One of the more difficult aspects of divorce can be property distribution. N.C.G.S. §50-20 provides for an equitable distribution of marital property, with each spouse retaining their separate property. This law also provides that an equitable distribution is an equal division using the net value of the marital property and net value of divisible property, unless the court finds that equal is not equitable. This sounds rather straightforward, but in high net worth divorces, this can become complicated if one spouse does not want an equitable distribution or wants to keep specific assets for themselves. In these cases, one spouse may hide assets to avoid giving the other spouse their fair share or to avoid the risk of losing those assets they want to keep. Hidden assets change the value of the divorce, and they also expose the individual who hid them to penalties from the court, if the assets are discovered. Fortunately, if you suspect that your spouse may be hiding assets, there are strategies you can use to uncover and address those assets to ensure that you receive your share of marital property. At King Law Offices, our experienced North Carolina divorce attorneys may be able to assist you in using these strategies and finding the right experts to assist you in discovering any secret assets your spouse may have. Call (888) 748-KING to schedule a consultation in one of our four offices.
High Net Worth Divorces and Hidden Assets
High net worth divorces are those in which one or both spouses possess a significant amount of assets and/or high value assets such as real estate, jewelry, art, motor vehicles, boats, large amounts of cash or investments. Typically, the value of these assets exceeds $1 million in liquid assets, though this is not a definitive number. However, the number and value of these assets create additional complexities, such as determining spousal or child support, valuing the assets, equitably distributing the assets, handling assets in multiple jurisdictions (including international locations), and hidden assets.
Typically, the term hidden assets is used when a spouse fails to disclose the existence of an asset. However, assets can also be considered hidden when the individual misrepresents the asset, such as understating its value or making false claims regarding its ownership. When a spouse hides assets, they usually do so to make the net worth of the couple’s marital assets appear lower than it actually is. They may do this simply to misrepresent the value of the marital estate so that their spouse gets a smaller share of the marital property. They may also do this when there are specific assets that they want to keep and do not want to risk having the court give it to the other spouse or ordering that the asset be sold. Whatever reasons an individual uses to justify hiding assets, the court can punish them with significant penalties when the assets are eventually discovered.
Penalties for Hiding Assets in North Carolina
When hidden assets are discovered, the spouse who hid them faces significant consequences for their actions. The most obvious, and least severe, consequence is the loss of credibility the individual faces. Once it is proven that they hid assets, everything they have said before and everything they say after is subject to scrutiny and question. They may also face contempt of court charges. The court may order the individual to pay the other spouse’s legal fees, impose fines, or alter the property division or spousal support to give the innocent spouse credit (more money or assets) as a penalty.
In some cases, spouses who hide assets in high net worth divorces may face criminal charges for their decision. They may face charges for perjury, fraud, or other offenses related to the hidden assets. These charges may result in additional fines, jail time, or a permanent criminal record. Individuals who are weighing the potential penalties against the possible rewards of hiding assets should consider that there are several ways that those assets can be discovered, including formal discovery and analyzing financial records.
Formal Discovery
Formal discovery is a part of the divorce process. This process is governed by N.C.G.S. §50-21, which provides that parties can be sanctioned for failing to make discovery or willfully obstructing or delaying discovery. The statute also provides that the offending party can be held responsible for the expense of any experts the court finds necessary (such as forensic accountants) to complete discovery in a timely fashion.
There are four parts to formal discovery which may lead to finding hidden assets. These are interrogatories, depositions, requests for production, and requests for inspection.
Discovery Interrogatories
Interrogatories are detailed responses given under oath in writing to written questions from the other party. They can assist in finding hidden assets in high net worth divorces in a couple of ways. The first way is that the spouse who sends the questions can review the answers for inconsistencies and omissions regarding assets they know exist, such as listing an asset as being worth less than it is or not listing an asset that was recently acquired.
Interrogatories can also help find hidden assets by providing answers that can be used later. If the spouse’s answer to an interrogatory does not match a verbal answer they provide later during mediation or a court hearing, the interrogatory can be used to question their credibility and explore the possibility of hidden assets.
Discovery Depositions
Depositions are similar to interrogatories, but done orally. Parties are verbally questioned with in-depth questions about assets. Depositions are also under oath, which means the answers provided can be used to question the party’s credibility later. The answers provided can be used later if the party says something different than what they said during the deposition.
