Suggestions for how to go about locating hidden assets: questions to ask, places to look and things to look for.
By A. Rief Kanan, CPA, Lecturer
So, your client has been waiting impatiently in your conference room. Right where your receptionist put him or her, just as you instructed this morning. Your previous appointment ran over the time you had budgeted. Typical. You enter the conference room and immediately become aware that your client is extremely agitated. Water is offered and refused. You quietly take a seat and find that the client is settling down while continuing to exhibit agitation so you decide the direct approach to be best and you ask, “what has made you so obviously upset?” and there it is. That statement that is all about what we do, that is then followed by the big question. The Statement: “my spouse is (or has been) hiding assets of substantial amounts”. The Big Question: “what will you do to be certain we find them? ALL of them!” First answer: call your favorite forensic accountant!
Triggered now, you spring into questioning mode: 1) What leads you to believe that there are hidden assets? 2) Are your suspicions related to the closely held business? 3) What changes in lifestyle have you noticed? 4) Have taxes been paid and withholding accounts remitted to the proper authority(ies)? 5) Have we passed any milestone events such as normal salary adjustment periods, bonuses, added bonus vacation, traditional adjustment periods in retirement plans and thrift plans? 6) Many more questions that build upon the last, depending upon the nature of the answers. If you have not become a student of Neuro-Linguistic Programming (NLP) just yet, hurry! (More about NLP in future articles. Text references are at the end of this article.) From your questions and observations and limited specifics from your client’s answers, you summarize your thoughts and share some of the possible tactics that the spouse could be using to hide assets (or value). Many of the words your client will use are repeats of comments they have heard from the spouse and likely will be indicators of future tactics that will lead to disclosure of hidden assets. Some examples of the tactics that one party could use to manipulate the disclosed values of the company or the marital assets are:
- Antiques, artwork or hobby equipment that is overlooked and undervalued. Look for lush furnishings in an office.
- Collusion with his or her employer to delay payment of bonuses, stock options or raises until after the divorce.
- Frequent flyer miles (These are not typically considered an asset. However, they are becoming matters of contention more and more.)
- Income, often cash, that is unreported on tax returns and financial statements. Your life-style costs during marriage probably exceeded reported income, so document your cash expenditures.
- Security deposits- While security deposits usually relate to rental property that you may have shared, it can also be found on rented storage units and other large purchases you, as a couple were intending to make.
- Patents, Copyrights and Royalties- Often the creation of these three occur during the marriage and with the assistance of marital monies which lends them to be considered marital property.
- A custodial account set up in the name of a child, using the child’s social security number.
- Hobby or coin collections. Some collect spoons from every state while others collect coins or baseball cards. Have these collections appraised.
- Debt repayment of a phony debt to a friend or family member, with the pre-arrangement that the friend will hold the money until after the divorce, then give it to your former spouse.
- Salary paid to a nonexistent employee from your spouse’s business. The checks will be voided after divorce.
- Money paid from the business to someone close, such as father or boy/girlfriend, for business services not rendered. The money will no doubt be given back to your spouse after the divorce is final.
- Delay in signing long-term business contracts until after the divorce.
- Expenses paid for a boy/girlfriend, such as gifts, travel, jewelry, rent or college tuition.
- Investment in municipal bonds or Series EE Savings Bonds for which no interest is reported on tax returns.
The Big Question, “can we find all of them?” is difficult to answer. Certainly, the court does not look kindly upon the party who was hiding assets that were surfaced during the divorce proceedings so there arises motivation to disclose all the assets in order to effect an equitable distribution. However, counter to this motivation is the difficult and challenging economy of the last few years that is projected for the next several years. That results in a willingness to test the courts and take more risk related to hiding assets. So, I will answer The Big Question for one of the sample methods to hide assets in order to save time and space. Future articles may focus on more tactics to find all the assets!
Consider a situation where assets (likely cash or investments) are transferred to another person who then uses those assets to acquire expensive assets like gold or jewelry that will be transferred back to the partner after the divorce is final. To find such transactions the spouse would review bank statements and brokerage accounts looking for large transfers of cash or securities or an extended series of transfers without apparent cause or need. Determining what the recipient of that cash did with it may require an order from the court to compel the party to disclose the needed information. Generally, the court will support that effort if it can be shown that the investigation will likely produce information relevant to the divorce.
National Association of Certified Valuation Analysts (NACVA). Authoritative association that maintains the credential Certified Forensic Financial Analyst (CFFA) and promulgates operating and ethical standards for forensic accountants who serve as experts in cases of discovery and valuation of assets.
American Institute of CPAs Forensic and Valuation Services interest area. (AICPA/FVS). FVS examines and confers the credential Certified in Financial Forensics (CFF)
Lorna Jorgenson Wendt, writer and speaker on equality before, during and after marriage.
Beyond Rapid Therapy – Modern NLP Concepts and Methods, Rasa Galatiltyte, Inner Patch Publishing, Prague, 2009
A. Rief Kanan, CPA, is the Director of The Business Institute at the State University of New York at New Paltz in the areas of Lecturer, Accounting.