This is the first part of an excellent, extended post in the Los Angeles Divorce and Family Law Blog by Warren T. Shiell, from July 5, 2009. He wrote a thorough review of how assets are hidden and how they may be found. His post gives very practical tips for effectively searching for hidden assets. I have broken his long post into three parts for the reader's convenience. Here's the first section of his post.
“The divorce process is a time of distrust for each spouse, and right or wrong, each may accuse the other of hiding assets.
“Assets are traditionally hidden in one of four ways:
The person denies the existence of an asset.
Assets are transferred to a third party.
The person claims the asset was lost or dissipated.
Creation of false debt.
“Tax returns are the first place to look to discover hidden assets. It is a good idea to look at tax returns for the past five years. By reviewing the tax returns you may discover assets that you had no knowledge of or that were not disclosed by your spouse. The first two pages of a tax return can serve as a ‘table of contents,' because they list the forms and schedules that are attached to the return.Important forms to review include:
“Schedule A – Itemized Deductions. May help identify unlisted assets or sources of income. For example property taxes may reveal real property or a boat that one spouse does not know exists; and gambling losses would reveal that there are gambling winnings.
“Schedule B – Interest and Ordinary Dividends. This identifies the assets and investments generating interest and dividends. However some interest generating accounts may be non-taxable and may not be listed.
“Schedule C – Profit of Loss From Business. This form may be a place to hide assets or income. For example, depreciation for real estate is generally not a cash outflow and it is added back to net income to determine the actual income. The depreciation schedule may also reveal additional assets in the business.
“Schedule D – Capital Gains and Losses. This form is used to reports gains and losses from stocks, bonds, and real estate.
“Schedule E – Supplemental Income and Loss. This form is used to report income from rental properties, royalties and partnership and s-corporation income. Depreciation should be examined to determine whether this is an expense that should be added back to income.
“Form 1065 is used to report partnership income
“Form 1120 and 1120S are used to report corporate income
“Form 2441 claims child-care expenses. Both federal and state income tax returns, 1099s and W2s, as well as amended returns need to be reviewed.In the course of discovery (sharing documents and financial information with the opposing side), most spouses believe that their counterpart has somehow hidden or failed to disclose the existence of certain assets.”
It's an unfortunate fact of life that people are sometimes dishonest as they go through a divorce. (How's that for an understatement?) The list above gives you some paperwork to gather to examine so you or your expert can try to find any missing assets. Fortunately, there is often a paper trail, if you can recognize it. Using an expert to examine the records is usually an excellent investment. If you are able to establish that your spouse is cheating and hiding money, you will be in a much stronger position to get a better settlement or a better decision after a trial.
The next two sections of the post to help you find hidden assets will follow shortly.