Something that happens too often during a divorce proceeding is the discovery of a hidden asset. People hide money or other assets in the belief they can keep them off the table in dividing property.
Sometimes it is as straightforward as cash in a safety deposit box. Other people make deals with “straw men” to buy valuable assets at a fraction of their cost just to turn around and buy them back with a commission paid for the service after the divorce is finalized. Many divorcing people give stocks and bonds to trusted family members to keep for them until the proceedings are finished.
When there is a business involved, hiding assets can get very sophisticated; personal expenses suddenly become “business expenses” and advantageous salary adjustments are made. Sometimes it is not sophisticated at all: I had a case recently where a woman found $198,000 cash stashed in the ceiling tiles by her soon-to-be-ex.
However cleverly someone thinks he or she has hidden assets, the consequences of this action are usually much more serious than losing half of the assets.
Many times people who try to hide assets feel justified that the assets in question are separate and theirs and theirs alone. That may be. However, it is not up to that person to assess what is deemed separate. It may very well be a separate asset protected from the divorce division, and a judge may find it so. But legally you are bound to disclose all assets.
I have also come across many people who hide assets because they feel they are above the law and clever enough to get away with breaking it. If the attorneys hired are sophisticated in these matters, these assets will be found and the consequences huge.
In my experience judges universally look on this matter very seriously. If there is one thing that angers a judge more it is perjury, and hiding an asset is perjury. So one consequence is the charge of perjury, which is a felony in many states including Michigan.
The other consequence is you are likely to lose that hidden asset completely. If you go into a divorce proceeding and it is found that you had an extramarital affair, that may not be a good thing for your case, but if you say you disclosed all assets and then $1 million is found offshore, don’t be surprised if the judge is inclined to give that $1 million to your spouse. I’ve seen this done time and again. Judges are intolerant of perjury.
Some of the ways that we have found hidden assets is through matching tax returns with the financial statements the parties supply. Tax returns are very valuable in a divorce case. Most people are loath to commit tax fraud and so these documents often provide a clear roadmap to investments, income, interest and capital gains. It is surprising how often the tax returns don’t match the other financial statements provided.
Sometimes it gets pretty complicated and forensic accountants need to sort through voluminous documents to determine the true assets of an individual. But eventually the truth is determined.
I strongly advise those going through a divorce that it is in their own best interest to disclose all assets upfront. Maybe one can reduce the value in the disclosure by taking into account tax consequences, or lack of marketability or other discounts, but at least the asset is disclosed. What may have been deemed a separate asset if disclosed and awarded to you alone will not be looked upon as so if it had been hidden and discovered later. Judges may surmise that if these assets were discovered, there may be more that are still hidden. To be fair to your divorcing spouse, the judge is likely to be more generous to him or her in efforts to factor in unknown assets.