Divorce is one of the most stressful life situations someone can face, and when it’s contentious or involves one spouse trying to cheat the other out of rightful property and assets, it can be even worse. Hiding assets is a serious abuse of the divorce process in Orange County (and all of California). It’s a tactic taken by a spouse who feels they won’t get their fair share in the court judgment, that their spouse doesn’t deserve to have a larger portion of the marital property, or by someone who simply wants full control over certain financial accounts. However, California is a community property state, and hiding assets violates that policy. Here’s what you need to know if you suspect your spouse is hiding assets to prevent you from rightfully having access to them.
What Is a Community Property State?
A community property state is one in which the courts generally view any property or assets acquired during the marriage by either or both spouses to be joint property and subject to equal division during a divorce. Things that were acquired prior to the divorce, such as earnings in retirement accounts, are considered to belong to the spouse who had those accounts.
Couples can negotiate prenuptial agreements that specify certain property and assets as off-limits in a divorce, and the courts will accept that. But if there is no prenuptial, community property is the grounds for how the courts will view the division of property.
Property isn’t just defined as assets. Things like credit card debt are property as well. So if one spouse had a credit card balance that occurred during the marriage, that debt would be considered joint debt. An exception to that is if the spouse ran up the debt out of spite or to purchase things for someone else they’ve started a romantic relationship with, the courts would likely deem that as belonging to that spouse only.
How Do People Attempt to Hide Assets While Going through Divorce Proceedings?
The digital age has made it harder for people to hide assets without leaving some kind of electronic paper trail. But that doesn’t mean they won’t try or that new tactics haven’t been developed. Here are some of the ways people try to bury assets.
- Buying expensive items with cash. The goal here is to buy valuable possessions using cash to reduce the paper trail, then sell the items after the divorce is final. They don’t list the new items as part of their property in hopes that no one will notice, and the cash they earn back will be theirs alone.
- If they own a business, they may suddenly start claiming increases of business expenses to reduce the net value of the business. In some cases, people have reported paying salaries to employees who don’t exist or stopped paying themselves to reduce their overall income.
- They may claim they owe family members or close friends money and funnel cash out of the marriage by claiming it’s a repayment of that loan. The plan is that they’ll get the money back after the divorce is final
- The old-fashioned route is still popular: Withdraw cash from bank accounts and physically hide it.
- If a spouse sets up a custodial account for a child, it’s not considered community property. But there’s nothing that stop
What Are Ways to Discover Hidden Assets?
There are a number of ways to track down hidden assets, many of which involve financial records.
- Bank account statements. These have details of irregularities such as sudden large withdrawals, transfers of funds to family and close friends, or purchases of assets in the spouse’s name only.
- Income tax returns. These can uncover assets that you weren’t aware of, as long as your spouse wants to avoid being audited and provides the IRS with accurate information.
- Business records. A business-owning spouse can use the business to hide assets in a number of ways. A forensic accountant will know what to look for in these types of records.
- Public records. Public records will document real estate and other large physical items (such as cars) that the spouse may not have reported.
What Are the Penalties for Hiding Assets During Divorce Proceedings in California?
There are two primary penalties for hiding assets during divorce:
- The person hiding the assets could lose at least 50% of the assets, and even up to 100% if the judge deems the violation blatant and extensive enough. In one famous California case, a wife who bought a winning lottery ticket while married but didn’t tell her husband ended up having to pay the full lottery winnings to the ex-husband.
- The person hiding the assets could be ordered to pay all the attorney’s fees and other divorce-related costs their spouse incurred. They could even be ordered to pay damages to the other spouse.
What Should I Do if I Suspect My Husband of Hiding Assets as We Go through Divorce Proceedings?
Call us at 949-542-6209 (Newport Beach) or 714-542-6200 (Santa Ana) for a free 30-minute case evaluation. This is a situation that must be handled carefully and promptly. We can walk you through what needs to be done to prove the hidden assets exist and were deliberately hidden. Because this is a complex legal situation, having experienced and knowledgeable attorneys guiding you is highly recommended. Family law courts don’t look positively on people who deliberately hide assets, but they also want significant evidence to back up the claims of hidden assets.