Don'T Let Your Spouse Hide Money During The Divorce: Watch For These 3 Tricks

14 September 2017
 Categories: Law, Blog

Divorce rarely brings out the best qualities in the people involved, and sometimes it brings out the absolute worst. Disagreements over who gets what money and assets are some of the most common arguments between divorcing couples, and some spouses will go to great lengths to avoid sharing with a soon-to-be-ex partner. Protecting yourself during a divorce means being on the lookout for shady tricks that your spouse might be using during your divorce to prevent you from receiving your fair share of the joint assets. Take a look at some of the ways that money can be hidden during a divorce.

Overpaying Taxes

If you're planning to get a divorce or you're in the process of one, your attorney will probably tell you how important it is to get copies of your joint tax returns or your spouse's individual tax returns. This will help you and your attorney get a clear picture of what the assets in question are. This can be especially helpful if you haven't been the one keeping track of the family finances. However, your spouse's tax returns can also reveal whether or not they're trying to hide money.

A surprisingly simple way to hide money is to simply give it to the IRS in the form of an overpayment. That makes it look like your spouse has less money than they do. Then, once the divorce is over and the financial matters are settled, your spouse can get the money back as a refund, or even leave it where it is and direct the IRS to apply it to their tax bill in future years, freeing up the money that they're making in those years from tax liability.

If your spouse's tax payment seems abnormally large, or if they suddenly owe when they usually get a refund, you should be suspicious. Your attorney may advise hiring a forensic accountant to go over your spouse's returns and financial information to find the truth.

Colluding With Friends or Family

Another way for your spouse to hide money is with the help of their family or friends. It works like this: your spouse loans or gifts valuable assets or large sums of money that belong jointly to you and your spouse to a friend or family member that they trust, without your consent, and sometimes without your knowledge. Later, after the divorce is final, the friend or family member returns the assets or money to your spouse, cutting you out of the deal entirely. This is known as dissipation of assets in legal terms.

This can be difficult to prove in court and hard to rectify, but it can be made right. If you find that your spouse has loaned or gifted assets or money without your knowledge, alert your attorney immediately. Gather any evidence you can find of the transaction, like IOUs, withdrawal slips, deeds or titles, and any other paperwork. The court may be able to subpoena these documents if they exist.

The judge can't make a third party pay back your share of funds that have been given away, but they can adjust the division of the remaining property in order to account for your share of those assets. For example, if you and your spouse had $30,000 in savings and your spouse gave away $10,000, instead of dividing the remaining $20,000 in half, the judge might give your spouse $5,000 of it and you $15,000 of it, to make up for your half of the money given away.

Exaggerating Business Expenses

If your spouse is a contractor or business owner, they may be motivated to make their business appear less profitable in order to avoid giving you the share of the profits or worth of the business that you might be owed. One way to do this is by embellishing their business expenses.

They may claim to have needed to make repairs or buy equipment that they didn't actually buy, or simply overstate the amount of money that they paid for these things, for example. This is a dangerous move for your spouse, because if you can prove that they exaggerated their business expenses, you may also be proving that they committed tax fraud.

If it's a family business and you have access to the financial information, you may be able to find documentation of the legitimate expenses. If not, be sure to let your attorney know if your spouse's account of their business expenses seem suspicious or out of the ordinary. This is another instance where a forensic accountant's services might come in handy.

The best way to protect yourself is to separate yourself from your spouse financially as much as possible and as early as possible. A good divorce attorney from a place like Begley Carlin & Mandio LLP can advise you about how you can move money from joint accounts to personally accounts and protect your own assets without violating the law yourself.