Somebody going through a contentious divorce can be very unpredictable. A person with a combative and calculating personality can make a divorce proceeding extremely unpleasant and difficult for all involved, including the courts. It is not uncommon for somebody like this to file orders of protection without merit, relocate children without consent, hide assets and underreport income. Liquid assets are often placed in foreign bank accounts, put into questionable investments or squandered. Once these funds are gone, they are unavailable for consideration during equitable distribution.
Hidden assets and income affect the victim spouse when a court is deciding an appropriate property division, maintenance and child support. If a spouse hides or wastes income and assets, the victim spouse will not have the entire marital pot available for division by the court. Instead, the victim spouse can only receive an equitable share of the diminished pot. When this occurs, how can a court provide a remedy to a victim spouse?
In equitable distribution, the court maintains discretion over the degree and nature of the penalty imposed for failure to comply with disclosure orders. In some cases, after it has been determined that income and assets were hidden or wasted in contemplation of divorce, the court can decide that unequal distribution of marital assets is warranted by the egregious economic misconduct. Although this method provides the victim spouse with some redress, the victim spouse is never truly whole, since the award is being apportioned from a distorted marital pot.
Moreover, it has to be established that assets and income have been secreted and concealed for a court to order unequal distribution. This can be difficult for spouses who do not have knowledge of the couple’s finances. Below are a few cases highlighting how some New York matrimonial courts have handled this issue.
In Maharam v. Maharam, a leading case on hidden assets, the defendant- husband secreted assets in foreign bank accounts and squandered sizable sums of money on luxury items and admitted adulterous affairs. Due to the existence of the foreign bank accounts and the squandered money, the court ordered a 65%-35% distribution to the victim spouse. The Maharam court reasoned that penalizing one party in the distribution of assets from the marital estate was appropriate when that litigant’s egregious economic misconduct prevented the court from making an equitable determination.
Similarly, in Goldberg v. Goldberg, the plaintiff-wife established that the defendant-husband had dissipated marital funds and secreted marital assets through conveyances of those assets to various trusts and alter ego corporations. The court decided that a distributive award to the plaintiff, in lieu of equitable distribution, was proper to achieve an equitable result in the distribution of property. In Contino v. Contino, the court awarded the defendant-wife a distributive award in lieu of equitable distribution. The plaintiff-husband withdrew and concealed funds from bank accounts so they would not be distributed during the divorce. The court maintained that secreting assets in order to prevent the trial court from making an equitable distribution of property supported a finding of economic fault, and the court considered the missing assets when making its distributive award.
People are not likely to stop hiding assets. Couples can avoid these problems if they plan ahead. Couples can create a prenuptial agreement including a clause listing the consequences of a spouse hiding assets. It is important for all spouses to know every aspect of the other spouse’s financial status. This information will enable a spouse to detect discrepancies presented during the divorce proceedings. If the issue does come up in court, the victim spouse will have evidence to prove that the other spouse is, in fact, hiding assets. After the commencement of a divorce, targeted discovery, such as immediately subpoenaing bank records, will help establish the marital pot before assets are wasted and hidden. Sometimes, the use of a private investigator is useful since transferring large amounts of money can leave a paper trail. Overall, preventive planning is necessary to protect one’s financial interests when a marriage dissolves.