Divorce can create feelings of sadness, anger, and betrayal – especially if one spouse had an affair or the divorce request came “out of the blue.” Those feelings can lead to an intense mistrust of your spouse, which may make you believe that your spouse is hiding assets or engaging in other financial misbehavior. Before we start to discuss financial fraud and divorce, you need to know that serious fraud only occurs in a very small number of cases. So if your spouse is a salaried employee, and you’ve been living a normal, middle-class life for the last 20 years, it is very unlikely that there’s a hidden offshore account full of cash waiting to be discovered. Now, let’s talk about how and why financial fraud could occur in a divorce.
Concealment: the Cornerstone of Financial Fraud
Hidden or missing assets and misrepresentation of family income are two common areas of money manipulation that, if left undiscovered, can lead to a disproportionate share of the assets going to one spouse. A divorcing spouse may convince otherwise honest relatives and friends to assist with concealing marital assets by telling them that their ex is racking up debts or emptying bank accounts. Concealment is the cornerstone of fraud.
During divorce, forensic (or investigative) accounting professionals can trace the paper-trail of funds through the various accounts of the marriage, determine the actual income of the family, verify claims of “co-mingling” marital and separate assets, or determine the validity of a potential claim for dissipation of marital assets (see “Dissipation Issues,” below, for more on this topic).
A financial expert will review general records, including the couple’s tax returns, bank statements, credit-card statements, business ledgers, appraisals of properties owned, and retirement accounts. The more money a divorcing person has, the more places it can be squirreled away out of sight. Employees of companies may have deferred compensation plans, stock options, bonuses, expense accounts, or other fringe benefits that they “forget” to declare. Business owners have ample opportunities to hide both income and assets from the lawyer’s and spouse’s eyes – unless someone has the financial skills to comb through the records and make a professional judgment about the authenticity of the books, records, and tax returns.
For families that have built up a sizable nest egg, the hiding places can become more numerous – and they also might intentionally become more complicated. Shell corporations, unfunded trusts, life insurance vehicles, unknown safe deposit boxes, and hidden brokerage/online accounts are among just a few of the hiding places that can be uncovered through good financial detective work. Schemes vary depending on perceived opportunity and motive, but the ultimate goal is to defraud the other spouse of their entitlement.
Red Flags for Financial Fraud and Divorce
Evaluating changes in secrecy, lifestyle, and income can lead to important circumstantial clues that may lead one spouse to believe that fraud may be taking place. The most difficult element to prove in fraud cases – fraudulent intent – is usually proved circumstantially. It can be that “aha!” moment when faced with evidence that cannot be ignored any longer. Typical red flags include items such as:
- Change in the level of confidentiality between spouses.
- Mail being rerouted to an office or new mail being received.
- Unexplained changes in habitual behavior.
- Pattern changes due to addictions.
- Spending more time on the computer, closing the screen when the spouse walks in.
- Getting caught in lying or deceptive behavior.
- Concealing details of transactions from the spouse.
- Unusual and repeated cash withdrawals from bank accounts.
- Loaning or giving money to family and friends without spouse’s knowledge or consent.
The greater the number of red flags, the more likely that there is something fishy about the family’s finances. The longer a spouse has access to perpetrating a fraud, the easier it is to get away with it; the more time that passes, the more difficult it can be to access certain records or trace funds.
The Fraud Triangle
During the 1940s at Indiana University, Dr. Donald Cressey created the “Fraud Triangle” hypothesis to describe a new type of criminal: the white-collar fraudster. Similar to the idea of a three-legged stool (which cannot stand without all three legs), Dr. Cressey theorized that there are three elements that must be present for a person with no criminal history to commit fraud:
- Perceived Opportunity. The person believes he/she can commit the indiscretion without being caught.
- Pressure. This is the motive, usually of a social or financial nature. This is a problem the perpetrator believes he/she cannot share with anyone.
- Rationalization. This takes place before the indiscretion. The rationalization is necessary so the individual can maintain his/her self-concept as an honest person caught in a bad set of circumstances.
Trusted persons can become trust violators at any point during the marriage. Some start lying and cheating soon after the wedding, others don’t start until decades into the marriage, and others never go down this road. However, when someone sees him/herself as having a problem that he/she can’t share, then applies a rationalization to the thought of committing a dishonest act to secretly resolve the issue, he/she is on the path to immoral or illegal behavior.
Financial Fraud and Divorce: Dissipation Issues
A type of financial fraud specific to divorce is dissipation. Dissipation occurs when one spouse, essentially, wastes property or money without the knowledge or consent of the other spouse. There are many legal definitions of what constitutes dissipation, but they all involve minimizing marital assets by hiding, depleting, or diverting them. Some examples include:
- Money spent on extramarital relationships (hotels, trips, gifts, etc.).
- Gambling losses.
- Transferring or “loaning” cash or property to others.
- Selling expensive assets for much less than they’re worth.
- Spending down business cash account.
- Excessive spending, including hobbies.
- Residence falling into foreclosure
- Ruining personal items.
- Work tools left out to rust.
- Destroying or failing to maintain marital property.
If there has been an intentional dissipation of marital assets, the innocent spouse may be entitled to a larger share of the remaining marital property; this is something to discuss with an experienced lawyer.
Other Financial Fraud Issues
Aside from dissipation, other types of fraud can be discovered during divorce by investigating the family finances. There are cases of forgeries and questionable documents, tax fraud, loan fraud, and insurance fraud – but the majority of divorce fraud is centered within the framework of misappropriation of assets. Before launching an investigation, ask yourself whether there has been transparency and truthfulness about finances during your marriage and divorce. Did both of you take an active role in managing the money and taxes together, or did you allow your spouse to handle the finances during your marriage?
