Spouses commit fraud for an age-old reason—greed. Many spouses can easily rationalize hiding assets or committing fraud against their spouse due to hostility that arises between the parties in a divorce proceeding.
It is important to understand the behaviors and conditions that can lead to the possible existence of fraud or hidden assets found after a divorce.
Technology is changing the way people get divorced.
National Public Radio interviewed Eide Bailly forensic examiners to better understand how mobile technology and spyware is changing divorce proceedings.
Listen to their stories
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Four Ways Fraud Is Impacting Your Client’s Divorce
There are several behaviors that can serve as red flags to the possible existence of fraud.
- Exclusive control
You and your client should be suspicious if the spouse has (or has had) exclusive control over financial assets. This could include financial accounts or control of financial mail. It could also be the existence of multiple bank accounts with many transfers and large deposits and withdrawals.
- Information that doesn’t match up
Income tax returns and supporting documentation can tell you a lot about hidden assets or income that should be considered part of a settlement.Items forensic accountants typically review on an income tax return include:
- Wages, salaries, tips and other income. Do these match the W-2 and 1099? Do the deposits match? Ensuring verification helps determine whether all wages were used to benefit the couple or whether funds were placed in another account.
- Capital gains and losses. Sales of investments and other property sales should be reported as capital gains or losses. These sales transactions should be matched to their supporting documentation.
- Business income. Business ownership within the marital estate is a prime area for hidden assets. In divorce matters, forensic accountants are commonly engaged to identify any potential questionable transactions where company funds were used to pay personal expenses and may not be included in financial income statements for disclosure in divorce court.
- Cryptocurrency assets. With the rise of blockchain and crypto assets, it’s important to understand and track these when looking into a marital dissolution. For instance, a spouse may attempt to hide assets from divorce proceeding by purchasing cryptocurrency and making numerous transactions through the use of blockchain.
- Computer and email accounts
Safety is a key concern for many individuals online. So, they put passwords and security questions on their accounts. In a divorce, however, that type of information can be used against the ex-spouse. Think about your answers to online security questions. Would your spouse know your favorite sport, mother’s maiden name or another simplistic question?
Your client’s digital behavior provides an electronic trail to the opposing party's life and character. Addictions (from gambling, shopping, drugs, or pornography) to extramarital affairs, manipulating finances due to the divorce, or using eBay/PayPal to sell assets, to evidence of spying on the spouse electronically, all can be obtained through computer forensics. In most cases, attempts to destroy evidence or hide these tracks has been present in some form on examined computers.
- Deleted data & mobile technology. A red flag for potential fraud in a divorce proceeding is an ex-spouse who seems to not only be controlling with money, but also secretive about their financial affairs. While this is often hard to quantify, forensic accountants can use tips and tricks to help uncover secret behavior. The key may be in deleted data.
In our digitally connected world, data on a mobile device (even data that has been deleted) is critical to uncovering the truth and exposing fraud or hidden assets. Deleted data can be almost anything once held on a memory-based device, including pictures, videos, presentations, documents, texts, email, etc. Deleted data allows you to piece together a puzzle of what really happened and can expose areas that need to be considered in a divorce proceeding.
Data collection must be performed by an independent third party. Collect the data in the wrong manner, and the evidence can be thrown out. The process of recovering deleted data is as critical as what the data includes.
Forensics is a critical aspect of your client’s divorce case.
Enlist Forensic Accounting Help Early in Divorce Proceedings
The unique nature of divorces make forensic accounting important in these matters. There are very few "friendly" divorces, and divorce actions can bring out the viciousness and greediness in people when the division of marital property or support obligations turns into a battle.
Division of marital property requires valuation, and to best serve your client, it is important to make sure all assets have been accounted for in order to obtain the best possible settlement. Enlisting the aid of a qualified forensic accountant early on to investigate the possibility of hidden assets or income will benefit you and your client long-term.
Forensic accounting is vital to the success of your case. It doesn’t have to cost you.
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