Additionally, spouses can depose people other than their spouse regarding assets. If there are individuals who are privy to the spouse’s financial affairs, such as business partners or financial advisors, these people may be deposed to gain further insight into financial matters. If you are interested in deposing individuals other than your spouse, an experienced family law attorney with King Law Offices may be able to assist you in preparing and serving the necessary subpoenas to compel their attendance and testimony.
Requests for Production
Requests for production are formal requests for the other party to produce specific documents or information. These might be used to compel the spouse to provide documents such as property deeds, loan documents, or business valuations. Requests for production may also be used to gather information from the spouse such as when an asset was purchased or sold, who it was purchased from or sold to, and other details. These requests can be useful for getting documents or information that can be used to prove assets were hidden, such as showing that an asset was sold to a close relative immediately after one spouse filed for divorce or that the value of an asset as claimed by the spouse in an interrogatory or deposition is higher based on the information obtained in the request for production.
Requests for Inspection
A request for inspection allows the inspection of property or other assets. These can be useful when a spouse suspects that their spouse may be misrepresenting an asset. For example, if a spouse claims that a vacation home the couple owns in another state was severely damaged in a hurricane but the other spouse believes that is not true, they can make a request for inspection. If they find that the house is in excellent condition, this can be evidence of an attempt to hide an asset.
Requests for inspection do not apply solely to real estate. They can be used for any marital property, including personal property, financial assets, and debts. Requests for inspection can also be used to request access to emails or texts that may contain information proving the existence of hidden assets in high net worth divorces.
Financial Record Analysis
Another strategy for finding hidden assets in high net worth divorces is financial record analysis. Individuals can review bank statements and transactions for unusual or unexplained transactions, such as small or large cash withdrawals or large deposits that are quickly transferred to another account. Tax returns can be analyzed for potential unreported income or assets. Business records can be examined for hidden assets or transactions, such as land that the couple purchased that is now under the business’s name. Real estate transactions should be reviewed for recent or unusual transactions, such as purchases, sales, new mortgages or home equity loans, or the addition or removal of additional owners other than the spouses.
This kind of analysis can take quite a long time and if a spouse is unsure what they are looking for, they may miss key evidence in their review. Individuals may want to consider hiring a professional, such as a forensic accountant, to do this analysis for them. The expense may be well worth it if the expert is able to uncover hidden assets.
Investigative Measures to Consider Using
Beyond discovery and financial record analysis, individuals may want to consider using other investigative measures to uncover hidden assets in high net worth divorces. Before investing in these measures, individuals may also want to consult with an attorney to ensure they take all appropriate legal precautions to establish the validity of any evidence discovered.
Private Investigators
Private investigators can be used for surveillance in cases where an individual believes they may be able to catch their spouse in the act of hiding assets. For example, the investigator may be able to get photographs of the spouse handing over an asset in a sale or as a gift to a relative.
Private investigators may also be used for information gathering. They have legal access to databases, repositories, archival records, and more that may allow them to discover hidden assets. They can collect information on an individual such as marriages and divorces, relatives, aliases, and addresses. This information can help uncover assets owned in other locations and in names that an individual may not know their spouse is using.
Forensic Accountants
Forensic accountants analyze financial records and uncover hidden assets or fraudulent activity. They can trace asset movements, identify irregularities that might indicate undisclosed assets or income, and identify inconsistencies in business records that may indicate missing assets.
Forensic accountants can also perform a lifestyle analysis. This analysis compares the individual’s reported income and expenses with the lifestyle they are actually living to find potential discrepancies that may indicate hidden assets or income. They can also search for hidden trusts and other accounts that may hold undisclosed assets.
Public Records
The court does not typically invest time and effort into searching for assets in divorce cases. If the spouses provide inventories of their marital and separate property, the court usually takes those inventories as accurate. Therefore, it is the spouses’ responsibility to do their due diligence and ensure that all assets are disclosed. If one spouse suspects the other may have assets that have not been disclosed, they may be able to use public records to uncover those assets. This can apply to many assets, including real estate, wills, and estates. Public records can be accessed through the North Carolina Courts.
Public records may be useful for finding real estate holdings in the spouse’s name, the spouse’s and another individual’s name, or the spouse’s business name if they have a business. They may also be helpful if the individual suspects their spouse may have inherited something from a deceased relative, as they can find the will or estate and see what may have been given to their spouse and how it was given to them (whether it was a gift to the spouse only, or to both spouses or the entire family). While individuals may be able to print a copy of any useful records they find, they may want to consult with an attorney to find out if the records may need to be a certified copy to be used as evidence of hidden assets.
