How Forensic Accountants Uncover Hidden Assets in Divorce

Identifying and properly valuing all marital assets is one of the most crucial steps in divorce. In high net worth divorce cases, a spouse may try to conceal or undervalue assets to get a larger share of the wealth. Failing to uncover all assets involved can mean millions of dollars unfairly going to the wrong spouse.

This is where forensic accountants come in. These professionals work to uncover hidden assets and verify accurate asset valuation, helping ensure a fair and equitable outcome.

How New York Divides Marital Assets

New York operates under an equitable distribution model for dividing marital property—meaning assets are divided fairly, but not necessarily 50/50. A spouse who is unaware of existing assets or thinks they are worth less than they actually are could end up with an unfair cut, leading to financial struggles long after the divorce is finalized.

In many high-net-worth divorces, a complex asset portfolio—ranging from real estate and businesses to investments and collectibles—provides ample opportunity for one party to benefit financially from divorce.

Five Ways People Try to Conceal Assets in Divorce

Hiding or undervaluing assets can be deliberate or arise from a lack of transparency in financial records. Either way, the behavior is not uncommon, especially in cases involving significant wealth.

Here are some common ways spouses try to hide assets:

1. Cryptocurrency and Digital Assets

   Digital currencies are appealing to those trying to sequester marital assets. Decentralized cryptocurrencies like Bitcoin and Ethereum can make it hard for an uninformed spouse to discover or keep track of.

   For example, CNBC recently reported that a man hid $500,000 in Bitcoin during his divorce by transferring it to a private digital wallet that was difficult to trace. Without a clear paper trail or centralized ledger, a spouse might attempt to hide large sums of money in cryptocurrency, which can later be cashed out or converted into other forms of wealth.

2. LLCs and Secret Trusts

   Another asset concealment method involves using secret trusts or shell companies, like Limited Liability Companies (LLCs). A trust or LLC can hold assets like real estate, investments, or valuable collections, making them difficult to detect in divorce proceedings.

   A spouse may set up these entities to move assets out of their name and into the ownership of a third party without the other spouse’s knowledge. Since the LLC or trust technically owns the assets, they may not appear as part of the marital estate.

3. Offshore Accounts

   Offshore bank accounts held in jurisdictions with strict privacy laws have long been a tool for hiding assets in divorce cases. Identifying accounts held outside the country requires specialized techniques, including reviewing international tax filings, bank account disclosures, and financial records from both parties’ countries of residence.

4. Overpayment of Debts or Expenses

   Another way to conceal assets is to overpay debts or inflate expenses. For instance, a spouse might pay off a loan or credit card early, or “buy” a large asset—a boat or luxury car—prior to filing for divorce. These purchases can be disguised as normal financial activities. Detection often requires expert analysis of financial transactions, identifying unusual patterns, inflated expenses, or overpayments that can indicate attempts to divert money.

5. Gifting Assets

   Another tactic used to hide assets involves gifting large sums of money or property to family members or friends. The spouse may transfer assets just before the divorce filing or even during the divorce process itself. Discovering this activity may require tracing the gifts, analyzing bank records, and interviewing witnesses.

Five Commonly Undervalued Assets in High Net-Worth Divorce

In addition to attempting to hide assets, some spouses try to undervalue or misrepresent the worth of certain assets to reduce the total value of the marital estate. This is particularly common with items that are difficult to appraise or assess accurately, like real estate, art, and business interests.

1. Art Collections

   Art collections, antiques, and other collectibles are often difficult to value accurately, as their worth can be subjective and dependent on market conditions. In a divorce, one spouse may undervalue a collection to minimize the estate's overall value. Detection requires expertise in high-end assets and work with appraisers and other specialists to determine the true value of such collectables.

2. Real Estate

   Real estate can also be undervalued, particularly if the property is in a fluctuating market. One spouse may attempt to downplay the worth of a home, vacation, or investment properties. It’s important to properly value all properties and identify any discrepancies in valuation.

3. Private Business Interests

   A private business can be one of the most challenging assets to value accurately. In some cases, a spouse may understate the value of a business or misrepresent its financial performance to reduce their share of the marital estate. A thorough examination of financial statements, tax returns, and business records can help identify discrepancies or hidden income that may affect the business’s true value.

4. Investments and Stocks

   Investments, stocks, and retirement accounts are also common targets for undervaluation. A spouse might misrepresent the amount of stock ownership or undervalue the performance of a portfolio. A detailed investment portfolio review, including tracking gains and losses, can help ensure an accurate valuation.

5. Intellectual Property

   In some high-net-worth divorces, one spouse may own valuable patents, trademarks, or copyrights. These assets can be tricky to value, and a spouse might try to downplay their worth. Specialized valuators can help ensure the proper value is assigned.

How Forensic Accountants Help Uncover Hidden or Undervalued Assets

Forensic accountants are financial experts trained to trace, identify, and value assets during a divorce. They use a variety of techniques to uncover hidden or undervalued assets, including:

• Detailed Financial Investigation: Forensic accountants examine tax returns, bank statements, investment records, and other financial documents to identify any signs of asset concealment. They look for unusual transactions, unexplained transfers, and other discrepancies that may indicate hidden assets.
• Tracing Funds: One of the primary tools used by forensic accountants is fund tracing, which involves following the flow of money through various accounts and transactions to uncover hidden assets.
• Working with Specialists: Forensic accountants often collaborate with other professionals, such as real estate appraisers, business valuators, and art experts, to assess the value of complex assets and ensure that all property is properly valued.
• Analyzing Lifestyle: Forensic accountants may also examine a spouse’s lifestyle to detect any discrepancies between reported income and actual spending habits. If someone is living beyond their means, it may indicate hidden assets.

Having the right legal and financial support is crucial if you're going through a high-net-worth divorce. Hiring a skilled divorce attorney who understands high net worth asset division is essential, but ensuring that your attorney has access to a skilled forensic accountant is equally important. Forensic accountants can help uncover hidden or undervalued assets, making sure all marital property is accounted for and properly valued.

When hiring a divorce attorney, always ask whether they have experience working with forensic accountants. A collaborative approach between an attorney and a forensic accountant can make a major difference in securing a fair financial settlement in a divorce.