Clients always want to know what’s involved in searching offshore for hidden assets. Our usual answer is, “time and a lot more money than it’s probably worth, unless you’re looking for millions of dollars.”Woman Telescope IN MONEY SEA

Suddeutsche Zeitung, one of the recipients of the leaked Panama Papers reported that one lawyer “represented a female client in a divorce case, and it cost $2 to $3 million to uncover and disentangle the web of front companies into which the assets had been poured by her husband. That is a lawyer’s fee not many are able to pay.”

While not every divorce case involves many millions, even an onshore search follows the same principles: look not just for money in the name of the person but in the name of secret companies that person created.

As I wrote in my just published book, The Art of Fact Investigation, “Given how quickly and cheaply people can set up limited liability companies (and even ordinary corporations) it is folly to assume that a person who may be concealing assets would not have availed him or herself of this simple mechanism.”

Unless there is hard evidence that a person has hidden assets offshore, we like to start onshore for a few simple reasons:

  1. It’s a lot cheaper, and if you find a good haul of assets you may find your way to a reasonable settlement. The extra money offshore could still be there, but it may not make financial sense to go after it because of the fees and the length of time it could take to litigate in Caribbean and other tax havens.
  2. It’s easier to find onshore side companies because of the much larger store of public information in the U.S. compared with most overseas jurisdictions.
  3. The onshore records may provide good leads to the offshore companies. You may find a property deed notarized in the Cayman Islands or Isle of Man, for example. If you get the tax returns in discovery to a new onshore company, you could see payments from an offshore company that could end up being the subject’s secret company.

Wherever you look for secret companies, a few similar search rules apply. These include the propensity to use the same name in multiple companies. We’ve seen net worth statements with Alpha I and Alpha II listed, but the person has omitted Alphas III, IV and V. Other common names include streets the subject grew up on, names of summer camps, favorite pets, or combinations of children’s names or initials.

Offshore or Onshore, people are people and tend to behave the same way the world over when it comes to stashing their cash.

What’s wrong with using a forensic accountant in your hunt for a spouse’s hidden assets? Nothing, provided you hand that accountant all the pertinent information you can. We’ve mentioned the need for these professionals frequently on our site, and this Forbes article by Jeffrey Landers explains similar reasoning.forensic accountant divorce

The problem with forensic accountants can be timing. We are often brought into an asset search after a forensic accountant has been hired. The accountant has the sense that something is amiss but beyond being able to testify that the numbers don’t add up, things are at a standstill and the pressure to settle continues to mount.

Our firm is not made up of accountants, and we are not able to testify that the books and records of eight companies controlled by Husband are probably not reflecting all income generated.

But where we can offer help is to find entire new companies that Wife and her accountants (forensic included) did not know existed.

How can this happen? For the simple reason that forensic accounts are trained to look at what is in front of them and to decide if it makes sense. They can tell if money has been stolen, but are on less firm ground in deciding where that money went. What did it buy? Where might it be sitting today?

Our strength is in taking a fresh look at a person and trying to find everything he owns.

If our client tells us not to bother looking for assets outside a person’s state of residence, we look anyway. If our client tells us about a piece of property that was sold last year, we make sure it really was sold. If it was, we try to see who bought it, because it could be that Husband sold it to a company he, a friend or relative controls.

So by all means, hire a forensic accountant if you need one. Just remember to make sure an investigator with a wide scope has taken a look. No point in examining “all books and records” when there could be millions stashed in a company you know nothing about.

The debate so far over whether Apple should help the U.S. government execute a warrant to see what is on one of its phones has focused on the information of a dead terrorist and the prospective data breach (according to Apple) of millions of law abiding citizens.

The stakes are high, but lost in the discussion is the future of data retrieval to fight another kind of wrongdoing: deadbeat parents who won’t pay child support or greedy spouses who hide assets during and after divorce.prenups if apple wins

We spend a lot of time looking for such assets, and while we have generated lots of good leads, nailing the case often requires the production of bank accounts.