One of the easiest ways to prevent fraud in a marriage is to treat finances like businesses do: using a checks-and-balances system where both spouses see, understand, and review the finances. Holding family members accountable for missing assets eliminates the perceived opportunity and takes away the ability to commit fraud. Although this advice may come too late for you, deterrence and vigilance is the best way to stop financial fraud from starting in the first place.
Peggy L. Tracy (CFP®, CDFA®, CFE) is the owner of Priority Planning, LLC in Wheaton, IL. A Certified Fraud Examiner and Certified Divorce Financial Analyst®, she focuses on forensic accounting for divorcing clients. www.priorityplanning.biz
Wow, in the “Dissipation Issues.” Boy, that brings back “memories!” I never knew that some of the things he did was considered a real problem — considering he had an “in” and took EVERYTHING. Letting the house go into foreclosure – yup(!), did that! Amazing how so many cases involve the same crazy shit! What is wrong with people??
my ex husband filed for divorce a week before my children were born and stated he had no living children. he signed my name and had a friend notarize it. to keep me from finding out he abused me in shameful horrible ways. threats to kill me, take the children out of the country after they were born, and beatings too hard to put into words. i ran with the kids, got a job and tried to make it. he then filed for custody asking for as much time as possible to avoid child support. the threats to kill me, question my mental capability to care for the children, threats to take them out of the country, threats to “take me down” continued. He sent people to my job to harass me and i lost my job. we had to go on welfare which automatically created an order for child support that resulted in a small amount that won’t even pay the rent as it’s based on his income. he hides his income by transferring deeds and ownership title to friends and family. he’s worth millions, lives in a $4 million dollar house, drives in luxury cars and throws extravagant parties. we can barely eat. he’s declared he’s only seeing his children for a few hours a month and continues to harass me to “pay me back” for forcing child support. his game is to marry, transfer assets under the new wife and personally show no income. i can’t undo the divorce and have no money to fight. he finally told me to my face that he couldn’t believe he got away with his “fake divorce” leaving me “two pennies” to fight him with. he says that his friends think he’s a “god” and he counsels them on how they can do the same. the law works against me. i lived under the same roof with a man who monitored and tracked everything i did. by the time i pieced together what happened, he was right. no one would help. what do i do with this “fake” divorce decree, no money and kids to raise alone?
I also had a fake divorce. By going to burn trash at his mother’s house, I discovered ledger sheets showing the family member’s business names. It’s called the ABC identity theft scam. They steal my business assets and transfer them to my son’s business name. Then they rig two separate divorce documents with two different notaries. The fake divorce has me divorcing myself and my son, with the father stealing the sons identity. My evidence showed coding and insurances being bought with my marital business name which is my mother-in-law’s name with extra letters. I used to hear that I had plenty of assets of my own, but too bad I didn’t know what social security number they used. Misaddressed investments with missing social security numbers. I have finally been heard by an identity theft expert and have filed my complaint with the attorney general’s office.
This is called a fake divorce and hiding assets using fraud and identity theft. I learned the scam formula. It is organized crime for profit. It answered the question, how to you own something and transfer it back to yourself! Went through garbage for months to get this evidence. Is this a business name or is it the name of the marriage corporation that appears to look like you mother’s name?
I have uncovered the formula of a fake marriage identity theft scam I am victim of. I need to educate women on what they are doing. It answers the question, how to you marry a woman, set her up as a sub a business which mirrors the family sub s corporation, and liquidates her assets as tax deductible. It gets the husband big insurance investments, real estate, and it leaves her with no social security, penniless, and with liens for legal fees. I’m haunted by the idea that I’d still be legally married to him if he faked all the documents. He stole his son’s business name, and rigged two separate divorce documents. If your second attorney ended up dead and the divorce illegally bifurcated in wife’s different set of documents, and large amounts of assets moved out of your son’s trusts and business bank account, to which he never knew existed, shouldn’t the possibility of murder of second attorney be considered. He told me about the fraud, had me write a letter stating I fired my first attorney because his actions were allowing me to lose assets because a fraud appeared to he going on. There was no discovery or identity of who I was actually divorcing! This is an organized crime formula for taking away a woman’s civil rights, and needs to be exposed and stopped!
Divorce is the actual fraud. Hiding money from a theif isn’t. Our culture’s values are jacked.
What kind of chart of accounts is the best for this?
please send template
I am an identity theft victim. I accidentally uncovered evidence from trash burn that two corporations were formed with the same appearance, a sub s and a sub bubonic marriage. The sub s had the same appearance as the sub a, but had extra letters and a middle initial. This used his mother’s SS number as identification for sub a. He then set up a fake divorce so he could transfer wife’s business assets tax free to son, stealing son’s identity and set up a scam that is tax deductible and profitable for buying real estate. Dual documents differently motorized on documents.It robs everything from wife and is almost full proof, unless you have evidence. Son never knows he is a business name of family business, and he destroyed a ledger page out of the family business that showed family business names, to prevent discovery of his actual identity.
I learned that when my ex married his second wife in a church, He signed the marriage license application with the same business name he used on our divorce documents. It was never return filed, and legally they weren’t married. She also agreed to never file for child support or social security when “marrying him”. It’s a tax deductible arrangement for him.
how much time do I have to sue ex for theft after settlement
my question is, my husband has been sending someone on line a great deal of money, I just found this out recently, also he sent her my credit card and all my info, that was a mess, We have been married 17 years, we are both 65 years of age, I am looking into a divorce lawyers now, I am also wondering can I sue him for fraud,