By Daniel P. Marnen, Esq.
Divorces can bring out the worst in people. However, one of the many common reasons one spouse wishes to divorce the other is due to mistrust of the household finances. If you believe you have a spouse who might be hiding assets or who controls the financial aspects of your marriage and keeps you in the dark, you should pay attention to the next paragraphs.
Many divorcing couples fritter over who gets the dining room set or the big screen television and then nitpick over the value of those small items. When we examine the “marital estate” for purposes of divorce and equitable distribution, attorneys commonly look at what I will call “big ticket” items: real estate (commonly the marital home), vehicles (including recreational vehicles), retirement accounts, bank accounts, etc.
A common tactic that one spouse may employ is hiding assets. This usually comes in the form of transferring money from one jointly-held bank account to another or withdrawing cash altogether and keeping it physically hidden. Thankfully, Pennsylvania law forbids one spouse from hiding marital assets from the other.
Pennsylvania is an equitable distribution state. This means that, unlike community property states such as California, there is not an automatic 50/50 split of marital assets. Factors, such as length of marriage, age and health of the parties, income, employability, etc. come into play and whether property is considered a marital asset are considered. Assets such as inherited property are not considered marital property unless it is commingled with marital funds. Also, property purchased before marriage, such as a home, is not marital property. Only the increase in value of that asset from date of marriage to date of separation is considered fair game for equitable distribution.
Some spouses mistakenly believe that money they have put away is theirs and theirs alone. They may believe the other spouse is an out-of-control spender and that hiding that money is for the best of both parties. While some of these intentions are very pragmatic, it does not change the character of the act, which is hiding marital property. When one spouse fails to disclose a full accounting of what is at stake in the marital pot, it can have a dramatic effect on the entire equitable distribution split, whether or not alimony will be available, and the amount of child support.
So what are the red flags for hiding assets? Here are four commonly identified methods:
- Transferring Assets from a Joint Account to a New Account: Jointly-titled bank accounts and their contents are marital property. The most common method to attempt to change this is to transfer the money from the joint account to a single titled account. You can spot this easily on a bank statement.
- Adding Cash Withdrawals to Purchases: Would you like cash back with that? Beware, a spouse can go to any store that provides cash back and simply withdraw money in that manner. It may seem tedious, but a daily withdrawal of $50 per purchase can add up to a lot of unaccounted for cash.
- Income Tax Overpayments: The carefully planning spouse may learn that they can overpay their taxes and grab the refund while in the middle of divorce proceedings. This is a subtle method and may come with the promise that the parties will split the refund evenly. If one does not follow the household books closely, one could wind up missing a significant marital asset.
- Offshore Accounts: The Cayman Islands and “Swiss” bank accounts are not just for money-laundering criminals. A savvy spouse may understand how to transfer large sums of money before it’s too late. Offshore banks stick to strict privacy laws making it impossible to discover these accounts.
The best strategy in dealing with possible hidden assets is to be proactive. Make sure you have access to all financial information available to both spouses. Spouses with cash businesses should also be examined and may require the services of a private investigator or accountant. These professionals increase the costs of litigating a divorce, so be prepared.