Financial Fraud & Divorce
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Financial fraud is a major issue that plagues contested, high net worth divorce cases. New York State requires that each party to a divorce action disclose their assets and debts prior to the matter being settled or finalized. Unfortunately, scorned spouses will sometimes provide with court with dishonest information that drastically changes their financial picture. This kind of fraud will absolutely not be tolerated.
WHAT ARE ASSETS?
Assets are items or accounts that have a certain monetary value or worth, and can be either tangible or intangible. This means that an asset can be a physical piece of property, such as a home or jewelry, or a non-physical item like a financial account or stock portfolio.
If an asset is acquired before the marriage and is not co-mingled afterwards, it is considered to be premarital, or separate. This means that the asset in question is not subject to equitable distribution during divorce. Any asset obtained during the course of the marriage is deemed to be marital, and will need to be addressed and divided prior to a divorce being finalized.
High net worth divorces involve a greater number of assets than typical matrimonial actions, so it is easier for parties to try to commit financial fraud. A party will try to hide assets in an attempt to make their financial portfolio have less of a value, which can result in smaller support payments after divorce.
HOW TO SPOT FINANCIAL FRAUD
Financial fraud can be hard to spot, especially if assets have been siphoned over the course of many years. Victims of financial abuse are at a higher risk of also falling victim to this kind of fraud, since they have very little knowledge of marital assets or money.
Conniving spouses can hide assets from their partner’s in many different way, with some of the most common being:
- Reporting either a lower annual income, or claiming they have higher than actual expenses
- Undervalue or hide property
- Secretly loaning or giving money away to friends or family members
- Excessive or elaborate spending
- Having sole control over marital assets, bank accounts, and money.
According to a 2010 survey conducted by the National Endowment for Financial Education (NEFE), “31 percent of people who combined finances with their significant other have been deceptive with their spouse or partner about money”. The survey details the percentage of people who hid minor purchases from their spouse (54%), as well as those who lied about debt and income (34%). A total of 16% of survey participants said financial fraud resulted in divorce.
TAKE PREVENTATIVE MEASURES
To combat the risk of hidden assets, it is important that both spouses have a knowledge and understanding of their finances. Before filing for divorce, it is recommended that assets, financial information, insurance policies, and property documents are tracked and logged in a Financial Checklist. Utilizing this organizational tool will assist in the discovery and equitable distribution phases of divorce.
If financial fraud is suspected, an attorney must be notified immediately. When a divorce is initiated, both parties are bound by Automatic Orders (D.R.L. 236), which bars participants from transferring, removing, or withdrawing any form of marital asset before a settlement can be reached. Furthermore, the Automatic Orders states that neither party “shall incur unreasonable debts” outside of usual household expenses or legal fees. These Orders were put into place to help protect parties and their families.
CONSEQUENCES OF FINANCIAL FRAUD
New York State requires all contested divorce litigants to participate in a process known as Discovery, where marital and separate assets are to be disclosed. Failing to provide an honest representation of assets, or refusing to produce documents, can have disastrous results in a divorce case.
The discovery process begins after the plaintiff has served the Summons upon the defendant. During this period, each party will have to produce financial documents, which can include tax returns, investment and bank account statements, and mortgage or loan documents. Both spouses will have to make a diligent effort to provide the requested documents. If they refuse to cooperate, opposing counsel can subpoena the records from any financial institution or company that the person has an account with.
A judge can intervene in situations where one spouse is refusing to produce discovery documents by issuing an Order, forcing the spouse to do so. In extreme circumstances, a party who knowingly defies a court order to either produce requested documents, or who is found guilty of hiding assets, will be found to be in contempt. Contempt charges can result in monetary fines. Lying about assets or net worth during a sworn deposition testimony is considered to be perjury, which is a crime punishable by jail time.
Contested, high net worth divorce cases require expert representation from a matrimonial attorney. The family law firm of Brian D. Perskin & Associates P.C. is comprised of a team of experienced legal professionals who excel in complex discovery and motion practice. They recognize the severity of financial fraud in New York divorce actions, and strive to make sure their clients do not fall victim to a vengeful ex-spouse. For more information on contested or high net worth divorce, schedule a free consultation or call 718-875-7584 today!