Identify and Manage Financial Fraud in Divorce

You’re getting divorced. It’s likely that one of your biggest arguments or sources of conflict pertained to money. After all, there are often perceived inequities in contributing to the marital income and assets. Common examples include one spouse who works outside the home while the other quits their career to raise the children, or one spouse had substantial savings before getting married while the other came in with credit card or other large debt. Sometimes a gift from one spouse’s parents was used for a down payment on the house.

There are so many factors that come into play when trying to divide the assets “fairly” and decide how much child support and spousal support should be paid. But to even hope for a reasonable financial settlement in a divorce, all the financial cards must be on the table.

It’s not uncommon for one spouse to be accused of hiding money or financial information. Sometimes it’s both actions, and sometimes it’s both spouses as well. Many people suspect their spouse is hiding something. Is it inherent mistrust, or are their concerns warranted?

“Red flags” of fraud in your marriage (and now, divorce) are warning signs that something is wrong. If you identify a financial red flag, it doesn’t necessarily mean that fraud had been committed. It just means there’s a greater chance that money has been hidden or there’s been some kind of improper spending. The more red flags you see, the more likely it is that fraud has occurred.

Red flags on the financial side may be easy to spot. There’s a whole laundry list of suspicious behaviors your spouse could engage in, but here are a few:

• Being very controlling over financial matters, maybe restricting your access to accounts or statements
• Conducting secretive transactions or refusing to explain transactions to you
• Having a history of lying, especially about money
• Asking (or coercing) you to sign legal documents that you don’t understand or haven’t been allowed to read
• Engaging in expensive bad habits, such as drugs or gambling
• Being involved in an extra-marital affair

In addition to evaluating your spouse’s behavior, it’s also important to look at what has been happening with the money to see if any red flags exist. Some of those financial or transactional red flags might include:

• Lots of cash transactions (because your spouse knows they don’t leave a paper trail)
• Moving money around to make things confusing
• Having bank accounts or credit cards that you had never known about
• Keeping a stash of separate money, while using shared funds to pay for everything
• Valuable assets have disappeared

Remember, seeing one or two of these red flags might not be a big deal. But seeing several of them in your marriage is likely great cause for concern.

Taking control

You have a right to know the truth about your financial situation before you agree to a divorce settlement or go into a trial. Sometimes that means you’ll need to take matters into your own hands to get to the bottom of the finances.

To start, you’ll likely want to gather all the statements for the accounts that you know about, including bank accounts, credit cards, investment accounts and retirement accounts. There may also be accounts you don’t know about or can’t access (because your name is not on them), and your attorney will have to obtain the documentation for them through the discovery process of your divorce.

Below are three options for digging into the facts about the money in your marriage:

1. Have your attorney look at the numbers. Divorce lawyers have seen a lot of numbers in divorces, so some of them will offer to analyze the financial statements (or have their paralegal do it). Your attorney might be a whiz with numbers, or they might not be, but this is a great place to start. They can advise whether they think it’s worth pursuing forensic accounting and, if so, if they have the experience to do the analysis.
2. Hire a forensic accountant. This is your most comprehensive option because forensic accountants are experts at finding money. But keep in mind it’s an expensive endeavor. You probably should prepare to pay upwards of $10,000+ for their services. Even with the high cost, their hourly rate is typically less than your attorney’s billable rate.
3. Look at the numbers yourself, with practiced guidance. You could try to save on costs by gathering all your documents, organizing and analyzing the transactions, and then going to your attorney or a forensic accountant so they can leverage the data you gathered. There are both online and physical resources that can help you with this task.  Reach out to a Corient Wealth Advisor to request a copy of our Pre-Divorce Checklist which includes a detailed list of financial documents to gather. While you won’t become a forensic accountant overnight, a quick look at your prior year’s tax returns could help shed light on accounts or real estate that you were previously unaware of, or a review of your bank statements could help you notice irregular spending you had not previously taken stock of.

Whatever you decide, it’s important that you be fully informed about your financial situation. You should understand what the numbers mean before you can make a good choice about a settlement offer.

While it might feel tedious, it is crucial so that you don’t walk away from your marriage feeling like you didn’t have enough information or that you were cheated.

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