So, what are some additional ways to dig deeper when one suspects that there are additional undisclosed assets or debts?
In reviewing bank statement activity, it is important to make note of any payments for property taxes that pertain to property that has not been disclosed. In addition to the name of the county treasurer in the payee field, often the parcel number is noted. Likewise, if a credit card was used to make a tax payment, the name of the county will be evident. From there, one can use the internet to obtain more information about the ownership of the parcel from the county assessor’s website. Insurance policies are also a good source of information regarding assets that are of value since they are often listed within the policy.
Real estate loan applications are also valuable sources of information, as applicants provide asset, debt and income information. Assets that are listed on a loan application but not disclosed during the divorce should be investigated. The same holds true with income claims on a loan application. Income on a loan application should have supporting documentation that can be traced to what is being disclosed during a divorce. Federal income tax returns should be reviewed for assets that generate income, such as retirement plan distributions, dividends, interest, rental income and other business income. If one of the spouses has an ownership interest in a business, a business valuation may be in order so the value of their “interest” can be determined. It is often useful to search the Arizona Corporation Commission website for evidence of ownership or control of other business entities.
With respect to undisclosed defined benefit pension plans and employee stock options, it is useful to research the employer’s benefit plans either online or to obtain the information via subpoena. It should be noted that defined benefit pension plans are valued differently than a typical IRA or 401(k). The value that is reflected on an annual statement, such as plan statement for the Arizona State Retirement system, does not truly reflect the value of pension benefits to the plan participant. Instead, it reflects what has been contributed to date, as well as the value if the plan were cashed out. Also, not all pensions require employee contributions, so the existence of the plan may not be evident by merely reviewing a paystub. That being said, W-2s do indicate the existence of pension or retirement plans. Some employees have both types of plans (a deferred compensation plan plus a defined benefit plan). Again, it is important to have a thorough understanding of the true benefits provided by that particular employer.
In reviewing bank statement activity, cash withdrawals above what was deemed to be “normal” spending should also be tracked, as they might be indicative of a cash hoard or community waste. If a safe deposit box has been disclosed, have the contents been inventoried? If there is suspicion of undisclosed bank accounts and safe deposit accounts, a subpoena may be in order. Likewise, any credit card cash advances should be scrutinized. Speaking of credit cards and debt in general, it is highly recommended that each spouse obtain a credit report. Any debts on the credit report should have been disclosed. If there are open accounts with balances, these should be investigated.
With respect to the underreporting of income, it is important to search for deferred bonuses or other income that may have been deposited after what is called the date of “service.” If this income was earned prior to that point, then this should be a topic of discussion and investigation. If there is a closely held business and there is suspicion of funds being diverted or not being deposited, it may also be wise to investigate.
Finally, if one spouse is claiming that property is “separate” property because he or she had a particular retirement account or other asset (such as real estate or a business) prior to the marriage, additional analysis is needed, because community funds may have been added during the marriage.
In closing, one would hope that both parties to a divorce would be honest and transparent when dividing property and providing the income and expense information that is needed for spousal claims or child support. Hopefully these tips are helpful where there are concerns that one party is being untruthful during divorce proceedings. FBN
By Jenny Staskey
Jenny Staskey, CPA, CFE, CDFA is employed by Aspey, Watkins & Diesel, PLLC as a forensic accountant in support of legal services. She can be reached at Jstaskey@awdlaw.com.