FINANCIAL FRAUD IN DIVORCE

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FINANCIAL FRAUD IN DIVORCE

The division of marital property in divorce can be financially and legally complex. In New York, and other “equitable distribution” states,  the plaintiff (the spouse filing for the divorce) has a burden to prove her/his claims. The potential for fraud, perjury and forgery is a risk.  Concealment of assets, misrepresentation, underreporting of income, hiding cash, undervaluing of property are more common than people might think.

According to one study, sponsored by the National Endowment for Financial Education,  about one third of all partners or spouses say they have been deceptive about money. Risk of fraud is greater in family-owned or closely held businesses,  cash businesses, or when one spouse has exerted unilateral control over accumulation of finances in the marriage as part of domestic abuse pattern. Whomever is controlling the money supply at the end of the marriage has the advantage .

During the divorce proceeding, if the spouses cannot agree about the division of assets in their divorce, then the court will order  “discovery” — a process where information is exchanged  and valuations are done —  of stocks, bonds, real estate, pensions, IRAs, property, business holdings, etc. The discovery process provides the plaintiff with the opportunity to obtain crucial information about the family finances in order to prove her or his claims. It seems like a good idea on paper. But in reality, the discovery process is notorious for creating protracted delay and huge expense. Moreover, the laws are written in language that leaves broad discretion to the court. This situation has created an opportunity for economic fraud by spouses, and by unscrupulous lawyers, who can drag out proceedings and engage in ruthless profiteering. (My nationally-acclaimed book, Divorced From Justice, explains the pitfalls of the discovery process, in detail.)

It is much easier to prevent financial fraud in the divorce by taking necessary steps to protect your interests before the divorce proceeding begins. If the proceeding is already underway, however, it is important to take certain steps during the process to maximize the potential for you to obtain your fair share of the marital property. We can help.

THE BASICS ABOUT MARITAL SETTLEMENT AGREEMENTS

If you and your spouse have decided to end your marriage, and issues are in dispute such as property division, child custody, child plans, debt division, spousal support or any other relevant issues,  then you both can try to mutually resolve these issues and come to an agreement with each other. You will formalize the agreement in a written contract called a marital settlement agreement. It covers each spouse’s rights and duties to each other following the divorce in areas related to the divorce.

If you and your spouse are fighting these issues out in court, in many courts around the nation, the judge will require the parties to attend a settlement conference before a case can go to trial, to see if  you and your spouse will agree rather than going to trial.  If you agree it is best to settle, understand that the agreement will only become legally binding on both spouses when the agreement is 1) formalized in writing or; 2) when the agreement is recited on the record, known as a “stipulated settlement.” Reciting oral statements on the record means that the court reporter takes down every word, so you have a written record of the agreement. The settlement becomes part of the divorce decree. It is generally safer to draft a written contract rather than to make oral agreements in court, where you will be under tremendous pressure to agree on-the-spot to terms that might be unclear, incorrect, or might not be in your best interest.

You can choose how to handle the task of formalizing the marital settlement agreement. You can hire an attorney, legal service, mediator, (a neutral person who helps spouses work out agreements) or you can decide to do it on your own. However,  if you do decide to draft the settlement agreement  on your own, then it is recommended that have it reviewed by an attorney to make sure it is drafted correctly. The settlement agreement will be used to finalize your divorce.

BEWARE PITFALLS

There are many kinds of pitfalls to beware in preparing a settlement agreement, including the problem of loopholes — word ambiguities. If the lawyer representing you or the legal service you choose to draft the agreement, does not  draft it correctly,  the agreement might not be as clear or straightforward as it seems.  Any loopholes in a poorly drafted agreement are waiting to be exploited, or can have major financial consequences depending on their interpretation. These loopholes might turn into a “power abuse” issue because the loophole creates a way for a spouse to avoid an obligation while insisting that he or she is  lawfully abiding by the agreement.  If you have to go to court to try and remove the loophole,  it will be extremely expensive to ask the court to interpret the ambiguity or gap in meaning. Moreover, there are no guarantees that the court will interpret the words the way you think they should be interpreted, sometimes even if the law is on your side.  Remember to ask the attorney to check for any loopholes — before you sign on the dotted line.