Financial Fraud & Divorce

High net worth divorces in New York often face the challenge of financial fraud, as the division of assets can quickly turn into a contentious battle. New York law mandates that both parties in a divorce disclose their assets and debts honestly before the case is settled. However, some individuals may attempt to commit financial fraud in a New York divorce by concealing assets or providing misleading information, significantly altering the financial landscape of the divorce. This type of fraud is not tolerated by the courts, and can lead to severe consequences. 

What Are Assets?

Assets refer to any item or account with monetary value. These can be classified as tangible or intangible. Tangible assets refer to physical objects such as real estate, cars, and jewelry, along with financial accounts like stocks, bonds, and retirement funds, which hold clear, measurable value. On the other hand, intangible assets include non-physical items such as brand reputation, goodwill, and intellectual property—elements that can significantly impact asset division in high net worth divorces.

In New York divorces, assets fall into two categories:

• Separate property: These are assets acquired before the marriage or those that were not mixed with marital assets. They remain with the original owner during a divorce.
• Marital property: These are assets accumulated during the marriage and are subject to equitable distribution. This means they are divided fairly between both spouses, though not necessarily equally.

In high net-worth divorces, where there are numerous or high-value assets, the risk of financial fraud in a New York divorce increases. Spouses may attempt to hide or undervalue their property to reduce their financial obligations, such as spousal support (alimony) or child support payments. Spotting these fraudulent actions is critical for ensuring a fair outcome.

How to Spot Financial Fraud in a New York Divorce 

Financial fraud in a New York divorce can take many forms, and it may be challenging to detect, especially if it has been ongoing for years. Spouses who control the family’s finances may attempt to conceal assets or manipulate financial information to their advantage. 

Common red flags include:

• Underreporting income or inflating expenses: Manipulating financial records to show lower income or higher expenses creates a misleading picture, often to reduce spousal or child support obligations.
• Undervaluing or hiding property: Spouses may deliberately under-value assets like real estate or luxury items, or conceal them entirely to avoid including them in the division of marital property.
• Transferring assets to family or friends: Some individuals transfer assets through sham “loans” to family members or friends with no intention of repayment, making it harder to trace marital property.
• Inconsistent, excessive spending: Unexplained or extravagant spending patterns that don’t align with reported income can be a sign that funds are being hidden or misappropriated.
• Exclusive control over financial accounts: When one spouse has sole control of marital funds or financial accounts, it limits the other spouse’s visibility, making it easier to conceal assets.

A survey conducted by the National Endowment for Financial Education (NEFE) found that 43% of U.S. adults who have combined finances with a spouse or partner admitted to committing some form of financial deception. This includes hiding purchases, concealing accounts, or lying about income and debt. Additionally, 85% of those who engaged in financial dishonesty reported that it negatively affected their relationship​. These findings highlight the prevalence of financial infidelity in marriages, making it an important issue to address during divorce proceedings.

Preventative Measures to Protect Your Financial Security

To safeguard against financial fraud in a New York divorce, it’s important to take proactive steps. Begin by ensuring that you have a thorough understanding of all marital assets and finances. Here are a few strategies:

1. Keep Detailed Financial Records: Start tracking all bank accounts, investment portfolios, real estate holdings, and any other assets long before initiating a divorce. A comprehensive financial checklist is invaluable during divorce proceedings, especially if you suspect your spouse is hiding assets.
2. Engage with a Financial Professional: Consult a forensic accountant or financial advisor to review your joint finances. They can identify discrepancies, locate hidden assets, and ensure that the financial picture presented during the divorce is accurate.
3. Know Your Legal Rights: Once a divorce is filed in New York, both parties are subject to Automatic Orders, which prevent either spouse from transferring, hiding, or depleting marital assets. Violating these orders can have serious legal repercussions, so it’s essential to notify your attorney if you suspect foul play.

Taking proactive steps can significantly reduce the risk of financial fraud in a New York divorce, helping to ensure that marital assets are fairly and transparently divided.

The Consequences of Financial Fraud in a New York Divorce

Financial fraud in a New York divorce can lead to severe legal consequences. Each party is required to disclose all financial records, including tax returns, bank statements, and property documents during a divorce in New York. Failure to do so is not only unethical, but also illegal.

If a spouse is found to have committed financial fraud in a New York divorce, the court may impose several penalties, including:

• Monetary fines for concealing assets: If one spouse fails to disclose assets or refuses to comply with discovery orders, the court can impose substantial monetary fines. These fines are designed to penalize the dishonest party and compensate the other spouse for any legal costs incurred in uncovering the hidden assets.
• Contempt of court charges: When a spouse deliberately violates court orders, such as failing to disclose assets or withholding financial information, they can be held in contempt of court. This not only results in additional fines, but could also lead to jail time.
• Perjury charges for false statements under oath: If a spouse provides false information about their assets or financial status during sworn testimony, they can face perjury charges. Perjury is a criminal offense that carries severe penalties, including fines and imprisonment.
• Reopening the case for hidden assets: Even after a divorce is finalized, if previously hidden assets are discovered, the court may choose to reopen the case. This allows for a reassessment of the asset distribution, which could result in additional penalties for the dishonest spouse. The court can adjust the division of property, and in some cases, the dishonest party may lose their claim to the hidden assets entirely.

For spouses who engage in fraudulent behavior during a divorce, these consequences are a stark reminder that the court takes honesty and transparency very seriously.

Steps to Protect Yourself from Financial Fraud

The best defense against financial fraud in a New York divorce is to act early and decisively. If you are entering a high net worth divorce in New York, follow these steps to protect yourself:

1. Work with a Skilled Attorney: A New York divorce attorney experienced in high net worth divorce cases will know how to spot potential financial fraud and protect your interests.
2. Hire a Forensic Accountant: If you suspect your spouse may be hiding assets, a forensic accountant can comb through financial records and uncover any inconsistencies.
3. Document Everything: Keep meticulous records of all financial transactions, and report any suspicious activity to your attorney immediately.

Financial fraud in a New York divorce can complicate an already difficult process, but with the right support, you can protect your financial future.

Protect Yourself with Expert Legal Help

Don’t let financial fraud derail your divorce in New York. The stakes are high, particularly in high net worth divorce cases where assets can easily be hidden or undervalued. The experienced team at Brian D. Perskin & Associates P.C. understands the complexities of financial fraud in divorce cases and is committed to ensuring that your rights are protected. We have the skills and resources needed to uncover hidden assets and fight for a fair division of property.

Contact us today to schedule a consultation and learn how we can help you navigate the complexities of financial fraud in a New York divorce.