March 1, 2017
In the great movie classic “It’s a Wonderful Life” the character George Bailey, a kind soul who puts his own dreams aside to help other his whole life, finds himself in a financial bind. But his friends and neighbors come to the rescue and in the final scene of the movie they pour into his house, emptying their pockets and piggy banks to give George the money he needs. One of my favorite lines in the movie comes in this scene as the Bailey housekeeper, Annie, hands over the contents of her change purse and says to George, “I been savin’ this money for a divorce if ever I get a husband.” Now THAT’s planning ahead!
Most people don’t think that far in advance to plan their divorce but sometimes a spouse, feeling that the marriage is heading south, starts to consider the financial impact and decides to hide assets that he/she knows will have to be given up. What are some of the ways that spouses hide assets?
Deferred Compensation Plan: Some employers offer opportunities for employees to defer some of their compensation to a later date, usually to the time of retirement or termination. It doesn’t show up in income, and thus can’t be counted for alimony or child support. However the deferral will show up on the pay stub so it’s important to look at a year-end pay stub for the current as well as past years if you think some income is being redirected to a deferred compensation plan.
Hide Cash: As Annie did above, a spouse could squirrel away cash in a safe deposit box, shoe box or other safe place. They might even give it to a friend for safekeeping. (By the way I think Annie was simply being frugal – not trying to hide money!)
Overpay Income Taxes: Over-withholding from a paystub accomplishes two things: it makes take-home pay look smaller and creates a tax-refund that the spouse plans on receiving after the divorce is final. It is hard to know if taxes were over-withheld until the tax return is done, but the spouse’s paystub will usually show their withholding status (single or married, and number of dependents.) These elections may point toward excess withholding.
Delaying a Bonus or Pay Raise: The spouse may be able to put off getting a raise or bonus until after the divorce.
Putting Money Into The Children’s Names: Accounts can be created for a minor child naming the duplicitous spouse as the custodian, with the intention later to shift the money back to that parent. This could be a bank account or investment account that holds stocks or mutual funds.
There are many ways money can be hidden, and some are easier to uncover than others. For instance a simple review of the paystub can reveal a deferred compensation plan or over-withholding. In other situations a lifestyle analysis may be required in which financial documents over a multi-year period are reviewed to “follow the money.” This is a long and expensive process, usually done by a forensic accountant that should be undertaken only when there is a high likelihood that a significant amount of money is being hidden.
Another tool to determine whether there is something going on is to look at the couple’s standard of living – their typical level of spending over recent years. This is called a “lifestyle analysis” and is used to match income and spending. If these are out of sync – if income is much higher than expenses but there are no investment accounts to account for the excess, or income has recently declined but there has been no change of job – this might point to a concealed asset.
It’s unfortunate, but all too common for one spouse to attempt to hide money during a divorce. Be vigilant in inspecting all financial documents and consider, if needed, a forensic review.