Hiding Assets in a Divorce or De Facto Separation: 5 Red Flags to Watch For

Red Flags: Possible Indicators of Intention to Hide Assets

Red Flag #1 Large Cash Withdrawals or Regular Transfers

When we are looking at person’s bank statements we analyse any large cash withdrawals and look for a pattern of regular withdrawals or transfers to unknown accounts, including how the transactions occurs eg. ATM, in branch or as a cash out with another purchase.

Sometimes people attempt to stockpile cash over time in an attempt to hide funds. A pattern of regular transfers may be an attempt to park money with friends, relatives or a new partner, with the intent to recover that money after the settlement is finalised. 

Sometimes when a client of ours sees these documents they realise their situation is very different from what they might have expected – either better or worse. For example, checking the bank statements might uncover a level of debt they were not aware of, or it could uncover issues such as gambling or an unknown or failed investment or business venture. There are also occasions where one person may have not been fully aware of the business’ profitability, the investments, or the extent of their savings. 

Red Flag #2 “Gifts” to Friends and Family Members or Missing Valuables

Similar to the cash transfers or regular cash withdrawals, there may have been over time some gifting as “loaning” of assets. In some cases this is a temporary loan with an informal agreement to return those assets to one party after the property settlement is finalised.

Making a list with pictures or documents about the assets including jewellery or other valuables such as artworks or collectables should be started early if you suspect that these may be gifted or sold for cash, post separation.

If you suspect your ex is possibly attempting asset hiding, you will, as part of the financial disclosure process, provide a list of those assets within your disclosure process. 

When a client flags these assets with us, we can then, with the assistance of an independent forensic account, seek to identify any discrepancies in their review of financial documents.

Red Flag #3 Delayed Receipt of Payments

If you become aware of the delay of receiving cash or payments it may be a sign that they are doing some pre-planning before separation to attempt to reduce the financial cost of the separation and divorce. For example, if one person in the relationship is paid cash bonuses or commission components in their salaries and the timing of these payments changes, this could signify someone is looking to defer an improvement in their situation until a later time.

When reviewing bank statements, past history of bonuses is often considered. If someone has always been eligible for a bonus at a certain time of the financial year you can see a pattern and ask questions around any disruption to that pattern or absence of a regular payment, rather than it not being taken into account.

This can be trickier to identify when someone is self-employed or has a solid relationship with their employer. They may have a greater capacity to defer payments, delay issuing invoices or have large debtors, which remain unpaid. 

This is why exploring sources of income and the timing of payments should be reviewed. It is all about being aware of the potential issues and asking the right questions. Having a lawyer who is experienced and regularly deals with these issues, particularly if there is significant income or a business involved, helps.

Red Flag #4 Unwarranted Increase In Outgoings or Expenses

While less common, sometimes people will overpay personal or business accounts or taxes in an attempt to hide personal or business cash.

To decrease their net worth on paper, people overpay taxes or accounts, leaving them in credit, with an intention to refund or reclaim it after the financial settlement.

As part of the review process, this can be uncovered by a forensic accountant who, in addition to reviewing personal and business bank accounts, can also review tax returns for such discrepancies.

Red Flag #5 Funds Turned Into Cryptocurrency

With cryptocurrency anonymised and decentralised (i.e. without Australian Government compliance obligations), it is easier to hide cryptocurrency than more traditional assets.

That being said, if you suspect that funds may have been converted into cryptocurrency, a comprehensive forensic analysis of personal and business financial records can reveal unexplained transfers or missing money.

How Hidden Assets are Discovered

If someone deliberately tries to hide assets from their ex-partner or spouse there are many ways these may come to light, because there are many checks and balances that form part of the financial disclosure process imposed by the Courts. If, even after the financial disclosure process is complete there are still concerns, then there can be other ways or means of gathering this information. 

If a Court is involved, someone is more likely to be found out if they have not been upfront. For example, if the matter is in Court, a subpoena may be issued to get information that may not have already been produced, directly from the bank or an employer. 

If a Court finds that assets have not been disclosed (or false information has been given) and there is clear evidence of this, the Court can make findings against or draw inferences from that party. If the assets which no longer exist are discovered during the proceedings they can be added into the asset pool of the person who failed to disclose them, often resulting in a reduction of the settlement they receive at the time. 

Furthermore, if Court proceedings have been finalised and it is discovered that a party did not fully disclose their assets, which are of such significance that it would have been material to the outcome, there may be grounds for the Court to set aside the previous property orders and make new orders.

Penalties for Hiding Assets in Divorce in Australia

There are several possible consequences for anyone who has not fulfilled the obligation to provide a full and frank disclosure of their finances. These depend on the severity of the intent to hide assets or provide false financial information in the financial settlement process, 

If, through the investigation process it is found that there was intent to hide assets or give false information, then the party responsible for the omission may be ordered to pay the legal costs and forensic investigation costs that would have otherwise been paid by both parties.

Penalties also include fines, a greater amount of the existing pool being awarded to the other party, referral to ATO or other bodies and, in some cases, imprisonment.

As a result, any previously finalised financial settlement may need to be set aside and started again, with both sides’ costs to be paid by the offending party. 

Oftentimes this false information leads to an adjustment to the division of the property settlement that is less favourable to the offending party than it may have otherwise been.

Separating from your partner can be an emotional and stressful time at the best of times. However, if you are in this situation, determining what information you need to know and think about will be helpful to the overall picture. If you are looking into individual small transactions, consider how significant they are in the overall scheme of what you own. It is important to reality test whether this really matters as part of the bigger picture or you getting to the bottom of the issue may only result in unnecessary costs and delays. 

Sometimes people act emotionally rather than commercially after a separation so seek advice from a family lawyer first. This is particularly true if there are trust issues involved, such as in the instance of an affair. The assumption can often be that other details are being kept a secret too, which can then create a vicious cycle of needing to have more questions answered, may not necessarily be to your advantage overall.

It is important to be alert but not alarmed. If you suspect that your partner or  spouse is hiding assets and you have identified some of the red flags, working through your concerns with a family lawyer is essential. 

Seeing a specialist family lawyer will allow you to make an informed decision about how much information is enough for you to be comfortable with or what else may be needed to help you to make a decision to move forward. . 

If, however, you have a concern that something immediate is going to happen and your partner is going to transfer assets to someone else or overseas, and that is abnormal in your circumstances, it is important to get advice urgently from a lawyer, to learn what your options are.