by Brian Mahany
Most of our fraud work involves dishonest business people, stockbrokers, lawyers and investment scams. Fraud, however, is not confined to the business and investment world. Sometimes it begins in the bedroom.
Some of the nastiest cases we investigated and prosecuted involve divorces. Husbands and wives (mostly husbands) hiding assets before or during a divorce. Although we are not divorce lawyers, we sometimes will handle a divorce where fraudulent concealment of assets is a central issue.
How can you discover if assets are being concealed? Hire a forensic accountant or for the really tough cases, a fraud and asset recovery lawyer.
Tax returns are the basic starting point in any asset investigation. They list not only income but often can point to where assets may be located. The schedules to a long form tax return reveal bank account interest, stock dividends and deductions for property taxes. All of these things are clues where assets may be located.
It’s not enough to simply look at returns, however. Always seek the work papers from the accountant. Often, the accountant will have prepared a Foreign Bank and Financial Account (FBAR) form or other informational returns that you may not have seen. The accountant is usually the repository of all the 1099’s and other tax forms.
Once all the tax documents are assembled, one must start looking at the history of the various accounts. Was there a wire transfer from one of the bank accounts in the months leading up to the filing of the divorce? Was a large portion of a stock portfolio sold? If so, where did the proceeds go?
Checks payable for a safe deposit box rental are always a good clue. Checks for real property taxes in a distant town, a town where your spouse frequently goes hunting perhaps, could mean that there is property owned there. Putting property in the name of a friend or relative is an old trick but finding the source of the funds or tax money is a good way to determine who really owns it.
Does your spouse operate a “cash” business or own a business? If so, there are lots of places to hide earnings and cash. Again, some expert help may be necessary. We are familiar with one instance in which a partner in a business simply arranged to have the bulk of his earnings deferred. Conveniently, his pay during the year of divorce was quite low.
Loan applications are another good source of information. It’s common knowledge that some people will cheat on their taxes and underestimate their income. Not so on loan applications. When it comes time to buy that new sports car, most people fill out the loan application truthfully and list all their income and assets.
Pay stubs and end of the year earnings statements can often identify deferred comp plans, IRA’s and 401k plans.
It’s a good thing to always be fully aware of your spouse’s financial dealings. Trying to piece together information after a divorce is filed is usually more complicated. We frequently see spouses who say that they never paid any attention to finances or business dealings until it was too late.
In January and February, pay attention to tax documents that come to the house. If something comes in the name of a trust or comes from a brokerage firm you have never heard of, be suspicious. Also pay attention if monthly statements from a particular bank or investment firm stop coming to the house. It could mean an account was transferred or your spouse obtained a post office box to conceal mail.
Much divorce fraud today involves foreign accounts. Although getting records from an offshore bank may be difficult, tracing the money into the account is usually easier.
Mahany & Ertl is a boutique law firm concentrating in asset recovery (fraud), tax matters and white-collar criminal defense. If you are the victim of any type of fraud – divorce fraud, elder fraud, legal malpractice, phony welfare benefit plans or stockbroker fraud – call us. All initial consultations are confidential and without charge. Contact attorney Brian Mahany at (414) 704-6731 (direct dial) for more information.