Approximately one in three spouses — 31 percent, according to Business Insider — confess to lying to their partners about money. Whether this occurs before or after divorce begins looming on the horizon is unclear, but it’s safe to say that financial trust is not absolute in marriage. You might get away with concealing an asset or income while your marriage is healthy, but your financial dealings will come under a microscope when one spouse files for divorce.
The act of initiating divorce proceedings gives the court jurisdiction over your property. In other words, the judge has the final say regarding what happens to it. Even if you and your spouse reach a property settlement agreement, that agreement must be approved and signed off on by a judge before it is incorporated into a final judgment of divorce.
You might therefore think it’s OK to sweep an asset under the carpet in advance of filing for divorce, before the court takes jurisdiction. This can be a bad idea for a number of reasons.
The court can take the position that the action you took, either disposing of or transferring a marital asset, was done in contemplation of your divorce if the asset is later discovered. You were “divorce planning.” Even if the asset disappeared before you filed, the court can bring it right back into the marital pot for distribution, and the distribution may not be to your liking. In Rossi v. Rossi, a somewhat notorious California case, the wife purchased a winning lottery ticket worth $1.3 million and filed for divorce less than two weeks later. She tucked the money aside without telling her spouse or the court about it. The court awarded the entire $1.3 million to Thomas Rossi due to what the judge saw as Denise Rossi’s duplicity.
Of course, two weeks is a short period of time. Many states take the position that the timing of such an action is pivotal. Property disposed of five years ago when your marriage was healthy may not create much of a stir. New Jersey courts tend to base the decision on whether your marriage was already in the process of breaking down at the point that you concealed the asset or assets. In other words, it’s not so much a matter of when you transfer or dispose of property, but rather, the state of your marriage at the time.
The Rossi decision was somewhat extreme, but it establishes that some states will award the entire value of an undisclosed asset to the innocent spouse if the other attempts to remove the property from the marital estate so its value cannot be shared in a divorce. New Jersey law more or less gives judges discretion to handle such situations in whatever way they feel is equitable and just.
Depending on your state, the burden of proof may be on you to prove that the action you took was innocent, or it may fall to your spouse to establish that you intentionally attempted to take the asset out of the proceedings. At the least, the court may adjust property division if the hidden asset comes to light. Your spouse had a legal right to a share in it if it disappeared without her agreement or consent, even if the asset no longer exists.
Assume that you had $100,000 piece of land that your spouse did not know about. You transferred ownership to a family member or sold it to a friend with the understanding that you would reclaim ownership after your divorce was final. If the judge determines that your marital estate should be distributed 50-50, you would owe your spouse $50,000 for that property regardless of whether you still own it or can take it back. She may be awarded another piece of property of similar value or you may have to make her a cash payment.
A final warning: most states require that you file a financial affidavit or statement with the court, detailing your assets, liabilities, income, and expenses, shortly after you initiate a divorce. You must sign this statement under oath. Technically, if you do not include an asset that exists, such as money received for selling that land to a friend, you’re committing perjury.
Resist the temptation to remove property from your marriage if your marriage is already in trouble. If you are a facing divorce, call the Law Offices of Peter Van Aulen for a free 30 minute in office consultation.