Reliable Legal Guidance When Your Spouse is Hiding Assets in Divorce

California’s Laws Regarding Property Division

In California, the law requires that all income earned and all debts acquired during the marriage be split 50-50 regardless of who earned it, how it was earned, or whether one spouse had substantially greater earnings during the marriage than the other. In short, a marriage is viewed as a business arrangement; when the business is at its conclusion, each partner shares equally in the division of the property.

The following assets are considered community property:

• Salaries
• Monies earned from business ventures
• Lottery winnings
• Investment earnings
• Any items purchased with earnings made during the marriage

The fact that everything acquired during the marriage must be split equally has caused many spouses a great deal of bitterness and has led to vindictive, secretive behavior such as lying about or hiding assets.

Are All Assets Owned or Acquired During a Marriage Community Property?

There are some assets and sources of income that are not considered community property. At the time of divorce, any assets and income classified by the court as separate property belongs solely to the spouse who acquired the asset or earned the income, even if the asset was gained during the marriage.

This includes, but is not limited to:

• Property owned by one spouse prior to the marriage
• Property acquired after the couple permanently separated
• Inheritances/gifts received or bequeathed to one spouse, whether before or during the marriage
• Gifts from one spouse to the other
• Property acquired in one spouse’s name and with that spouse’s separate funds
• Property or earnings that the couple agreed would be separate in a prenuptial agreement
• Any rental monies or income earned from one spouse’s separate property

However, the spouse who is claiming that the property is separate has the duty to prove that. The methods used to prove that property is separate can become quite complex depending on the type of property and how it was used. If you or your spouse have any property that you believe to be separate property, but you are not sure, you should discuss this issue with your attorney or a knowledgeable expert early on in your divorce proceeding in order to avoid difficulties further on in the process.

What Should I Do If I Think My Spouse Is Hiding Assets?

Before you start any type of divorce proceeding it is always a good idea to get all of your paperwork together, this should include a list of all your assets and liabilities. Not only will this will help you file your own financial disclosure report, it will also assist you and your attorney in determining where to look for assets that may be missing as well as to determine the value of what assets you are aware of.

Some of the paperwork you will need is:

• Any available pay stubs
• A list of all known assets and liabilities
• A list of all income and cash flow sources
• A list of the employment history for both you and your spouse
• Any gifts or inheritances you or your spouse received during the marriage
• Information on all property both you and your spouse own
• All prior tax returns
• Any brokerage account statements
• Bank statements
• Cancelled checks
• Credit card statements
• Loan applications, which includes any personal financial statements that your spouse may have submitted to acquire the loan in the first place

In addition to gathering your financial documents, you may want to do some research into any suspicious activities of your spouse. Suggestions of things you should pay attention to:

• Changes in Spending: 
  Any changes in typical spending patterns, especially if there has been any significant increase or decrease, including any changes to how much or how little is being paid towards bills.
• Destination of Bills: 
  Find out where the bills are going. For example, if either your or your spouse’s credit card statements used to come to your house and no longer do, then it might be necessary to find out where they are going. This is true for other bills and statements as well, including investment account statements, bank statements, car payments, retirement account statements, etc.
• Review Cancelled Checks: 
  Carefully review all your cancelled checks for any changes in spending habits or any purchases that you are unfamiliar with. If you do not normally get a copy of your cancelled checks, you can ask your bank for copies. If you do not use checks, then review your bank statements, noting any significant cash withdrawals or any repeated patterns of smaller withdrawals.
• Look for Slow Drains: 
  Pay attention to even a gradual diminishment of funds in any of your accounts. It is not unusual for spouses to slowly drain accounts of funds over a long period of time.
• Monitor Account Activity: 
  Trace any activity in your accounts and cash flow during your marriage, noting any patterns and as well as any deviations from those patterns.
• Notice Change in Conduct: 
  Note if there has been any unusual changes in your spouse’s conduct, for example if your spouse is becoming more controlling or secretive regarding bank accounts and other spending accounts.

What Types of Property & Assets Should I Look For?

If you think your spouse is hiding assets or finances from you, you should be looking for any assets and property that would be considered marital property, this means pretty much anything acquired during a marriage that has not already been classified as separate property. You should pay special attention to any purchases made with marital funds, which may mean doing some extra research on where your money was spent. Additionally, you should be aware that any property—except separate property—acquired during the marriage is still considered community property even when one spouse is unaware the property exists or when one spouse purchased or held the property in their name alone.

Examples of Common Marital Assets

Over the life of a marriage, the assets that are accrued can amount to a substantial amount. However, many spouses are unaware of what exactly constitutes a marital asset. In many marriages it is not uncommon for couples to acquire and build complex and diverse financial portfolios.

The assets in a normal marriage can include:

• House
• Vacation property
• Business income
• Life insurance
• A variety of other financial assets

Additionally, money and inheritances that start out as separate property may become community if they are co-mingled with the marital property. As a general rule, when a marriage ends and there isn’t a pre-marital agreement, the court will divide up all of the property and debt equally between the couple.

