We hear the word fraud thrown around all the time when it comes to business and taxes. But what about when it happens within your own marriage? Fraud can play a huge role in divorce settlements. If you’re in the process of getting a divorce, this is definitely an issue you should keep in mind, and it’s more common than you probably think. In fact, the National Endowment for Financial Education has found that roughly one-third of couples who file for divorce engage in some sort of marital fraud. So what exactly does that mean, and how might it affect your divorce case? We’ll cover everything you need to know.
What is Marital Fraud?
Marital fraud is a lot like business fraud– only it happens within a marriage. It most often involves lying about the value of or hiding assets, and in some cases, a family business also plays a role. Officially, three things must be evident in order to prove fraud: false representations by the party being accused of fraud, knowledge that these representations were false (or made with a lack of care for the truth), and an intent to make the other party act a certain way (or to make them not act a certain way).
In the case of divorce, marital fraud is very common, because the spouse committing fraud has a lot to gain by shifting the divorce settlement to work in their favor. A deceitful spouse may hide assets in a secret bank account, sell assets at a low value and buy them back after the divorce, commit forgery, or commit tax, credit, loan, or insurance fraud. They may also manipulate the income and expenses of their business. This involves fraudulent behavior such as not disclosing cash sales or fabricating payroll entries to lie about their income.
Marital Fraud’s Effect on a Divorce Case
Obviously, if your spouse is committing fraud against you, you’ll want to call them out and ensure that they face repercussions and you get all the value you deserve. However, it’s important to think about the overall effect this will have on your case– especially the cost and the amount of time it will take to get through. This all depends on the type of fraud at hand. Many are straightforward and won’t be too much of a hassle to investigate, but some types will take a very long time (multiple years!) and a ton of effort, which may be more of a headache than it’s worth. The process includes a great deal of case management, interviews, and gathering documents. Typically, the most involved investigations stem from more complicated fraud cases, like ones that involve a family business. Divorce is already an expensive and exhausting process, so you should consider how much your spouse’s fraud is costing you, as well as what you’re willing to go through to get that value back. You should also consider the amount of evidence available, and how likely it is that the fraud will actually be uncovered. Remember that it’s very possible that even after an investigation, you won’t recover the cost: while allegations of fraud are very common in divorce cases, evidence is only found 10% of the time. At the end of the day, investigating marital fraud often costs more than it’s worth– in money, time, and effort.
If you do decide to go through with a fraud investigation in your divorce case, you should be sure to hire a good lawyer that knows a lot about financial valuation and classification. The investigation process involves the following:
- Detailed interviews with both spouses, any of their adult children, business employees, and any other relevant people.
- A flowchart of all the property you and your spouse have acquired throughout your marriage, which will show the sources of where money came from for all of it as well as any cash made from sales
- Recovery of records and documents. These will include basic one like tax returns (which can actually be very helpful in the process) and financial statements, but smaller statements will be demanded as well for an in-depth analysis.
- Lifestyle analyses based on this data
- Research in public records
- Subpoena to financial institutions
- Depositions from the spouse and other relevant people
If it looks like this involves a lot of time, that’s because it does! But it could be worth it in the end. Many states have laws to control marital fraud that include huge rewards for the defrauded spouse, like a California law that awards an entire property to the defrauded spouse if they’ve been deprived of the property or rights. Many laws also include severe punishment for fraudulent behavior. It should be enough to keep anyone from attempting marital fraud. But, unfortunately, a spiteful spouse will always try their hand at twisting the divorce settlement, so it’s important to be aware of the risks at hand and to stay vigilant throughout your divorce case. Always have a good lawyer, keep an eye on the warning signs, and be prepared for the process.