Attempting to Hide Assets Before Divorce?

If you're contemplating a divorce, you may be concerned about how your money and property will be divided. If you have a significant amount of cash or other assets, it can be very tempting to try and hide them from your spouse, especially if you believe that you're entitled to keep them or you're just plain angry at your spouse.

But hiding assets before divorce is a terrible idea—it can get you in a whole host of legal trouble.

Hidden Assets and Property Division in Divorce

The reason some people want to hide assets is that a couple's marital property must be split between them as part of the divorce process, either through a property settlement agreement or by a judge after a trial. States have different rules for dividing assets and debts in divorce, but there are general principles that you should know about, especially if you're thinking about trying to hide some of your assets.

Which Property Gets Divided in Divorce?

It's important to understand the difference between marital property and separate property. That's because in almost all states, only a couple's marital property is divided in divorce, and the spouses keep their own separate property. The specifics vary from state to state, but marital property is generally any money or other assets that either or both spouses acquire during the marriage, including their earnings, home, cars, retirement plans, and investments.

But inheritances and gifts are generally separate property, even if a spouse received them during the marriage. Other separate property includes anything a spouse owned before the marriage, rents or profits from that property, and any assets that both spouses have designated as separate in a written agreement (such as a prenuptial agreement).

The distinction between separate and marital property can get tricky when property is mixed (or "commingled"), such as when a spouse deposits an inheritance in the couple's joint bank account or the couple uses money from their earnings during the marriage to make improvements on real estate that one spouse owned before the marriage.

How Property Is Divided in Divorce: Equitable Distribution vs. Community Property

Most states follow what's known as the "equitable distribution" rule, which basically means that a couple's property should be divided fairly—but not necessarily equally—given their specific circumstances. When deciding what's fair, judges will typically consider a wide variety of factors, including the length of the marriage and each spouse's contributions (both financial and on the home front).

There are only a few community property states in the U.S., but they include the most populous states (like California and Texas). Community property rules affect how spouses own their earnings and other property together during the marriage. Unlike what many people think, those rules don't always mean that community property will be divided equally in divorce. For instance, while California requires a 50/50 split between the spouses, Texas judges must divide the property in a way that's fair under the circumstances—much as in equitable distribution states.

Disclosing Assets in Divorce

Before a couple's property and debts can be divided, both spouses (and the court) need to know exactly what assets they own and what debts they owe. That's why state divorce laws typically require spouses to exchange detailed information about their finances, assets, and debts, usually soon after filing for divorce. If these financial disclosures aren't complete and accurate, that undermines the entire process of dividing a couple's property according to the state's legal requirements.

Also, in what's known as the "discovery" process during a divorce, spouses can demand financial information from each other and from others—such as banks and investment firms, employers, and retirement plan administrators. Spouses and these third parties may then be required to;

• turn over records and other documents, such as tax returns, loan applications, and even texts or emails that could reveal a plan to conceal an asset (for instance, by putting it in a friend's name)
• provide written answers to questions (called "interrogatories"), and
• answer questions during live testimony at depositions.

Why You Shouldn't Hide Assets in Divorce

There's a chance you'll get away with hiding assets to prevent them from being included when you and your spouse sign a divorce settlement agreement or when a judge divides your property for you. However, you'll be taking a huge risk.

If your spouse has the slightest suspicion that you haven't provided complete information in your initial financial disclosures, there are many ways to investigate and find hidden assets in divorce. As part of the discovery process, your spouse might even hire a forensic accountant who's a specialist in tracing hidden funds and other assets.

You could face serious legal and financial consequences if it comes to light that you haven't been entirely forthcoming about your assets during your divorce. For example:

• Perjury charges. If you lie during deposition testimony, or knowingly provide false or incomplete information on financial affidavits or responses to interrogatories during discovery, you open yourself to the possibility of criminal charges for perjury.
• Contempt charges. If you simply don't submit required financial disclosures, or don't reply to discovery requests, your spouse may ask a judge to order you to do so. Then, if you defy that order, you could be held in contempt of court, which can lead to fines and even jail time.
• Other penalties. Depending on the law in your state, judges have other ways of penalizing spouses who've concealed assets during the divorce proceedings, including awarding the entire asset to the other spouse and ordering the guilty spouse to pay monetary sanctions. Some states also allow specific sanctions for misuse of the discovery process.
• Do-over of your divorce. Even if you made it through the divorce process without revealing all of your assets, your spouse might find out the truth later. Then, depending on the laws in your state, a judge may set aside your divorce judgment. That means that you'll have to go through the divorce process again—this time with a complete picture of all of your assets. And in some states, the judge may consider your earlier fraud when deciding what would be a fair division of your marital property.

Getting Help

Instead of hiding or purposefully undervaluing your assets, your best bet is to hire a good divorce lawyer. Couples can have legitimate disputes about the value of their assets or whether any particular asset is marital or separate (or a combination of both). An experienced family law attorney can navigate these disputes, protect your interests, and help you achieve the fairest divorce settlement possible under the law in your state.