Some common marital assets you should look for when creating a financial statement for your divorce and to provide your attorney with an overall picture of your financial status:

• Any business income from either you or your spouse
• Any equity that has accrued in the home
• Pension fund earnings
• Interest earnings from either bank savings or financial investments
• Any purchases made from income earned during the marriage, regardless of who made the purchase and whose name is on the title, if there is a title
• Cars that either you or your spouse own
• Any property that was purchased during the marriage
• Investments, including stocks, bonds, artwork, etc.
• Expensive jewelry or antiques

It is imperative that you provide your attorney and the court an accurate depiction of your marital estate in order to create the best financial outcome. It is also important that your lawyer has access to all potential assets from your marriage in order to assist in finding any assets your spouse may be hiding.

The Importance of Thorough Discovery in Uncovering Hidden Assets

The best way to find out whether your spouse is hiding assets at the time of your divorce is to be well informed of all your assets and liabilities throughout the marriage.

However, if you’re like most people, you don’t anticipate getting a divorce, which means you may not have been vigilant over your finances throughout the marriage. In this case, there is still help.

Under California law, a marital relationship is a confidential relationship requiring the highest good faith and fair dealing. Accordingly, California law provides that all spouses have a duty to make a full disclosure of all their assets and provide equal access to all information related to their finances at divorce. One of the best methods to ensure that your spouse is fully disclosing all of his or her financial information is to use the powerful discovery tools made available to spouses going through a divorce.

Do Bank Statements Have to be Disclosed in California Divorce?

Under California law, each spouse is required to file a full financial disclosure report at the time of the divorce proceeding. This may include disclosure of bank statements and other assets. Additionally, each spouse has an ongoing duty to continue to disclose any material changes to their assets and liabilities throughout the divorce process. California takes the role of disclosure very seriously and any failure to be candid with the court can lead to serious consequences.

The disclosure report requires the following:

• Disclosure of all liabilities
• Disclosure of all assets
• Disclosure of all relevant financial circumstances

California law mandates both a preliminary disclosure and a final disclosure. Each spouse has a duty to make an accurate and complete financial accounting of all their assets and liabilities in order to prepare for the divorce.

What Is Discovery?

Discovery is a method of finding out necessary information in preparation for a court trial.

Discovery can be both formal and informal:

• Formal discovery: This can include written questions (called interrogatories), oral depositions, and requests for inspections.
• Informal discovery: In this process, one spouse can simply ask the other for information regarding specific assets.

In the case where a spouse may be hiding assets, using formal discovery may be a better method to help disclose those assets. Formal discovery can be conducted in a manner that better reflects your specific situation and creates a more comprehensive analysis of your marital assets. Additionally, formal discovery allows you to ask about any assets that are or may be relevant to the divorce. This is important because you will likely want to know about all of your spouse’s assets, whether they are marital or separate assets. Knowing about all of your spouse’s assets will help you track finances and expenditures from your marriage which will, in turn, help you discover whether any money or assets may be missing.

Different Forms of Discovery

Interrogatories

Discovery documents, called interrogatories, are written requests for information. These documents can be drafted in such a way that the request for information can be quite broad and may include requests for a variety of information that someone unfamiliar with the discovery process would never think to ask.

Requests for Inspection

In addition to requesting information through discovery documents, you can ask to inspect any of your spouse’s property, such as safety deposit boxes and investment income.

Oral Depositions

An oral deposition is basically a question and answer session between attorneys and your spouse. An oral deposition is conducted under oath and in front of a court reporter. All answers are recorded and are on the record. Your attorney can ask your spouse to answer any questions that he or she is asked regarding his or her separate property as well as your marital property. Because oral depositions are conducted under oath, any misstatements or lies that are told during the process can be subject to severe penalties.

The discovery process is a legal tool you can use to get your spouse to provide answers to necessary questions. Because discovery is a legal process, it is subject to the power of the court and the court can compel your spouse to provide answers to any questions you have asked as well as to provide access to any necessary documentation. A spouse who is dishonest or who tries to mislead the court can be subject to a variety of sanctions.

What Is a Forensic Accountant?

A forensic accountant is an expert in accounting and the analysis of financial information. Forensic accountants frequently appear before court and testify as to their findings. Accordingly, they are familiar with the law as well as the necessary legal procedures to investigate financial evidence. They are frequently employed to assist in evaluating complex financial disclosures and finding hidden assets.

