Although couples divorce for a multitude of unique reasons, a commonality that often exists before or during divorce is the loss of trust. And when there’s mistrust in a marriage, it’s conceivable that one or both spouses may have hidden assets from the other. It is in your best interest to make sure all assets are brought to light during the divorce process.
Since finding hidden assets—or eliminating the possibility that hidden assets exist—helps increase the likelihood that you’re treated equitably in your divorce, it’s important to start doing your homework as soon as possible. If you’re the one initiating the divorce process, it’s usually advantageous to take inventory of your assets before raising the topic with your spouse.
Typical Hiding Spots
Understanding how people typically conceal their assets can help you track them down more efficiently. Most people hide assets in one of four ways:
- Denying the asset exists
- Transferring the asset to a third party
- Claiming the asset was lost
- Creating false debt
While proving that any of these events has (or has not) occurred can be challenging, a paper trail typically accompanies the existence or cover-up of most assets. If your spouse has been diligent about covering their tracks, finding these documents can be difficult. Therefore, a good place to start is past tax returns, since these records are often the easiest to locate and access.
Potential Red Flags
As you look through past tax returns, certain reported items—as well as discrepancies in these items year-over-year—can raise red flags and help you uncover hidden assets. With the help of your lawyer or tax advisor, you should pay close attention to the following areas that often point to the existence of related assets:
- Schedule A—Itemized Deductions: This section may uncover assets or sources of income that aren’t disclosed elsewhere. For example, the deduction of property taxes may reveal the existence of a hidden property (or properties).
- Schedule B—Interest and Dividends: This section identifies assets that generate interest and dividends. If you’ve already taken inventory of the assets you know about, use this list to compare and identify new or undisclosed assets—or the disappearance of assets.
- Schedule C—Profit or Loss from Business: This section may include a depreciation schedule, which can reveal additional assets purchased by a related business entity.
- Schedule D—Capital Gains and Losses: This section includes capital losses from securities and other investments, including stocks, bonds and real estate. Like interest and dividends, reported capital gains and losses can help identify new assets or the disappearance of previously disclosed assets.
- Schedule E—Supplemental Income and Loss: This section reports income (or losses) from rental properties, royalties, partnerships and S corporations, which can all point to related and potentially hidden assets.
While finding the assets indicated by past tax returns may still be difficult, identifying all potential red flags before the divorce proceedings can help your lawyer ask specific questions and represent your interests more effectively.
Taking Inventory
In addition to past tax returns, don’t forget about any hiding spots and safe places that you and your spouse may be utilizing to protect assets and important documents. Safes, safe deposit boxes and other places within your home may reveal the existence of property and other information to assist you in the divorce process. Additionally, mortgage closing documents often contain a wealth of information, since lenders require you to list all assets, liabilities, and sources of income when you apply for a mortgage.
From a practical standpoint, divorce is the dissolution of a partnership, which results in the equitable division of assets. One way to make sure you’re treated fairly is to gather as much information as you can prior to the proceedings.
If you’re considering a divorce or are going through one, the best practice is to take inventory of all assets and financial documents in your name, your spouse’s name or both—including any assets that your spouse may be hiding. It’s not uncommon for assets to disappear once the divorce process starts, so the sooner you can take inventory, the better.
Seen on Forbes.com