Big Divorce Mistake #7: Ignoring Red Flags of Hidden Money

https://youtube.com/watch?v=d3wsrz23UYo

The Forensic Accounting Deskbook by Miles Mason, Sr. JD, CPA, published by the ABA Family Law Section

There are many “red flags” of a spouse hiding money. Jeff Landers discusses many listed in Mason’s book in his Forbes article: 21 Signs That Your Husband May Be Hiding Marital Assets During Your Divorce.

For a much more detailed discussion, see The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers, Second Edition, authored by Miles Mason, Sr. and published by the ABA Family Law Section.  This updated edition of one the ABA’s most popular resources explains the practice of forensic accounting and business valuation and how to apply it in family law cases. It provides a practice-focused introduction to the core financial concepts in divorce, such as asset identification, classification, and valuation, income determination, expenses, and more.

See Mason’s complete list of the 10 Big Divorce Financial Mistakes.

VIDEO TRANSCRIPT:

Tracy Coenen:             What are some of the signs that you have seen that might suggest some sort of hidden income or other manipulation of a business’s financials?

Miles Mason:              We call these red flags. I don’t think I invented that term. Forensic accountants have it, and I think it’s probably the same thing in the audit sense. And, it’s the list of red flags that we have, and I’m going to go through a few of those in just a second. Sounds just like an audit checklist, and so that’s where the audit backgrounds of the CPAs really come into play, I think.

One thing is where you got one spouse that maintains complete control of bank account information and online passwords, may be secretive about financial affairs, owns a PO Box or a private mailbox drop which receives the account statements and the bills. There may be meaningful unreimbursed business account expenses and reimbursements. We see this a lot where the parties, one spouse deletes one or more personal financial programs. There’s just Quicken or QuickBooks, or claims that the home computer containing those important financial records crashes, and the hard drive is just gone, you know, magically, and then there’s a divorce filing or some type of crashing.

Or, when one spouse acts pushy when obtaining signatures on important documents like tax returns and deeds. “I need to get this to our accountant today. Sign it now please,” you know, at 7:30 in the morning before somebody’s had coffee, or proposes an execution of a mutual durable power of attorney for estate planning purposes. We see that a lot.

And for those forensic accountants not familiar with the phrase a durable power of attorney or the equivalent in your state, learn, because it means I can be you if I have your durable power of attorney, and that’s a very, very powerful document including, I’ve never heard it being used before, but “I have my spouse’s durable power of attorney, why can’t I settle the divorce?” which you know, I’m waiting to see it. So I haven’t ever seen, I haven’t even heard of it, but I don’t know why it wouldn’t work.

Next thing, there’s the business owner that enjoys out of town business junkets with a befriended slippery business advisor or financial advisor. One of the things you were talking about earlier about how people get poor during the divorce, divorce lawyers some of us refer to it as SIDS, the sudden income deficit syndrome where my business of failing. The sky is falling is heard a lot, or when somebody suffers a decrease without a corresponding reduction of expenses, you know that decrease in income like you were talking about, not being able be explained legitimately, or binges on unusual purchases of flashy items such as car or jewelry. Some people go out and like to, they think they’re being clever by stockpiling cash into art. I’m not sure that that’s a great scheme even if a lot of people do it.

Some other people report a dramatic decrease in value of marital or business investments. One of the things that really triggers me is the multiple cell phones where a spouse knows that they keep getting different phone numbers to reach their spouse on. That’s usually a big red flag that something’s going on.

Now, one of the more obvious red flags that should be very large and a very deep red is where there are multiple and frequent trips to countries with very relaxed banking laws. We do see this. I don’t know why. I’ve just seen a lot of divorces in my experience where bankers have traveled a lot to Caribbean nations, and you know, and this is human nature, but we see a lot of childish greed and claims of entitlement. You know, you don’t deserve this and I deserve that. It’s just hard to imagine.

Toys and art that can be sold later, those larger purchases, you know, a lot of times can be under the heading of, well, I’m turning 50, I’m turning 60, I want to do something for me. What’s in it for me? I want to get that car. Well, that may be a hint that divorce is coming.

Or starts drawing large amounts of cash or debt. I mean if somebody is just going to blow some cash systemically, they’re going to be smart enough that they need cash out of the ATM or an investment account and not sticking it on a credit card, so that could lead to a lot more debt or just good old-fashioned drug abuse. We see that a lot as well.

Gambling is something that comes up, especially when you’re talking about trips to Vegas or especially if you live near casinos. One of the things that I think, forensic accountants, if you’re near a casino area, is try to learn the rules for particular casinos placing money on account. Casinos will take cash. You want to bring $30,000 and leave it with them to gamble later. They’ll take it, many of the casinos, and so they’ll take that on account is a phrase there, and so you need to research that. Talk to your buddies that like to gamble, maybe have a higher limit than most of us are comfortable with and ask them, “Do you put money on account with casinos? And if so, what are the terms and how does that work?” Or a good old-fashioned opens multiple business or personal bank accounts without obvious reasons for having that many accounts.

Thank you to Tracy Coenen, CPA, CFF for inviting me to join her in this video series. Tracy is a nationally recognized forensic accountant practicing in Milwaukee and Chicago.