Common Methods That Spouses Have Used to Hide Assets

Over the years, attorneys and forensic accountants have noted several common methods that spouses use in order to hide assets. Some of the most common methods include:

• Overstating debts
• Hiding marital property: This can take many different forms, including storing assets at a different location, taking out loans in their name alone, placing money in bank deposit boxes, or sending payroll checks to a P.O. Box rather than to the home.
• Understating or undervaluing marital property: One of the methods that this can be accomplished is by devaluing investment property, such as rental units by allowing the property to fall into disrepair or allowing it to remain vacant for a period of time.
• Reporting a lower income than actually received
• Reporting higher expenses than actually incurred 
  (Especially when a personal/family business is involved.)
• Hiding billing statements
• Transferring assets to a separate account: This can include taking money out of the family checking account and putting it into a private account that only that spouse has access to.
• Making phony loans to a friend or family member: It is not uncommon for spouses trying to hide money to make a fake loan of cash to a friend or family member, with the understanding that the money will be returned after the divorce is finalized.
• Overpaying tax bills: It is not an uncommon tactic for one spouse to grossly overpay the IRS and then request a refund the following year, after the divorce has been finalized, leaving him or her with the entire refund. Be sure to check your spouse’s tax returns.
• Taking cash withdrawals with debit or credit cards
• Creating fake expenses: This usually occurs when the spouse owns a business. The spouse can create fake expenses to devalue the actual value of the business or to make it appear that he or she has more debts than they actually do.
• Buying expensive gifts: It is not uncommon for spouses to purchase expensive items, including artwork, antiques, etc. hoping they will be either overlooked or undervalued at divorce.
• Defer bonuses, commissions, or salary: Deferring income until after the divorce means the income won’t be on the books at divorce. Some spouses will either not claim the income or ask their bosses to defer payments, stock options, or raises until after the divorce.
• Create an account in a child’s name: A spouse can set up a phony account with a child’s social security number and siphon marital funds into the account. If you have children, be sure that you check for any bank accounts or credit accounts set up in their names. This is especially true if you have young children who wouldn’t normally have access to their social security number.
• Transfer money, stock, and investments into the accounts of family members: Check your finances and/or any business accounts for any monies, stocks, or investments paid out or transferred to your spouse’s family or friends. It is not uncommon for spouses to transfer money or other valuable assets to family and friends with the expectation of having it returned after the divorce. Additionally, this type of asset hiding can come in several forms, including payments for services that were not actually rendered, personal loans, or even repayment of a "fake" debt.
• Expensive purchases for or in the name of a girlfriend / boyfriend: It’s always a good idea to check financial statements, bank records, and other receipts for big ticket items as well as any substantial amount of money that may be missing from your joint accounts.
• Hiding money in a safe deposit box or personal safe: In general, you can ask your spouse during discovery about the contents of any safe deposit boxes or personal safes. Be aware, however, that the safe may not be in their name, but that of a friend or family member.
• Selling property for less than its value in order to repurchase the property later: California law prohibits spouses from selling or making a gift of any of the marital assets without the other spouse's written consent. So, if your spouse has sold marital property for less than it is worth, then not only are they potentially hiding assets, they might also be in violation of California law.

Penalty for Hiding Assets in Divorce

In California, some penalties for hiding marital assets in a divorce, considered contempt of court, can include perjury charges and loss of the hidden marital asset. Hiding matrimonial assets is illegal under any circumstance. Willful non-disclosure can be punished, which means that if your spouse intentionally about their assets, they can be punished.

Civil Penalties

When the court finds that one spouse has been hiding assets, it can order that spouse to pay for the fees of any investigators that were used or any other legal costs the innocent spouse incurred. Additionally, the court can award more of the marital assets to the other spouse.

Criminal Penalties

In California, a spouse can be charged with perjury for failing to disclose all of his or her financial assets in the required financial disclosure documents. A perjury charge can carry up to four years of jail time. Additionally, there is a potential for being charged with fraud, which is a criminal act.

Additional Consequences of Concealing Assets Include:

• Your lawyer may resign from your case as he or she will expect transparency at all times.
• Hidden assets void all provisions within a prenup or postnup.
• You risk losing credibility with the judge which would make your future requests even more difficult to obtain

What Can I Do to Find Any Assets That My Spouse May Have Hidden?

There are numerous methods you can use to find any assets that your spouse may have hidden. For more information on your spouse’s assets, consider:

• Reviewing any electronic documentation that you may have maintained over the years. This can include going through old tax returns and reviewing bank statements and pay stubs. DO NOT search through or hack into your spouse’s computer, cell phone or other private items as this type of behavior may be a violation of the law.
• Making a list of any sources of income that you have, including wages, retirement accounts, property rents, interest from stocks and bonds, annuities.
• Finding out if your spouse's regular salary includes retirement or fringe benefits
• Checking on interest payments if you own stock
• Checking to see whether or not stock has been cashed in

What Can I Do to Prevent My Spouse from Hiding Assets?

One of the best things you can do is to be actively involved in your family’s finances. It’s much harder for a spouse to take and hide money or assets when the other knows how the family finances work.

This means that you should know:

• What your bills are
• What the monthly income is from all areas
• How much you spend on a regular basis

If applicable, familiarize yourself with any business income that your spouse may have.