During divorce proceedings, assets and property are a significant point of contention. Some people take action and hide assets from their spouses in an attempt to leave the marriage with more property. It is a legal requirement to disclose all your assets and liabilities during the dissolution of a marriage. In California, hiding or concealing assets during a divorce is an offense punishable by up to four years of jail time. San Diego Divorce Attorney will help you comprehend what happens when hidden assets are discovered after a divorce.
Declaration of Assets During Divorce Under California Law
Since hidden assets arise from divorce proceedings and the rules that govern property division during a divorce, it is of utmost importance to understand what constitutes marital assets in California, asset division during a divorce, and other relevant elements relating to assets and divorce.
Under California family laws, spouses owe each other fiduciary duty during the marriage, beyond legal separation, and divorce if a property is yet to be divided. In adherence to that fiduciary duty, you and your spouse are legally obligated to disclose in full all your assets, transactions, debts and other pertinent financial matters during the nullity, legal separation, or dissolution of your marriage. You must be truthful about the assets and liabilities that could affect community property, regardless of whether it is community or separate property.
When you file for divorce, both of you must sign and file with the court a financial affidavit that honestly discloses all your assets including income, bank accounts, stock options, and real estate. Your liabilities and expenses must also be represented truthfully. To do this, you must fill in and serve your spouse with specific necessary forms. These include Income and Expense Declaration, Schedule of Assets and Debts, and Declaration of Disclosure. You must then fill a Declaration Regarding Service of Declaration of Disclosure, and file it with the court to prove that you actually served your spouse and complied with the requirement of full disclosure. Completing the forms is essential in the divorce process, and both you and your spouse must comply. You must serve your spouse with both the preliminary and the final Declaration of Disclosure though there may be certain exceptions.
If during the divorce process, either of you tries to hide assets by giving misleading, incomplete or false information on court documents, the consequences can be dire. Hiding assets is illegal, unethical and similar to lying under oath. If discovered, you could be charged with perjury or held in contempt, have a more significant amount of property allocated to your ex-spouse, or lose the entire value of the asset.
Community and Separate Property in California
California is a community property state; therefore, anything acquired during the marriage, whether income or debts, must be split equally, except if a valid, written agreement exists. This means that all the money you earn during your marriage, whether you earned it single-handedly or with your spouse's assistance, whether your spouse knows about it or not, is community property. Assets considered as community property include salaries, income from investments or business ventures, lottery winnings and anything acquired using income earned in the course of the marriage.
However, property acquired before marriage is considered separate property. In some instances, income earned from these properties during the marriage may be regarded as community property. At the time of dissolving your marriage, property classified by the court as your separate assets belongs exclusively to you despite the asset having been obtained in the course of the union. Though not restricted to these, separate property includes property you owned before the marriage, property you acquired after you permanently separated from your spouse, gifts or inheritances given to you, gifts from your spouse, property you acquired in your name using your separate funds, income earned from your separate property and property that you and your spouse separated earlier in a prenuptial agreement.
Unlawful Ways in Which Assets are Hidden
Often, spouses may involve relatives and friends in diverting and concealing assets. This can be in the form of deceptive loans, transferring funds, and placing investment certificates and personal possessions in safety boxes registered under other family members, friends, or corporate entities. Gifting money to other people with the intention of repayment later is also another attempt to conceal assets.
Transferring large amounts of money to trusts and establishing custodial accounts under children’s social security numbers, transferring assets into pension accounts, 401(k), profit-sharing and Keogh plans are all attempts at concealing liquid assets.
Income and expenses are considered community property during divorce proceedings. Understating income or overestimating costs are considered attempts to hide assets since expenses are used to quantify the full value of marital property. Similarly, if you artificially reduce the worth of any asset or deliberately understate its value, you will be considered to be hiding the asset, and you could face charges of fraud.
Other ways that are considered as hiding of assets include registration of assets under names of relatives and friends, transferring money to your personal account, purchasing expensive items, gifts, paying tuition, rent, mortgage and credit card debt, travel, hiding cash in safe deposit boxes, redirecting payments or checks to different addresses and money laundering through businesses. Working with your employer to delay bonuses or raises, and business contracts is also a way of hiding assets.
If you own a business, paying salaries to non-existent employees, paying fees or wages to friends and relatives for services not rendered then receiving the money back post-divorce are also ways of concealing assets. Lowering the net worth of a business artificially by delaying the signing of lucrative contracts until after the divorce is a fraudulent way of hiding assets. Further, undeclared tax returns or income and other financial statements can artificially lower the value of a business to the disadvantage of your spouse.
Discovering Hidden Assets
Some legal tools can be employed to discover hidden assets. The main tools are used in the discovery process to obtain information for use in both criminal and civil cases. Various types of discovery can be used to gather information about, and track your separate and marital assets. These assets include bank accounts, personal or real property, money market accounts, stock options, individual retirement accounts, certificates of deposit, Keogh and 401K plans, and vehicles.
There are different types of discoveries. A request for inspection is a type of discovery where you allow your spouse to physically inspect your property such as rental properties, safe deposit boxes, automobiles, and other items. Interrogatories are written requests used to gain financial information and other documentation. Oral depositions are a type of discovery where lawyers ask you questions in an official setting. Though they are not conducted in court, a court reporter records them under oath. An attempt to lie could result in severe consequences.
During the discovery process, investigators look for clues in different documents that could reveal hidden assets. The first option is income tax returns which may provide clues to any hidden assets and their description. It could be rental income, a sale of stocks, dividends or interest. Looking into money market funds, savings accounts and dividend statements could also be informative. Deposits into a savings account could indicate interest from a bond or dividends from stock.