Imagine this: Husband handles all the finances of his businesses and gives Wife an allowance to run the home, pay the school fees and taxes. When Husband decides to end the marriage, he begins to divert cash taken out of the business to bank accounts held in the names of limited liability companies he has set up around the country. Some of the accounts are in Caribbean tax havens.

The court orders Husband to produce all financial records. He does, but they seem “light.” Husband is ordered to produce his phone as evidence, since some of his banking may be paperless. He hands over the phone but not the password. “If a dead terrorist has rights, so have I,” he proclaims.

Recall that Apple co-operated with law enforcement in handing over everything the terrorist had backed up on the i-cloud. It was just the material not backed up that Apple decided it should not have to help uncover.

What should wives like the woman in our example do to protect themselves against super-encrypted, paperless financial records available for the price of a smartphone?

One idea we had in our office was this: draft a prenuptial agreement that shifts financial burdens in the event that the entire contents of the phone are not backed up once a week. In the event of a divorce, once Husband can be shown to have stopped uploading the records to the cloud, he automatically surrenders his share of tangible assets the wife can find: homes, cars, shares of businesses.

Some states may frown on such an approach, but we will have to figure something out if millions of us (in a world in which Apple prevails) can go dark as to our financial records at the drop of a hat.

Side note: would we back Apple if the facts and company involved were a little different? What if Goldman Sachs built a super-secure bank vault miles underground in the desert? Hedge fund billionaires and Russian oligarchs use the vault to keep records that could prove tax evasion, insider trading, market rigging and a host of other financial crimes. The vault is booby-trapped to explode if anyone tries to break into it. Even if you get past that system, each individual box is rigged so that if anyone dries to drill into it, acid is released and destroys the contents.

When presented with a court order to open the vault, Goldman says, “No. If we break into one bad guy’s vault, the secret of how to disable it would leak out and someone else could break in. Our customers find this offensive.”

In honor of today’s $1.5 billion Powerball jackpot, we bring to the top the piece we wrote nearly three years ago, Jackpot! Finding Lottery Winnings.

hidden powerball winnings

The executive summary of that entry is that lottery winnings are federally taxable and therefore harder to conceal than other kinds of assets. If you can subpoena a tax return you can usually see signs of the gambling income unless the other side is actively evading the IRS.

Prior to the subpoena stage, however, it would be a staunch individual who would not be tempted to spend at least a bit of the $900 million cash value of today’s Powerball (assuming a single winner and the election of the lump sum amount after withholding).

But what about if the winnings are older or, while not as large as $900 million, large enough to elicit some new spending?

There, we start to talk about the special way asset searchers look for cash.

Our approach is that absent a court order that gets you into bank account records, the search for cash is most often the search for things that will lead you to cash.

In looking for non-cash assets, we pay especially close attention to the way those assets were acquired. Where did the cash come from? Were there companies we have never seen before used as acquiring vehicles?

We once had a case in which a New York resident bought New York property on several occasions over a period of a year. The buyer’s signature on each and every one was notarized in Dallas, where we had no record of any buyer activity. A short time later, a more detailed search revealed Texas business links and more assets.

Like anything else brought out into the sunlight, assets of any kind cast shadows. Those shadows can tell you a lot.

One of the core principles of good investigation is to assume nothing and start looking from scratch. We have found a lot of money over the years hiding in plain sight: in new companies named after old companies in neighboring states, or even in places mentioned in emails left lying around the house.prenup investigation

Liberian corporations, apartments in Monaco, it’s amazing what turns up among forgotten papers in desk drawers (or on shared computers at home).

One plain sight source for possible martial assets is the structure set up at the time of a prenuptial agreement. That may seem counterintuitive. Why go after something that is not a marital asset and is contractually off-limits?

For the very simple reason that a structure set up with non-marital assets could be a perfect place to hide cash that is properly subject to division at the time of divorce.

Consider the advice of Chicago divorce lawyer Thomas J. Handler, writing in the New York Times a couple of years ago here. He argued in favor of a “stealth” prenup, which is a structure of an offshore trust, combined with a limited liability company and a management company that could be a conventional corporation or another LLC.

That’s a lot of layers and foreign borders to work through and may not be worth it unless there’s considerable money at stake. But if there is, these vehicles can be detected and breached, especially if there is a U.S. corporate vehicle attached to them.

