Hidden assets

• Author: Nicholas L. Bourdeau
• Pages: 291-334

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19-1

Chapter 19

Hidden Assets

TABLE OF CONTENTS

§19:00 THEORY

§19:10 THE BASICS

§19:10.1 The Perpetrator

§19:10.2 The Date of First Indication

§19:10.3 The Formula

§19:10.4 Economic Reality

§19:20 PRELIMINARY INFORMATION

§19:20.1 Financial Disclosures

§19:20.2 Tax Returns

§19:20.3 Bank Statements

§19:20.4 Check Registers

§19:20.5 Interview

§19:20.6 Battle Lines

§19:30 SECONDARY INFORMATION

§19:31 Financial Statements

§19:32 Balance Sheets

§19:32.1 Assets

§19:32.2 Liabilities

§19:32.3 Equity

§19:33 Sources of Balance Sheets

§19:33.1 Marital Estate Disclosures

§19:33.2 Loan Applications

§19:33.3 Personal Financial Statements

§19:33.4 Business Financial Statements

§19:33.5 Business Tax Returns

§19:33.6 Financial Statement Review

§19:34 Other Sources of Information

§19:34.1 Banks

§19:34.2 Insurance Companies

§19:34.3 Computers

§19:34.4 Battle Lines

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§19:00 The Determination of Income for Child Support 19-2

§19:00 THEORY

During the course of a divorce, claims of

spouses hiding assets are common. One or both

spouses may claim that there was significant worth

in the marital estate and the other spouse has taken

it. They may also claim that the couple earned

significant amounts of money during the course of

the marriage and those earnings are not reflected

in the value of the marital estate.

These claims may or may not have valid-

ity. The emotions inherent in dissolutions do not

tend to foster logic or reason. However, it puts

the divorce attorney in a position where some

action must be taken. If the attorney does not take

action, then claims of failing to exercise due dili-

gence may follow. The action taken by attorneys

is usually to conduct some type of investigation

themselves, or to engage the services of a financial

investigator or a combination of the two. In either

case, there are guidelines that investigators can

apply to facilitate the process.

The first step in seeking hidden assets is for

investigators to recognize an underlying and limit-

ing factor: The possibility of hidden assets has to

exist before hidden assets can exist. Simply put,

and by example, if a couple made $50,000 during

a year and spent $50,000, no part of the $50,000

can be hidden. One problem with these situations

is that all too often the divorcing party, and some-

times the attorney and the financial investigator

begin work under the sole assumption that hidden

assets exist. This approach is, at best, frustrating. It

is frustrating for the individuals seeking the assets

because they may have no idea where to begin

and may have little proof on which to base their

allegations. It may also be frustrating for those

attempting to defend against the allegations. They

may not know how to respond because they have

been placed in the position of having to prove a

negative, “I’m not hiding assets; how do I show

you something I’m not doing?” Working under the

assumption that hidden assets exist may also lead

to accusations of conducting fishing expeditions or

subjecting a spouse to undue burden in the discov-

ery process. Another problem is that, ultimately,

hidden assets may not exist. If this is the case, then

both sides have wasted time and money attempting

to solve an imaginary problem. Illustrating the pos-

sibility of hidden assets gives an investigation cred-

ibility and direction. Illustrating the unlikelihood of

hidden assets curtails expensive investigations and

discovery and also protects attorneys and investiga-

tors from accusations of inadequate performance.

Therefore, the investigator’s work should always

include a mindset that seeks an answer to the ques-

tion, “Is it possible that hidden assets exist?”

The next step in pursuit of hidden assets is

for the investigator to understand the environ-

ment in which he or she is working. There are

numerous ways that married couples handle

their finances. These range from either the hus-

band or the wife controlling everything, to the

couple making every financial decision together.

§19:34.5 Merchants and Vendors

§19:34.6 Battle Lines

§19:34.7 Pay Stubs

§19:34.8 Battle Lines

§19:34.9 Depositories

§19:40 BUSINESSES

§19:40.1 Battle Lines

§19:40.2 Forcing the Issue

§19:40.3 Battle Lines

§19:40.4 Battle Lines

§19:50 THE INVESTIGATION

FORMS

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19-3 Hidden Assets §19:00

In between there can be arrangements where

the husband or the wife is given a household

allowance to manage the living expenses of the

family. There can also be agreements where the

couple has three checking accounts: his, hers,

and joint, with the joint account being used to

run the household. No matter what system has

been devised by the couple, the investigator

must have an understanding of its workings.

This understanding provides the investigator

with some basic information such as who had

control of the assets and income of the couple.

Essentially, control equals opportunity. If one of

the parties had exclusive control of an asset or

income stream, then the possibility that it might

be misdirected exists.

The investigation then moves from the gen-

eral financial operations of the couple to the

specific. Investigators will seek to educate them-

selves on what income was available to couples

and how they spent it. This education process

should be shared with the spouse making claims

of hidden assets. In a large percentage of the

systems that might be devised by couples, one

person will have more knowledge of the couple’s

finances than the other. For example, assume

that a husband and wife have developed a sys-

tem whereby the wife handles the finances of

the couple. The husband’s paycheck is directly

deposited into the joint account of the couple and

he is given an allowance of $100 per week for

lunches and miscellaneous expenses. The wife

pays the mortgage, the credit cards, groceries,

retirement savings, and makes all of the finan-

cial decisions. The husband, therefore, has very

little idea of how the couple spent their money

or even how much it costs to live. Claims of hid-

den assets are most often brought by the spouse

who did not have control of the couple’s assets.

Educating this spouse on the financial realities of

the couple will, in many cases, make accusations

of hidden assets evaporate. In other cases it will

fuel the accusations, but provide investigators

with a direction for pursuit of the missing assets.

Finally, all assets have lives. They are pur-

chased (or traded for), insured, taxed, appraised,

maintained, repaired, and finally traded, sold,

or scrapped. Each stage of their existence can

leave evidence as to their existence and perhaps

value. This type of evidence is typically referred

to as a paper trail. Mentioning a paper trail to

anyone (client, attorney, or even some investi-

gators) may elicit images of massive investiga-

tions, teams of CPAs working in unison and

Congressional inquiry. This is usually not the

case. Let’s take a simple example. Let’s assume

that a husband bought an unmounted diamond

with the intent of having the asset excluded from

the marital estate. The husband wrote a check

for the diamond. At the time of purchase, the

jeweler provided a receipt. After the time of pur-

chase, the husband asked for an appraisal so that

he could insure the piece in an insurance rider.

The husband then dropped the rock into his new

safety deposit box. The paper trail consists of

the check written for the diamond, the receipt

from the jeweler, the appraisal, the insurance

policy with rider, and the payments for the safety

deposit box. Each of these items, if found, pro-

vides evidence of the existence of the asset. The

“if found” of course is the problem. Fortunately,

most parents are not criminals. This means that

they are inherently unpracticed in the art of

deception. Consequently, picking up the ends of

paper trails is often not a challenge. However,

getting the information necessary to perform a

competent investigation is often a problem. If an

investigator requests everything that may turn up

a hidden asset, he or she will undoubtedly end up

facing accusations of conducting a fishing expe-

dition or indications that the discovery request

is overly burdensome. Judges often buy into the

argument saying essentially, “If you can’t tell me

what you are after, you can’t have the informa-

tion.” This, of course, frustrates the investigative

process. If the investigators knew exactly what

they were after, they wouldn’t have to ask for the

information. Therefore, this type of investiga-

tion entails building from what is known, to that

which is not; from the information that is avail-

able, to that which is not; and sometimes, from

the simple to the complex.

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