Dealing with financial dishonesty during divorce

Infidelity is often given as a reason for getting divorced. As it turns out, infidelity is not limited to the bedroom. A recent survey finds that many people consider financial infidelity to be just as serious as physical or emotional adultery. Thirty-one percent of survey respondents affirmed that hiding assets like credit card accounts, bank accounts, investments and other assets from a spouse or partner is actually worse than physical cheating.

Ironically, a separate study conducted by the National Endowment for Financial Education found that 40 percent of people admit to hiding purchases, bills, earnings, savings or personal debt from a partner. While it is nice to think that surprising a sweetheart with a vacation or expensive gift motivates such secrecy, more often than not, hidden assets are rarely happy surprises.

Hiding assets and the law

North Carolina is an equitable distribution state, meaning that courts presume that any assets acquired during the marriage should be divided equitably between divorcing spouses. An equitable distribution doesn’t always mean equal, but rather a “fair” property distribution in light of all the applicable factors.

In practical terms, this means that if you wish to claim assets or real property as separate or nonmarital property, you must prove why those assets should be classified as such. In general, property acquired during the marriage is presumed marital.

If you wish to claim an asset as separate property, you must demonstrate:

• that the property was not acquired using marital assets or labor,
• acquired before your marriage or after your separation, and
• was still owned separately at the time of separation.

Separate property can also include assets acquired during the marriage through inheritance or a gift made to one person, provided that it is not commingled with any other marital assets. For example, imagine that a wife receives an inheritance of $50,000 upon a relative’s death. She and her husband decide to use that money to remodel the family’s kitchen. Therefore, that inheritance (and the subsequent increase in value on their house) is no longer considered “separate.” If, on the other hand, she puts it into a trust or investment account in her name only, and does not transfer any shared funds into that account, it may stay separate property.

Using experts to obtain the truth

As you may have guessed, situations involving hidden assets can quickly escalate because of the complexities of sorting out how those assets were acquired and with what funds. Several families rely on joint bank accounts, make joint investments and otherwise share the financial burden of building wealth.

Therefore, determining whether hidden assets, once discovered, should be considered marital property or separate property often requires more than just skilled legal counsel. In some cases, firms hire forensic accountants who can not only find covert purchases and accounts but also determine how and when they were acquired or created. These facts will be crucial to uncovering hidden financial assets and property so that this determination can be made as part of the divorce.