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Financial Fraud And Divorce

Financial Fraud And Divorce

Posted in Divorce

Do you trust your divorcing spouse to be fair and honest about your financial situation, or could he or she be capable of financial fraud? Divorce is an emotional event, filled with anger and mistrust, so it’s not uncommon for one spouse to attempt to hide money or assets in order to come out ahead in a settlement. This constitutes financial fraud.

The skilled and experienced Illinois family-law attorneys at Wolfe and Stec are aware that while both spouses are legally required to disclose everything that is included in the marital estate, this may not happen. We know the issues and will take every step to ensure you are protected from financial fraud.

Signs of Financial Fraud

If your spouse is a salaried employee and you’ve been living a normal, middle-class life for years, fraud is not that likely — but, still, it does happen. If you have been separated for a long period, it can be especially difficult to determine whether your spouse is being honest. And in some marriages, particularly when there are lots of assets, individuals handle their finances on their own or may have sources of income and assets the other spouse is not aware of, and this makes fraud even more of a possibility.

Changes in secrecy, lifestyle, and income provide clues that fraud may be taking place. Here are common signs that your spouse is hiding something:

  • Catching a spouse lying or in secretive and deceptive behavior, like leaving the room for phone calls or turning off the computer screen when you are around
  • No longer sharing financial details with you, hiding financial statements and documents
  • Changing where mail is sent, perhaps to an office or post office box
  • Making unusual cash withdrawals, money transfers or other unusual banking activity
  • Loaning or gifting money or assets to friends or family members, thus reducing the marital estate
  • Evidence of alcohol or drug addiction
  • Selling expensive assets for much less than they’re worth
  • Spending down a business cash account or other excessive spending
  • Asking or coercing a spouse to sign unusual financial or legal documents
  • Depleting marital property, while leaving separate property untouched
  • Disappearance of assets known to have existed during the marriage but with no paper trail.

The more signs you see, the greater the likelihood of fraud, and the greater the need for investigation. Be aware that the longer fraud goes on, the more difficult to access records or trace funds, and the greater the chances of a spouse’s getting away with it.

The Fraud Triangle

During the 1940s at Indiana University, Dr. Donald Cressey developed the theory that there are three elements that must be present for a person with no criminal history to commit fraud:

  1. Perceived Opportunity – Believing they can commit fraud and get away with it
  2. Pressure – Having a social or financial motive which they can’t share with others
  3. Rationalization –  Finding reasons why the fraud needs to be done in order to maintain the belief they really are honest, but are caught in a bad set of circumstances.

When people have a problem that they can’t share, and then rationalize a dishonest act to resolve the issue, and have the opportunity to do so, immoral or illegal behavior such as fraud becomes more likely.

How Fraud May Occur

Hiding and depleting assets and misrepresenting income are two major areas of money manipulation during a divorce. There are cases of forgeries and questionable documents, tax fraud, loan fraud, and insurance fraud, but the majority of divorce fraud is due to misappropriation of assets. A divorcing spouse may convince otherwise honest relatives and friends to assist with concealing marital assets by telling them that the ex is emptying bank accounts.

For marriages with sizable assets, hiding places can become more numerous and complicated, including shell corporations, unfunded trusts, life insurance vehicles, unknown safe deposit boxes, and hidden brokerage/online accounts.

How to Discover and Thwart Fraud

If you strongly suspect fraud, you may need to use the services of a forensic accounting professional.  The forensic accountant will review general records, including tax returns, bank statements, credit-card statements, business ledgers, appraisals of properties owned, and retirement accounts. These accountants can track any significant changes in spending habits prior to separation and look for suspicious patterns. They can trace paper trails of funds and verify claims of “co-mingling” marital and separate assets.

Be aware that the more money that is involved, the more places it can be hidden. Employees of companies may have deferred compensation plans, stock options, bonuses, expense accounts, or other fringe benefits that they “forget” to declare. Business owners may hide both income and assets from the lawyer and spouse, so you need someone with the financial skills to examine the records and determine the authenticity of books, records, and tax returns.

CONTACT US

No matter the state of your finances, if you suspect your divorcing spouse is committing financial fraud, you need legal and financial counsel.  The skilled and compassionate Illinois divorce attorneys at Wolfe & Stec, Ltd., understand the seriousness of financial fraud during divorce and will help you manage the situation and determine whether you need a forensic accountant. In addition, if you discover financial fraud following your divorce, we may be able to have your previous divorce order set aside or modified or see if you have a civil case based on fraud.

We offer a free initial consultation, so don’t delay.  Set your mind at ease by contacting an experienced and compassionate DuPage County divorce lawyer — contact us online or call 630-305-0222.



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