Hiding assets is a hot topic in divorce. In Massachusetts, one of the court’s goals in a divorce is to divide assets fairly–though not necessarily equally–between the parties. This is done through a process known as equitable distribution. The court also aims to make appropriate and fair decisions regarding child support and alimony.
In every Massachusetts divorce, each party must complete a financial statement to help the court make financial determinations. This document requires a party to disclose financial information, such as weekly income, liabilities, debts, and assets. The financial statement is completed and signed under the penalties of perjury.
Most people are honest throughout the divorce process and disclose the financial information the law requires. Sometimes, a party may fail to disclose an asset as a mere oversight. In other cases, however, one party actively takes steps to deceive the other party and the court as to the truth about their finances by hiding assets and income. In doing so, the deceptive party aims to keep more of the marital estate after the divorce than what the court may have otherwise awarded to that party.
Hiding assets or income in an attempt to defraud the other party in a divorce not only hurts your credibility with the judge–one of the most important factors in your case–but it can also be illegal.
Ways a Spouse May Hide Assets and Income During a Divorce
There are many ways in which a divorcing party may try to hide assets and income during the divorce process to deceptively impact the equitable distribution of marital assets. Such efforts may include the following.
1. Accumulating cash and failing to disclose it
To avoid disclosing assets or income, a party may engage in cash transactions. While debit and credit card transactions leave a trail, cash transactions could allow a party to avoid leaving a digital footprint of their actions.
Common cash transactions include receiving pay under the table and getting cash back during purchases at stores. Additionally, some may take out small amounts of cash over time from bank accounts and put the cash into hidden deposit boxes, undisclosed bank accounts, or tuck it away at home.
Failing to disclose cash wages in a financial statement, or withdrawing cash in an effort to hide it from your spouse or the court in a divorce, amounts to deceptive behavior that will hurt your credibility with the court and could have negative legal ramifications.
2. Falsely gifting assets to a third party
Before a party files for divorce, they may transfer or gift their assets to a third party without much thought of potential legal consequences. However, a spouse who is trying to hide assets during a divorce may “gift” an asset to a third party–like a parent, sibling, or friend–with the intention of getting that asset back after the divorce. The deceptive spouse will then fail to disclose this asset during the divorce process.
3. Undervaluing assets
A party may also intentionally undervalue their assets in order to deceive the opposing party and the court.
For example, a party may report that the book value of their used vehicle is $35,000, but may fail to account for the modifications to the vehicle which resulted in an increase in value. Or, a party may disclose an asset like an antique but may report that it is worth less than its true value.
4. Artificial debt
In Massachusetts, the court can equitably distribute any debt that either party incurred during the marriage. This could include debt the parties incurred jointly or solely. So if one party accumulated credit card debt during the marriage, for example, the court could divide that debt between both parties during a divorce. Taking a share of the marital debt in a divorce means a spouse will ultimately walk away with less after the divorce.
Sometimes, a divorcing party will falsely report debt in order to cheat their spouse during the divorce process. Oftentimes, this involves working with family or friends. The deceptive spouse will tell the court they borrowed money from a friend, for example, during the marriage. The court will then factor that fake loan into the distribution of the marital estate.
5. Delaying financial gains
A party may delay receiving financial gains until after the finalization of the divorce. This tactic is used to avoid having assets or income divided between the parties upon divorce.
For example, a party may wait until after their divorce is finalized to take a promotion or receive a bonus. Alternatively, a party who owns their own business may wait until after their divorce to take a financially lucrative job.
6. Intentionally reporting higher expenses
When completing a financial statement, a party will disclose how much the party spends weekly on their living expenses. These expenses may include rent or mortgage payments, heat, electricity, and house supplies. A party may inflate their weekly expenses to make it appear as if they have less disposable income than they really do.
7. Overpaying the IRS
When taxes are due, it is not uncommon for an individual to mistakenly overpay on their taxes. This may happen if someone overpays tax estimates, like those for a business. However, overpayments may also be done deliberately by a party who is trying to hide assets during a divorce. A party may also intentionally increase tax withholdings on their W2s in an effort to reduce their income.
8. Other false representations, including undisclosed bank accounts
A party may lie about or misrepresent the placement of assets in order to exclude them from the divorce process. For example, a party may state that he “lost” or “broke” the couple’s $10,000 antique vase they bought during the marriage. Similarly, a party may buy a piece of fine art during the marriage and never tell the other party about it. Unfortunately, in both scenarios, the opposing party is cheated out of their fair share of the asset.
Alternatively, a party may deceive the opposing party and the court by failing to disclose hidden bank accounts or other benefits, like retirement accounts.
9. Hiding assets through a business or undervaluing a business
In a divorce, a party who owns a business may try to undervalue the business and/or hide assets through that business. To accomplish this goal, the divorcing business owner may falsify their business records, ledgers, revenue, income, and assets.
Another tactic involves the party intentionally lowering the value of their business. This may include the party: telling clients to withhold payments; pre-paying expenses; selling shares; intentionally lowering prices; or, using business funds for personal expenses.
10. Reporting a lower income
A party may intentionally report that their income is lower than it actually is. For example, a party may say that any overtime income is inconsistent (or stop working overtime during the divorce only to restart after the divorce). A party may also underreport cash tips or take another job and receive pay “under the table.” Or a party may run an undisclosed business out of their home.
Underreporting income could impact child support and alimony awards in a divorce.
Genuine mistakes regarding the disclosure of assets and income during a divorce happen. A mistake on a financial statement or in financial disclosures does not always mean that a spouse is hiding assets or income in a divorce.
However, intentionally failing to disclose assets or income, or hiding assets in a divorce will hurt the deceptive party. Firstly, not disclosing financial information or hiding assets can be illegal. Those actions may constitute perjury, contempt of court, and/or fraud. This can result in legal consequences, including criminal charges in some cases.
Secondly, hiding assets or failing to disclose financial information in a divorce will hurt your credibility with the judge. And credibility is one of the most important factors in a divorce case.
A judge’s job in a divorce is not easy. The judge must untangle the lives of two people in a divorce. They will be making decisions about sensitive and emotional issues, like the division of the marital estate, child support and custody, and alimony. Throughout the divorce, the judge is assessing whether or not a party is trying to get a better deal in the divorce through deception.
You never want to give the judge a reason to believe that you are less than forthcoming. If a judge has reason to believe you are not disclosing income, are purposefully earning less income than you could be, or are hiding assets, the judge can act. For example, the judge may attribute or impute income to you (i.e. proceed as if you are making more money than you are or than what you disclosed). Or the judge may disregard or place less weight on your written or oral testimony. Depending on the circumstances, the judge also has the power to order you to pay attorney’s fees for the other party.
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