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Hidden Assets: Are They Discoverable?
Divorce lawyers in Pennsylvania often deal with the issue of hidden assets. Many clients believe that their spouse has been hiding assets from them. So, what is a lawyer to do?
In order to determine the likelihood of substantial hidden assets, several questions should be asked including, but not limited to:
• Is there a business and, if so, is it a cash business?
• Is there a Subchapter S Corporation?
• Are the parties’ assets and spending significantly more than would be expected when compared to their reported income?
• Does one party deposit a paycheck into a separate account?
• Does one spouse get an automatic transfer of funds or an allowance?
• Is there a credit card statement being mailed to one party’s work address?
• Are there large amounts of cash floating around?
• How much information is shared by the parties?
• Does one party travel?
• Who makes up the group of friends and what types of people are they?
• Who is the other party’s accountant and lawyer?
• Has the other party been an honest reporter on prior tax returns?
When answered completely, and honestly, these questions provide an overall picture and clues as to whether one party may be hiding assets.
Generally speaking, most individuals having W-2 incomes cannot successfully hide large quantities of money. Their income history can be reconstructed by looking at their expenses.
In certain situations, such as with top executives, future income may come in the form of deferred compensation packages, stock options, etc. However, some future income, such as non-qualified deferred compensation, may not be discoverable with a subpoena. Non-qualified deferred compensation is compensation that is: (1) provided as a “top hat” benefit to top executives as an incentive to stay with the company; and (2) is not tax deductible to the company.
If a party has a cash business, such as a restaurant, small construction or retail, it may be necessary to hire a private detective and an accountant to discover the party’s assets. The private detective will actually observe the number of cash transactions. The accountant will analyze the business inventory in an effort to determine actual sales as well as reconstruct other business expenses. This aids in determining the flow of the business income. When evaluating cash businesses, accountants may utilize a “fraud audit.” Pursuant to a “fraud audit,” the accountant will investigate and verify sub-contractors and vendors to determine if they are legitimate businesses or shams used to siphon off company money or receive and provide cash kick-backs (i.e., hide assets).
Assets and money sent offshore provide a far worse predicament. Offshore banks have secrecy laws which make it virtually impossible to obtain information. The offshore banks may have arrangements with onshore banks, called correspondent banks, and credit card providers which may be useful. A copy of the party’s passport can determine if they have money in an offshore location. Then, a fraud audit of the business may determine if cash is being skimmed off the business to the offshore account.
The IRS is becoming more and more aggressive in its attempts to identify “abusive trust” arrangements. “Abusive trust” arrangements occur when American citizens evade taxes and the judgments of the United States courts. If a party has valid concerns that their spouse may have evaded taxes, they should consider filing separate tax returns as opposed to filing a joint tax return. Knowledge of the perceived tax evasion precludes the party from getting innocent spouse status. Careful consideration must be given in this situation because if there has been tax evasion by one party and it is revealed to the IRS, the innocent spouse may be held equally liable for back taxes, penalties, and even criminal charges. Moreover, if your spouse goes to jail, child support and alimony may end.
Being an informed spouse during the marriage is of the utmost importance. Demand that financial information is shared. Be reasonable and address excessive charges on credit cards and feigned financial helplessness. The goal is to keep the lines of communication open. Additionally, know your spouse’s friends. People that are dishonest in relation to the IRS tend to flock and work together. If your spouse is not honest, you have a problem.
If you think that your spouse is hiding assets, the best ammunition is to give your attorney reliable information. Copy documents that are relevant to your marriage and divorce. Leave these documents at a friend’s house. Additionally, plan ahead and suggest that you and your spouse meet with a professional for estate planning. At this point, early on, a spouse may not feel that there is a reason to hide any assets from their spouse. By working together with an estate planner, the hope is that all assets will be divulged by both parties. Once this is accomplished, you have the information you need to take to a lawyer.
With proper planning, patience and time, hidden assets may be more easily discoverable. This will save you time, money and aggravation throughout the divorce process.
I conveniently represent clients in the Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, the towns of Wayne, Radnor, Philadelphia, King of Prussia, Paoli, Devon, Berwyn, Newtown Square, Villanova, Bryn Mawr, Haverford, Ardmore, Lower Merion, Media, Wallingford, and Swarthmore, and throughout Pennsylvania.
© 2015 by Elizabeth L. Bennett, Esquire. All rights reserved.
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