The Other Kind of Cheating—Recognizing the red flags of financial fraud during divorce

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When you’re going through a divorce, it’s common to feel angry, emotional, anxious, and distrustful. You and your spouse may disagree over just about everything right now and have very different points of view. Everything hurts, and nothing seems fair.

There are plenty of hot-button issues to sort through during your split—but, almost inevitably, one of the most contentious is money. What belongs to whom? Who gets what in the settlement? What are you owed? Who pays support, and how much?

California law makes the dissolution process itself reasonably straightforward: no-fault divorce means you don’t need legal “grounds” such as infidelity to end your marriage, and community property means that all assets acquired during the marriage, with few exceptions, belong equally to both of you and will be divided 50/50 in divorce.

Nevertheless, property division can be complex and fraught (especially in a high-asset divorce). To reach a fair settlement, both parties must be open and honest. Unfortunately, however, having an affair is not the only way a spouse can “cheat.”

Some devious spouses—to protect their interests or punish their ex—misrepresent their financial situation or hide assets to avoid fair distribution of money and marital property.

This type of deceit is known as financial fraud—it’s unfair, unethical, illegal, and comes in many forms. For example:

Hiding assets. It is when one spouse attempts to conceal or undervalue assets (property, real estate, investments, accounts, businesses) and hide valuable physical property (jewelry, luxury goods, antiques, art).

Inflating debts. Exaggerating liabilities and overestimating what is owed to offset the value of assets and minimize the estate before it is divided.

Undervaluing a business. Manipulating records paints a misleading picture of a company’s financial status or the income it generates.

Concealing, manipulating, or lying about income. Tactics include providing phony or inaccurate income information, failure to disclose additional income sources, intentionally deferring a raise or a bonus until after the divorce is finalized, and more.

Transferring assets. Making substantial “loans,” giving expensive gifts to a third party such as a friend or family member, diverting investments, or repaying mysterious debts can temporarily shift assets until after the divorce.

Overestimating expenses. One spouse may attempt to reduce the income available for support payments by inflating necessary expenses.

Falsifying or forging documents. Doctoring financial records or creating fraudulent documents such as tax returns, bank or investment statements, or property deeds.

Inappropriate use of marital funds. An example is when one spouse uses joint money for personal expenditures such as an affair, diverting funds, opening accounts without the other spouse’s knowledge or consent, or reckless spending.

Fraudulent support claims. Suppose one spouse intentionally misrepresents one’s financial situation to win more spousal or child support.

How can you tell if your spouse is committing financial fraud against you?

You have a right to the truth—a complete, honest, fair, transparent assessment of your marital assets. It’s crucial to be fully informed. During divorce proceedings, both spouses are required by law to make full disclosure of ALL assets and debts, which includes every income stream, all properties, investments, gifts, inheritances, tax documents, accounts, and statements (banks, brokerages, credit cards, etc.), insurance policies, retirement funds, loan applications, and so on.

Sometimes, your gut tells you that something isn’t on the up and up. However, dishonest spouses can be very sneaky, making financial fraud challenging to identify; it will likely take very close examination to prove. However, there are some common red flags to watch for:

  • Something doesn’t add up. The business seems healthy, yet your spouse suddenly complains that their company is flailing, their income has dropped dramatically, or a big investment has taken an unexpected downturn.
  • The country house is falling apart. If your ex has unexpectedly ceased to maintain a valuable property, they may try to decrease its worth.
  • Hey, big spender… Your ex is making uncharacteristically extravagant purchases, exhibiting irresponsible spending behaviors, or has developed expensive bad habits (gambling, drugs).
  • Your ex has turned into a control freak. They’re limiting your access to accounts or statements; they refuse to disclose financial information when requested. They’re vague or secretive about transactions or are deleting financial files.
  • They suddenly want your John Hancock. Your ex asks or pressures you to sign documents you don’t recognize or understand, things they refuse to explain or won’t let you read.
  • Shifty business. Watch for money being moved around or unusual transfers.
  • New accounts. Your ex is suddenly opening new accounts, or you’re learning about ones you didn’t know existed.
  • Things go missing. Valuable belongings have mysteriously disappeared.
  • Your ex is paying cash for an unusual number of transactions.
  • There’s a history of dishonesty, especially concerning financial matters.

If you suspect your ex is committing financial fraud, there are three main steps to take:

  • Gather information. Collect all the documentation and evidence you can; continue to monitor joint accounts for suspicious activity.
  • Talk to your attorney. Explain your concerns and provide any evidence you have collected. Your lawyer will help you with the financial discovery process. Receiving documentation from the other party’s attorney may clarify the matter and ease your mind.
  • Consider hiring a forensic accountant. If, after the discovery process, you still suspect foul play, a forensic accountant can do a fine combing for evidence of fraud. Be aware, however, that this process usually comes with a hefty price tag—so you’ll want to weigh it against how much you think your ex is hiding.

Financial fraud is serious business, and California judges have wide discretion to impose stiff penalties. The judge can adjust your settlement accordingly, awarding the hidden asset, in part or in whole, to the spouse who was victimized, ordering the guilty spouse to pay their ex’s attorney and court fees, imposing various other financial sanctions, and in extreme cases, hold the shady spouse on criminal fraud charges.

The trusted San Francisco family law attorneys at SFLG are skilled in managing complex matters related to your dissolution—including high-asset divorce and financial fraud. We can help you deal with a dishonest ex and achieve your deserved settlement.

By Debra Schoenberg

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