wife was hiding assets would be difficult to advance.
The second objective was to establish a basis for continuing the investigation and ultimately to obtain additional discovery from the husband. This was met by the calculation of income after taxes. Essentially the calculation proposes that if you earn a certain amount of money and pay taxes on it, the rest is available to spend. If the amount available to be spent does not match the amount spent, an explanation is in order.
The wife’s divorce attorney in this case could use the calculation to force discovery of the pay stubs of the husband. Let’s assume one of the pay stubs yields the following information:
|Deposit to checking||4,456||115,868|
Everything on the pay stub is fairly obvious to anyone who has ever been paid wages, except the notation “SS1.” Let’s assume, also, that further inquiry reveals that this entry signifies a deposit to a savings account held in the husband’s name only. At the time of its discovery the account has a balance of approximately $5,000. Analysis of all of the pay stubs, however, reveals total deposits to the account over a two-year period of $39,000.
A savvy divorce lawyer can make good use of the information gleaned from this investigation. Continuing with our example, remember that the wife has shown that the husband had access to $39,000, of which $34,000 is missing. There was also evidence that the husband intended to keep the diversion of income and the savings account secret. In a perfect world (or even a marginally better one) the judge would consider that this is enough evidence to indicate that the husband had received $34,000 of the marital estate and that this amount should be credited to his side of the equation. Often, though, it is not that simple. Some courts are reluctant to make this kind of judgment even when faced with evidence of access and attempts to conceal. Knowing this, a smart divorce lawyer will try to find a way to use information like this to force the issue with the opposing spouse.
For example, assume that the husband in our case claimed that he spent the missing money on living expenses since the separation and that he had destroyed any evidence of the nature of the expenditures, stating, “Who saves grocery receipts?” Assume, also, that under the governing law of the jurisdiction, expenditures for necessities of life are allowed without these types of expenditures being assessed to the spending party. If the expenditures were shown by the husband to be for necessities for himself or his family, no further action would be warranted, and the expenditures would be excluded from consideration in the marital estate division.
If, however, the funds were spent on luxuries, hobbies, or a new love interest, the wife’s claim that they should be part of the husband’s portion of the marital estate would have substance. Assume further that during a review of the pay stubs, the wife and her investigator discovered that the husband was taking vacation pay at a time when he and the wife were not on vacation together. This information would allow the wife’s attorney to pursue a line of questioning related to the girlfriend, even in a no-fault state where evidence related to an affair is irrelevant. The husband’s deposition (sworn testimony under oath) might go something like this:
Wife’s Attorney: Were you on vacation from February 14th through February 25th of last year?
Wife’s Attorney: Where did you go?
Wife’s Attorney: Did you go alone?
Wife’s Attorney: Who did you go with?
Husband: A friend.
Wife’s Attorney: What is the name of your friend?
Husband’s Attorney: Objection; relevance.
Wife’s Attorney: How did you pay for the vacation?
Husband: I don’t know. I just paid for it.
Wife’s Attorney: We have all of your duplicate checks and other financial records here. Could you show us how you paid for the vacation?
Husband: The vacation wasn’t paid for out of the checking account.
Wife’s Attorney: How was it paid for?
Husband: It was paid for from my savings account.
Wife’s Attorney: The savings account we forced you to reveal?
Wife’s Attorney: Did you pay for Angela’s plane ticket to Mexico?
Wife’s Attorney: So Angela went to Mexico with you?
Wife’s Attorney: Have you spent any other funds in the savings account on vacations for you and Angela?
Husband: Yes, but just some weekend stuff.
Wife’s Attorney: Have you purchased any gifts for Angela from the savings account?
While the husband’s affair is not legally relevant in this case, evidence supporting the dissipation of the marital estate is. Thus, as the questioning continued, the wife’s attorney would ask about the trips the husband and Angela had taken together, and perhaps gifts to Angela and living expenses paid for her. At the end of each topic, the wife’s divorce attorney would ask where money came from to pay for the item. Thus, if the case went to trial, the judge would hear all about the affair and how it was financed, in detail. Even in a no-fault state, judges are not immune to evidence of one spouse partying to the detriment of the other. Accordingly, in this example, the husband would be well advised to accept the assessment of $34,000.