Division of property is often the primary source of conflict in a divorce. If no prenuptial or post-marital agreement is in place, all assets acquired during the marriage are up for equal distribution.
When a business is involved, the business-owning spouse may retain the business, but the non-owning spouse will likely be awarded a share of the company. In this case, the business-owning spouse may attempt to hide assets. Doing so can have serious consequences.
Hiding Assets is Illegal
Hiding assets in a divorce is both unethical and illegal. The discovery process involves depositions and requests for documents. An uncooperative spouse could be held in contempt of court.
Business owners have many methods of hiding assets during a divorce, but the non-owning spouse can hire a forensics accountant to investigate and determine whether funds are being mishandled.
If the business-owning spouse is caught trying to hide assets, the consequences can be serious.
There are Penalties for Hiding Assets
Spouses who are caught trying to hide assets in a divorce may face sanctions, which are monetary penalties the offending spouse will be required to pay.
In addition to sanctions, the business-owning spouse may also be required to give up his or her entire share of an asset to make up for the hidden asset. If no assets are remaining, the judge may require the offending spouse to pay more spousal support until the value of the hidden assets are repaid.
For example, if a business-owning spouse drained an account of $10,000, he or she would likely owe the non-owning spouse $5,000. The judge may order alimony and then increase those payments by $200 per month for the next two years until the $5,000 is paid back. Keep in mind that the judge can set the alimony rate at whatever he wants.
In some states, offending spouses can be arrested in serious cases of hiding assets. This outcome is more likely to occur if the offending spouse continues to try and hide assets even after it has been brought to the court’s attention.
Courts don’t take hiding assets lightly. In one case, a California woman had won the lottery just 11 days before filing for divorce. She failed to reveal that she had won the $1.3 million prize. The judge, according to the Los Angeles Times, ruled that she had acted out of fraud or malice. As a result, he awarded the ex-husband all of the lottery winnings.
California is a community property state. The ex-husband would have been awarded half of the lottery winnings if she had disclosed it. But because she attempted to hide the asset, the judge awarded the ex-husband every penny of the lottery winnings.
In another case in Michigan, assets were deliberately hidden by the ex-husband during the primary trial period of the divorce. Once the assets were found after the divorce was finalized, the court reconsidered the division of property. The ex-wife was awarded all of the found assets.
Legal and ethics issues aside, it’s not worth the risk to hide assets in a divorce. Business owners literally put their livelihoods on the line when they attempt to hide assets in divorce proceedings.