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Family Law

Financial fraud in divorce

By October 20, 2015No Comments

It’s common to experience feelings of mistrust of your ex when you are going through a divorce, and sometimes to suspect they are behaving deviously in order to ‘win’ more in the settlement. While serious financial fraud is fairly uncommon, you may still suspect your ex is hiding assets or that there is some other kind of financial misbehaviour going on, such as misrepresentation of income. If a family-owned business is at stake, your suspicions may be even worse. What can you do to put your mind at rest and be certain that your ex is not getting a disproportionate share of your marital asset pool through fraud, such as hiding or undervaluing significant assets?

First, be aware of red flags identified by experts as common in cases where spouses are engaging in fraud. These include behaviors ranging from the subtle (unexplained changes in behaviour, heightened secrecy and changes in the level of confidentiality between you and your ex) to the outright suspicious behaviours (unusual bank account activity, incurring debts, raiding bank accounts, stopping access to joint accounts or business accounts if this used to happen in the past).

Second, consider the need to engage a forensic accountant to investigate your financial records and documents. Forensic or investigative accountants are financial experts who will trace the paper and digital trail of funds through your various marital accounts to determine actual income, investigate claims of ‘co-mingling’ of marital and separate assets, and look into a number of other typical avenues people use to hide income and assets. For example, family nest eggs might be hidden in shell corporations, life insurance vehicles, unknown safe deposit boxes, and more. Forensic accountants review records including tax returns, bank statements, credit card statements, business ledgers, property appraisals, investment and retirement accounts, employment related plans and accounts.  They make appraisals about the authenticity of the books and records they review.

Forensic accountants will also look into claims of dissipation or wastage of marital assets/funds–such things as losses caused by gambling or other addictions, money spent on extramarital affairs, and so on. Wastage also occurs when spouses sell expensive assets for less than they are worth, or when marital property is intentionally destroyed or neglected.  If there has been intentional wastage of marital assets, an innocent spouse may be entitled to a larger share of the remaining marital property under s75(2)(o) of the Family Law Act, which allows the court a broad discretion to look at any other circumstances which the interests of justice require.

You will need to weigh up carefully the costs of the financial investigation (usually a minimum of $5,000, but figures of $10,000 – $20,000 are not uncommon) against the possible benefits to you. Generally if there is a decent sized family business or asset pool at stake it will be worth it. If you are running a corner shop, the costs may outweigh the benefits although each case is unique so discuss with your lawyer.

If you feel that some of the above issues apply to you, please do not hesitate to contact our family lawyers Cristina Huesch, Sharla Stevens or Angela Li here at Alliance Family Law on (02) 6223 2400 so that we can advise you in relation to these matters. If you have been charged with a criminal offence and need criminal law advice on financial matters, please contact our criminal law expert Amanda Pickles.

Read more on financial fraud: http://www.huffingtonpost.com/divorce-magazine/financial-fraud-and-divor_b_8210922.html?utm_hp_ref=divorce&ir=Divorce

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