Parties to a divorce are required to identify all of their assets so that the Court can accurately characterize and divide all marital assets. Unfortunately, hiding of assets during a divorce by one or both spouses is not an uncommon practice. And, even more unfortunately, intentional hiding of assets is often difficult to discover and even more difficult to prove. However, there are ways that spouses can detect and protect themselves from partners who might be hiding assets during a divorce.
In community property states like New Mexico, all marital assets and debts are divided equally upon divorce. In some nasty cases, a spouse, usually the major earner, tries to hide a portion of their assets to avoid the legal obligation of having to divide them with their divorcing spouse. Often a spouse may suspect that their partner has hidden assets, however, the spouse who is charging their former partner with hiding assets must show proof of the act. Such proof can be in the form of bank statements, records, deeds, contracts, etc., all of which can be difficult to obtain.
Having a working knowledge of the family finances will enable one partner to detect and trace the hiding of assets. It is also important to know the location of important documents such as deeds, wills, and tax returns, not only in the event of divorce, but also should one partner die or become incapacitated.
There are some red flags that may help divorcing spouses, and even happily married people, determine that their partner may be hiding assets. Aside from being aware of the family's economic situation, there are several ways to spot asset-hiding:
- Changes in mailing addresses for financial and bank statements. Spouses must be attentive when bank and other statements that used to be mailed to your home are now being mailed to a spouse's office or post office box. If statements are no longer being delivered to your home address, you may want to contact the bank, credit card company, etc. to ensure that you obtain copies and that you keep these for your records.
- Large purchases. Beware of sudden purchases of items that could be undervalued or overlooked in a divorce, like expensive art, furniture, or collectibles.
- Underreporting income on tax returns or financial statements. When a financial analysis is performed in order to divide marital assets, unreported items may not be included.
- Overpaying IRS or creditors. Some spouses will overpay their taxes or creditors in order to get a refund after their divorce is settled.
- Sudden salary, bonus, or commission decrease. Some spouses may defer their salary, commissions, and bonuses until after the divorce to seem like they have a lower income.
- Sudden increase in debt. Many spouses create phony debt in order to seem less financially solvent.
It is important for divorcing spouses to be aware of these red flags. If contemplating divorce, many divorce attorneys recommend a lifestyle analysis be conducted at the outset of divorce negotiations. A lifestyle analysis is a financial study that determines your standard of living during marriage. It not only ensures that a spouse gets their fair share of the marital assets, it can also be a tool in discovering that the other spouse is hiding assets. If a family's standard of living exceeds reported income, it could be a sign of asset hiding.
It is extremely important that all spouses have a thorough knowledge of the marital assets, even if divorce is not on the horizon. Knowing what you have will make it easier to discover whether your partner has been hiding assets in anticipation of a divorce. If you fear that your partner is hiding income or property, it is important to obtain records and contact an experienced divorce attorney immediately.