Finding Hidden Assets In Family Law Matters

What are hidden assets?

Hidden assets include any asset which one party does not disclose to the other party, in connection to a proposed property settlement following the breakdown of a marriage or de-facto relationship.

At one extreme, one party may be deliberately trying to conceal the existence of an interest in an asset from the other party in a divorce.

Sometimes one party may be fully aware of their interests in assets at the time of making their disclosure but needs prompting from the other party to bring those assets to light.

Often we see one party withholding information about interests in assets from the other party as part of a (flawed) negotiation approach to reach an agreement on other aspects of the divorce, such as parent/child agreements.

What are the indicators that there may be hidden assets?

Certain environmental factors may present an opportunity for assets to be hidden from other parties. These include:

• Directorship and shareholding in numerous companies, past and present.
• Use of unincorporated entities particularly multiple trusts and a combination of unincorporated entities.
• Multiple loan accounts, other payables and other receivables accounts in the balance sheets provided and suspicious/unknown income and/or expenses items suggesting they might be related party transactions.
• Lots of overseas travel for unknown reasons.
• International dimensions to the business and/or international entities.
• More than one known business activity.
• Puppet directors or trustees of trusts.  Evidence is needed to demonstrate the ‘controlling mind’ is the husband or wife, rather than the parents, close relatives or business associates.
• Phoenix operations, particularly in recent history
• One party plotting to leave, the other other party holding on prior to agreement of separation.

Rule 13.04 of the Family Law Rules 2004 requires ‘full and frank disclosure.’ A forensic accountant can work with family lawyers to review initial disclosure and provide advice on whether that disclosure if considered full and frank for the purpose of allowing values for the matrimonial asset pool to be determined and potential claims for spousal maintenance.

In some instances, there can be cases where full and frank disclosure is not made on a timely basis. The challenge is to then work out whether this is:

• Inadvertent non disclosure
• Deliberate non-disclosure

How do you find hidden assets?

1.  You need to plan and gather a complete record of evidence currently available.
2. Analyse the financial statements provided and check that the financial data contained therein is consistent with the income tax returns lodged with the ATO.
3.  Obtain all accounting ledgers to explain transactions and all bank statements for the relevant periods.  Consider the relevant time period of investigation of financial records carefully taking into account cost and benefit in relation to the length of period determined.
4.  Identify all related party entities and individuals and note transactions involving these related parties and individuals.
5. Utilise forensic tools in litigation such as issuing a notice to produce and subpoena.  In family law, writing to the other side requesting specific and well defined documents under the obligations for full and frank disclosure is essential.  It is practically impossible to find hidden  assets (other than by accident) when the parties have not commenced litigation.
6.  Follow the flow of cash and assets out of entities into other entities.
7. Review end of period general journals and end of period adjustments by the accountant.

What are the challenges when assets are located overseas?

Unlike in Australia where you can trace shareholders of companies, in other countries it may not be possible to simply search this.

For information on Challenging Valuation Reports, please click –  How to Challenge Valuation Reports for Family Law Purposes

AVG Forensic is experienced in finding hidden assets and has a record of success in bringing into the matrimonial/relationship asset pool assets that were not initially included in the matrimonial/relationship asset pool. Please contact us to discuss how we can help.