Areas to Investigate to Find Hidden Assets
When people consider the assets that might be hidden, they often think of real estate and cash. There are many other types of assets that may be hidden, and many ways they can be hidden. When searching for hidden assets in high net worth divorces, individuals should consider investigating all of the following areas:
- Offshore Accounts: One of the most common ways of hiding cash, this often turns up hidden assets in high net worth divorces.
- Hidden Investments: Look for documents that indicate hidden investment accounts. This can include statements for the account, transactions that indicate withdrawals from or deposits to the investment account, unexplained deposits or cash, or communications from a bank, investment company, investment advisor, broker, or financial planner that is unfamiliar.
- Transfers to Family or Friends: Transferring gifts of real estate, jewelry, motor vehicles, recreational vehicles (including boats, ATVs, kayaks, travel trailers, and others), artwork, or personal property to family or friends just before a divorce or while the divorce is pending may indicate hiding assets. These alleged gifts may not actually be gifts, but instead be an agreement between the spouse and the family member or friend that once the divorce is final, the asset will be returned to the spouse.
- Cryptocurrency: Cryptocurrency is a newer method of hiding assets, typically cash. An individual may sell a high value asset, then invest the cash into cryptocurrency, or they may simply take cash they already have and invest it into cryptocurrency. Cryptocurrency can be difficult to find and trace, so individuals may need a forensic accountant to track it down.
- Business Valuations: When one or both spouses own a business, a business valuation will likely be required to determine property division. Hiding assets in a business valuation may include having the individual performing the valuation value the business at less than it is worth so that the spouse who does not own the business gets a smaller share if it is marital property. Another option may be to hide other assets in the business, increasing the business’s value but shielding the assets, if the business is separate property and the other spouse would not be entitled to a share of it.
- Safe Deposit Boxes: Safe deposit boxes can be an incredible resource for hidden assets. Jewelry, cash, property deeds, stocks and bonds, and many other small yet valuable assets or ownership papers for assets can be stored in a safe deposit box. Individuals may be able to find safe deposit boxes their spouse has by looking for transactions indicating annual rental fees, looking through estate plans for references to the box, asking close family or friends if they know about a box, or hiring a private investigator or forensic accountant to hunt for one.
- Social Media: Sometimes, social media accounts can offer a wealth of information about hidden assets. Individuals may post images or videos to proudly show off new purchases, or of themselves enjoying assets they have owned for years. When hiding these assets later, they often do not think to scrub their social media accounts. Additionally, friends, family, and other followers may make comments that reference or hint at hidden assets.
- Fake Debts: Another way to hide assets is to create fake debts. One spouse will claim to have borrowed money from a friend or relative, or may even make up fake loan or credit card documents to claim a fake loan. The payments on these fake debts become hidden cash the spouse can access after the divorce.
- Old Debts: Similar to fake debts, some spouses will claim that an old debt that has been paid off is still owed. They will make payments on these old debts that become hidden cash for later use.
- Deferred income or stock options: Deferred income or stock options may not be available at the time of the divorce, but they are still considered assets subject to property division. If a spouse does not include them in their asset inventory, this is considered hiding assets.
- Employment Documents: Employment documents can provide information regarding deferred income, stock options, retirement accounts, bonuses, commissions, and other income or assets that the spouse may not include in their asset inventory. Individuals should scour such documents and speak with their attorney if they find something.
- Loan Applications: A loan application can be evidence of a hidden asset, as the loan may have been taken out to pay for the asset. However, loan applications also include details about an individual’s employment, income, assets (for collateral), expenses, and debts. All of this information can be used to compare with other sources to find hidden assets or income in high net worth divorces.
- Lifestyle Analysis: A forensic accountant can perform a lifestyle analysis to discover hidden assets. This is done by taking the reported income, debt, and expenses of the spouse and comparing them to the lifestyle the spouse is living. If the spouse is living a more expensive lifestyle than would be expected based on their reported income, debt, and expenses, this may indicate hidden assets are funding their lifestyle.
What Can a North Carolina Divorce Attorney Do for You?
High net worth divorces are subject to the same statutes as other North Carolina divorces. This includes full disclosure of assets. If you believe your spouse is hiding assets, our experienced North Carolina divorce attorneys have the knowledge and experience to assist with taking the appropriate steps during discovery to find those hidden assets, as well as finding the appropriate experts such as forensic accountants or private investigators when necessary. We may be able to represent you and ensure that you receive your share of property distribution that includes all marital assets. Call King Law Offices at (888) 748-KING to schedule a consultation and free review of your case.