Location of hidden assets in divorce proceedings
Divorce cases are like many other types of commercial litigation. Sometimes the parties are reasonable, and sometimes they are at each others throats. Or lower. Excluding the issues of child custody and, the reason for the divorce (some place still require a real proof of cause for a divorce, as opposed to a no-fault jurisdiction that requires only “irreconcilable differences”), a divorce is mostly about who gets what. That “what” are assets and income.
A marital community builds assets through income, the ownership of domestic assets, commercial assets, intellectual property, and collectibles.
Income. What is the income of the parties to the divorce? Most of the time it is easy to determine, however it can still be tricky. Does a person have a low income and receive options or other employee benefits? Does the person work at a family business, and is their income substantially lower than others in a given position at other similar companies? Is this an artificially low level? A test of reasonableness needs to be applied. We have seen, for example, a man working as the president of a company with hundreds of millions of dollars in revenue earning $48,000 per year. It was a family held business and the compensation was absurd. Comparative salaries for similar companies was over $741,000 dollars. It was later admitted that the family kept his wages low because of the possible divorce.
Domestic Assets. Over a period of time a marital community acquires stuff. Little trinkets, jewelry, carpets, homes, cars, boats, etc. For many, this can represent a very substantial part of the assets, and needs to be appraised and divided appropriately.
Commercial Assets. Many professionals work in a professional practice that is their own business per se. They are the value provider, and there have been several cases deciding that a professional license can be an asset of the marital community, and that the present value of future income from that license can be quantified and divided by the members of the separating community. Many people own businesses, and those businesses have value.
Intellectual Property. This has often been dealt with as a subset of commercial property. As computer programming and process patents come into their own, it will need to be addressed separately and valued separately. Copyrights, trademarks, patents, and trade secrets are the engine of the modern economy. This simple process and pieces of paper can be worth anywhere from nothing to hundreds of millions of dollars.
Collectibles. Art collected over time many have more sentimental value than cash value. Trinkets, china, art, sculpture, and other collectibles can have considerable value. A recent case reinforcing this view prompted the separation of collectibles out of domestic assets for this article. An appraiser was walking though a house that was filled with all sorts of different types of baskets. Many of the baskets looked to the untrained eye (ours) like kindling. However, many of these baskets were antique early American baskets made from oak and cedar strips, and were worth several thousands of dollars per basket. In fact, when the appraisal was completed the value of these old baskets totaled over $320,000. Neither of the parities to the marriage was aware of the true value of the baskets.
Some divorces are relatively amicable, and, while there may, as with the baskets, be some question as to the actual value of the community property, there is no attempt to hide it from the other.
Some divorces, however, are less amicable, and there may be an actual serious effort made to hide property. In one extreme case on which we worked, 35 bank accounts were disclosed in discovery. As chance would have it, we had prudently been brought into the case early, and ended up finding an additional 151 accounts (In all modesty, we happen to be particularly skillful at locating hidden assets).
Most important, since specific advice depends upon specific facts seek competent legal advice early and work with an attorney in gathering information early when divorcing.
When preparing for a divorce, make copies of financial records, bank statements, tax returns, deeds, titles, insurance policies, personal telephone books, telephone records, credit card statements, and frequent flyer accounts. And make a video tape of the physical property. In particular:
1) Pull the joint credit history, obtain copies of your — and your spouse’s — credit report directly from the credit reporting agency.
2) Request copies of tax returns form the IRS.
3) Trace, with subpeona if necessary, all of the large transfers in the last year: They are always there.
4) Subpeona the offending parties employee records including all benefits.
5) Subpeona all credit cards statements, telephone bills, frequent flyer statements.
6) Identify all art work, collectibles, and jewelry.
Finding hidden assets generally requires an investigator (attorneys are no more investigators than investigators are attorneys). In some places investigators are prohibited by law from working on a contingency basis, so they are likely to require what is referred to as cash money — as well as time and information — to do their job. We have seen way too many cases where counsel has exhausted most of their client’s available funds — and most of the available time — before even thinking of collecting data or bringing in an outside investigator. Because of this it is important that, if you are on the participant side of a divorce, you be an active participant. You should start collecting information as early as possible, have your attorney subpoena any records that can’t be found as early as possible, and, if appropriate, bring in an investigator as early as possible.
