Although there is what is known as a duty of ‘full and frank disclosure’ when getting divorced, some people deliberately hide assets or undervalue them. Others actively plan deception well in advance, when they realise that things are going wrong.
Forensically analysing financial disclosure on divorce can unearth ‘buried treasure’. The process can be high risk and expensive. A cost/benefit analysis should always be undertaken before starting such an investigation. Where it is proportionate to use them, there are a number of techniques that can be used to find hidden money or assets.
When weighing up whether to start an investigation, there are certain things worth looking at. Examining overseas connections where there are strong business or personal links in other countries is often a good starting point. Complicated business structures or joint ventures are also usually good indicators. A classic warning sign is where one party has already had the benefit of financial or tax planning advice in the recent past.
Alarm bells should also ring where assets have been disposed of at an apparent loss, or where there is an otherwise unexplained decline in the performance of businesses that have previously been profitable.
Income Tax returns can tell their own story, more by what is not shown on them rather than what is declared. Where the returns show little or no tax paid it is time to get out the spade, and get digging. Business interests may be known to exist, but if they are not shown in the tax return, then further investigation is normally justified.
The kind of checks that can be carried out include the following:-
Credit History
While it is not possible to access the credit history of another person, this can be circumvented if any joint accounts are held. A credit history check made for one account holder will show up applications for loans or finance. If the loans have been taken out, where has the money gone?
Financial Statements
Business trading accounts have detailed notes setting out specific transactions. These can be used to connect individuals with businesses. They can also be used to link transactions between a party and related persons such as friends or relatives.
Social Media
Sometimes unbelievably, indiscreet comments about financial or business affairs can be made online and often provide useful sources of enquiry. Publicity statements issued about business performance may also give a completely different picture about what is being said in evidence about the profitability of a business. They should also be examined carefully to see if any undisclosed associations or business relationships are mentioned.
Cash Rich Businesses
These can be particularly vulnerable to manipulation. A decline in profitability or a reduced turnover can be compared with lifestyle or expenditure levels. The sudden appearance of management or consultant’s charges in business accounts should also be investigated, because they may be artificial expenses, or could be shown as expenses when, in fact, they are payments to the other party or to someone connected with that party.
Property Values
Often these are estimated by business owners. The figures shown in accounts may be complete under-valuations or may be years out of date. Professional advice should always be sought.
Undervalued Transactions
It is often worth going back two or even three years to uncover transactions or gifts involving friends or relatives, made at an undervalue. If these transactions have been made by business entities, then they could be disclosed by way of notes in the accounts. These transactions are often reversed when the case is over.
Tax Planning Arrangements
A demand for production of professional correspondence and details of plans made should be pursued where the tax planning has the coincidental or intended effect of sheltering or hiding assets.
All of these steps require the suspicious party to make the necessary enquiries themselves, with the help of their advisor. The Courts will not do this automatically. To take on investigations of this type can cause delay, and will usually be expensive. Sometimes they do not reveal anything. It is important to know when to make enquiries, and when not to. This takes skill and experience on the part of the advisors, but if you don’t dig you can’t unearth!