With the stress of tax season not long gone and stories of financial scandals recently in the news, it can occasionally be hard to not let suspicion creep into your personal financial life, especially if you and your spouse are in the middle of a divorce. Couples sometimes fear divorce mediation because they suspect that their partner may be offering the solution as a way of hiding financial assets. Ironically doubts about financial transparency may unnecessarily lead couples down a path of litigated divorce that only eats away at the marital assets they are fighting over. If you are suspicious of your spouse’s offer to mediate, here are a few points to consider.
That’s Really All There Is
No matter how much or little money a couple has, an impending divorce may be the first time one or both spouses take a hard look at their budget and their finances. Make sure accusations of financial fraud are not disguised shell shock brought on by the impending reality of the costs of maintaining two households. In all likelihood, while the family may have been living comfortably, there could have been less savings than expected rather than hidden assets. It is essential that the suspicious party does her homework (see my prior post on prepping your finances for divorce) and if she still has unanswered questions, raises these questions in mediation. The mediator or lawyers representing the parties will request further financial disclosure and help the parties sort through open questions. If there are lingering concerns, the parties can retain financial advisors to delve deeper into open financial issues. Rather than precluding continued mediation, hiring experts can be useful in keeping the mediation on track and reaching resolution.
Court Action Will Not Necessarily Result in More Financial Disclosure
In a litigation, the court will order that each spouse file a sworn financial statement disclosing their assets, liabilities, income, expenses, deferred compensation, bank accounts, retirement accounts, insurance policies, and additional detailed financial information. The court will also impose deadlines for turning over financial documents in response to demands from the other party, including employment agreements, income tax returns, bank account statements, credit card statements, and much more. However, it is important to bear in mind that an unscrupulous person may be just as unscrupulous in court as in mediation. Given the massive number of cases before her, a judge may be even more likely to overlook financial fraud than a mediator or lawyers representing the parties in a mediation who are closer to the facts and more invested in the case. Don’t lose sight of the costs of waging a battle over financial disclosure, including the emotional toll that continued litigation can take on the family, and the legal and financial expert fees for reviewing mounds of often irrelevant documents turned over in the discovery process.
Undisclosed Assets or Income Could Be Less Than the Cost of a Forensic Evaluation
Thorough financial evaluations are extremely costly and may very well exceed the actual benefits of any revelation. Before a spouse vigorously pursues a forensic investigation into what she suspects is not a complete financial disclosure, she should obtain an estimate from at least one financial advisor and consider the projected costs against the maximum benefits she may realize in the event of any findings of undisclosed assets or income. Will the presumptive share of such asset or income clearly exceed the expert fees (financial and legal) and the prolongation of the settlement process?
Don’t Let Paranoia Jeopardize Settlement
With a broken marriage, there is often broken trust. Spouses should be careful not to let distrust irrationally rule the day. It is unlikely, for example, that an employer will risk legal exposure by re-characterizing or withholding income so that an employee can hide the asset or income in a pending divorce. It may help to share your suspicions with a neutral party to better gauge whether or not the evidence of financial fraud is there. Let common sense prevail.
Failing to fully disclose finances during a divorce mediation may not have the same legal ramifications as filing a false financial affidavit in court or withholding information in court-mandated financial discovery, but the divorce settlement agreement can and should include language indicating that each party has made full financial disclosure and incorporate financial affidavits. If either party misrepresents finances, the other person will have a breach of contract claim and the entire settlement agreement would be subject to judicial review, a risk your spouse would be unwise to take. More often than not, spouses who are motivated to mediate aren’t trying to hide anything; they want to keep costs in check, preserve privacy and dignity, lessen stress on the family, and ensure a quicker resolution.
This article is made available for informational purposes only by Kimberly Gantcher Spodek PLLC, and should not be construed to be formal legal advice. By reading this article, you understand that there is no attorney-client relationship between you and the firm. The content of this article should not be used as a substitute for obtaining competent legal advice from a licensed professional attorney.
Kimberly Gantcher Spodek is a member of the DailyWorth Connect program. Read more about the program here.