Credit card statements sent to an office address, receipts and credit reports for open credit card accounts which are not in use could be hiding valuable information. Insurance statements and bank statements also provide information on the movement of money within the accounts. Additionally, matching travel and lifestyle to reported income is a way of establishing whether there are any hidden assets. If the income cannot support your lavish lifestyle, and there is no inheritance, there is a possibility that hidden assets are financing the lifestyle.
Scrutinizing checking account statements and any canceled checks may provide information concerning the purchase of an investment. If the front and the back of the checks are copied, it could provide information on the account number and financial institution receiving the money.
Other sources of information include overpaid federal and state taxes credited in advance for future obligations, and income created and held outside California. Although statements of assets sent to foreign countries are impossible to obtain, a copy of your spouse’s passport could reveal travel destinations where the assets could be hidden.
Statements of personal net worth, loan application statements and annual net worth updates from banks can provide insight into any changes in assets and liabilities over some time.
Additionally, if you are in business, cash flow procedures are a significant determinant of how finances are managed. Having different people in charge of receiving and recording payments indicates proper internal control. Checks should also be checked whether they are payable to the business or the owner. Write-offs of large amounts should also be scrutinized to determine whether they are valid or are cover-ups for deposits into personal accounts.
Public records, which are available in state repositories, city halls, and county courthouses contain valuable, public information, available to anybody who inquires. However, you must be familiar with how to access relevant documents that reveal asset holdings. County Records Office offers the best documentation. The records are organized by the property owner and cross-referenced with the property address. The records also include Title Company, mortgage lender, trust deeds and attorneys involved in the negotiations. However, the market value of the property cannot always be determined by tax assessments or mortgage balances. It is, therefore, necessary to consult with a real estate appraiser to help determine the fair market value of the property.
What Happens When Hidden Assets are Discovered
Under California’s Family Code, during a legal separation, nullity, or divorce proceedings, courts have continuing jurisdiction to award community assets and liabilities to the participants that have not been subject to a previous adjudication. The court reserves the authority to split property of community interest even when you and your spouse did not expressly withhold jurisdiction on the specific asset. Additionally, community property should be divided equally except when an unequal division is in the interest of justice.
Even after finalizing your divorce, California family code allows your former spouse to file a post-judgment motion if he/she discovers that you intentionally concealed an asset during the divorce proceedings. The motion is filed in the same court that finalized your divorce to set aside the previous judgment, based on fraud. The post-judgment motion is obtainable for any excluded assets that had not previously been arbitrated by the divorce court. He/ she will present evidence to prove that the initial adjudication was flawed owing to bad faith by you. The motion allows all the omitted or concealed assets to be apportioned by the judge. If the omission of the asset was partial, the post-judgment motion could still be applied to the portion that was omitted. However, a post-judgment motion does not include divisions and pronouncements on separate property.
A separate tort or a claim of breach of fiduciary may also be filed against you by your former spouse on condition that it is filed within three years of discovering the deceit. Since your spouse was entitled to 50 percent of your community property after your divorce, he/she has the chance to adjust your divorce settlement to include the recently uncovered income or assets.
There are various ways that the court can use to rectify a breach of fiduciary. The outcome of the rectification process and the accompanying penalties depend on the specific background of your case, the nature of deceit, and whether you excluded the assets erroneously or deliberately. Judges have plenty of freedom and use their discretion in determining penalties; therefore, unexpected judgments may happen. If the exclusion was inadvertent, erroneous, or oversight, you and your spouse will either maintain joint ownership of the property or the court may divide the recently discovered property equally between you and your former spouse.
However, if your ex-spouse has compelling evidence that proves you fraudulently hid assets with malicious intent, he/she could file a claim of breach of fiduciary in the family court, and you could be punished for your actions. This claim must be filed within three years from the date he/she discovered the concealed assets. Depending on the property or asset, the court has several ways of correcting the breach of fiduciary. The court may demand financial records of the asset, determine ownership rights, and access to, or beneficial enjoyment of the property or asset. The court may also dictate the classification of the asset and direct modification in the title of the property to include the name of your former spouse, except if the alteration would affect the rights of a third party.
Additionally, your former spouse may be awarded 50 percent of the value of the concealed asset plus legal fees and other costs. The court values the asset based on when the breach occurred, when the asset was disposed or sold and when the court makes the judgment. Of the three dates, the court can apply the highest value at its discretion. Some judges like to include punishment in the judgment against dishonest spouses. The court has the authority to award your former spouse 100% of the total value of the concealed asset unless you show “good cause” for the judge to rule differently. You may additionally be ordered to pay monetary penalties in punitive damages for your wrongdoing. Furthermore, you may be directed to pay compensatory damages to your former spouse for him/her not having used the asset for a certain period.
Other civil penalties which may be as a result of concealing assets include greater than 50% allocation of property to your spouse, payment of your spouse’s private investigator or legal fees incurred while tracking down the asset, and having your prenuptial or postnuptial agreements nullified.
Possible criminal penalties include being held in contempt for which you can serve jail time or be fined. You could also be charged with perjury or fraud, and you may end up in jail. In some instances, the judge may order restitution.
If accused of hiding assets, you could claim preclusion also known as collateral estoppel. This legal argument fundamentally states that your spouse had the opportunity to dispute property apportionment throughout the divorce process and their failure to utilize the opportunity is their problem, not yours. For your spouse to win against this argument, an extensive understanding of the law is required.
Find a San Diego Divorce Attorney Specializing in Hidden Assets Near Me
Concealing assets during divorce proceedings is an act of bad faith and considered by California Law as perjury, which is a criminal offense. Hiding assets could also cost you part of your share of the assets or total loss of the asset. If you are in or around San Diego, CA, contact the San Diego Divorce Lawyer at 858-529-5150. We have the necessary understanding and expertise of divorce and related elements to address the issue of hidden assets in a divorce case.
