How can a family law attorney determine whether a lifestyle analysis is needed in a divorce case? A suspicious spouse may be all that is needed to begin a lifestyle analysis; however, a more objective basis for undertaking the lifestyle analysis is preferred. This chapter discusses numerous red flags that may indicate hidden income, hidden assets, or other financial irregularities.
Gathering documents early is a key part of the lifestyle analysis. By doing so, the attorney reduces the risk that documents will be altered or destroyed or that financial institutions will be unable to locate the documents. Although it can be a huge task to gather documents for all bank, brokerage, and credit card accounts, in addition to income tax returns and business documents, it is a critical component of the family law case. It should not be left until the last minute, as discovery deadlines can approach quickly.
In this chapter, we will first discuss the red flags of fraud in divorce. Then we will discuss sources of information, a strategy for gathering and managing documents, and the discovery process from the perspective of the financial expert.
Red Flags of Fraud in Divorce
The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of red flags of fraud. A red flag is simply a warning sign or an unusual item or circumstance.
Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated. A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.
Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean that money has disappeared or the finances are being manipulated, but they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts.
Behavioral Red Flags
Evaluate the behavior of the spouse, both at home and at work. Is there secrecy or extreme control surrounding financial matters? Some general behavioral red flags include
- Exerting excessive control over financial matters, such as control of all bank information, statements, and online access
- Concealing details of transactions from the spouse
- Making large expenditures or asset purchases without the knowledge of the spouse
- Being secretive about financial or other matters
- A history of deception
- Asking or coercing a spouse to sign unusual financial or legal documents
- Using a post office box or other private address to receive mail (which cannot be accessed by the spouse)
Also included in this chapter:
Documentation Red Flags
Personal Financial Red Flags
Business Financial Red Flags
The Next Step
Marital Balance Sheet
Sources of Private Records
Banks, Brokerages, and Credit Card Companies
Credit Reporting Agencies
Other Private Records
Sources of Public Records
Real Estate Records
Uniform Commercial Code Records
Motor Vehicle Records
Business and Industry Databases
Internet and Search Engines
Social Networking Sites
Beginning the Engagement