We specialize in finding side companies that people wish to keep secret, and have written about the process many times, including here, where we wrote about secret partnerships as well as LLC’s.

Secrecy is often the most important thing about stealth prenups. As Handler wrote,

A key element of this technique is that it is, in fact, “stealthy”; no disclosure obligation is necessary because these structures have been put in place prior to marriage. Unlike traditional prenuptial agreements, where there is little chance of enforcement without the exchange of full and accurate financial information, no such requirement applies to the stealth prenup.

Even if a prenup should name the offshore-linked assets that are off-limits, they are worth a look anyway. What if the structure has changed over the years? What if cash from marriage should have been placed in the structure supposedly restricted to the pre-marriage assets?

If you don’t look for it, you won’t find it. With a lot of money at issue, that would be a real shame.

You wouldn’t want to ask anyone to steal bank account information about your client’s spouse. You would never ask for the theft of that person’s medical records. You would not try to break into his office to take the computer on his desk to see his work email.

So why would you delight in using information stolen from Ashley Madison? Why would you even endorse it, as many have, because it somehow gives wrongdoers what they deserve?

Where adultery is legal, disapproving of the activity is no reason to commit a crime. If the Ashley Madison break-in was OK, so was Watergate.

Of course, using information that is in the public domain is different from using information that you yourself have stolen. Newspapers in the U.S. routinely report the products of illegal leaks, but even journalists in countries outside the U.S. who do not enjoy First Amendment protections need to be careful about possessing stolen information.

The next time a newspaper (even in the U.S.) reports on a leak and writes that its reporters have reviewed (but not obtained) documents, you might ask why they didn’t make a copy. It could be because possession is worse in the eyes of law enforcement than a quick look at what someone else obtained.

With Canadian police saying that they intend to prosecute the leak of Ashley Madison’s information as a theft, just as they would go after a bank robber or a credit card hacker, we should ask ourselves what to do with the information that comes from the theft.

Is it admissible into evidence? Lots of information that is reported in the newspapers or on the internet every day would not be admissible, because it is hearsay and doesn’t fall into one of the many hearsay exceptions, or maybe because it violates the no-contact rule. Or, it was procured legally but in a way that bar associations would view to be unethical. For instance, recording a phone conversation is legal in many states if just one of the two people on the call knows about the recording, but many bar associations say lawyers should not record conversations unless someone’s liberty is at stake.

The search for assets would not likely take us toward the Ashley Madison database to begin with. But if one day a client asked about it, my preference would be to warn my client that this is stolen property and to let them look if they want (how can you stop them?) If my client were outside the U.S., I would warn them to proceed with even greater caution.

 

In a dramatic divorce case unfolding in Southern California this week, Hydee Feldstein, a retired partner at a large law firm, accused her ex-husband Peter Gregora of stealing $20 million of the couple’s money over the course of their marriage.  Feldstein claims Gregora hid the money in secret offshore companies, investment funds, and, in by far the most straightforward method, stuffing cash into envelopes and leaving the money off of the couple’s tax returns.

hidden money divorceBefore she retired, Feldstein’s practice focused on finance and bankruptcy law.  She was the primary breadwinner in the family, and she stated in divorce documents that she entrusted her husband to handle their financial affairs.  She claimed that Gregora used this as an opportunity to drain the couple’s joint accounts.

Commentators have been incredulous that a partner who specialized in finance law at a major law firm could be so out of touch with her own finances that she lost track of $20 million of her own money.  As it turns out, research shows that Feldstein is not so unusual.

As we wrote about here, a study by Prudential explained that most women, including primary breadwinners, lack confidence in investing and tend to shy away from managing the family finances.  No matter how successful women are, they still often leave the big financial decisions up to their husbands.  In fact, 73% of men report being the primary financial decision-makers in their families.  A dishonest husband combined with a lack of oversight can open the door to mismanagement and, as is alleged in this case, fraud.

We have seen this first-hand in countless cases.  Smart, accomplished women come to us looking for money they earned, but which their husbands have magically made disappear.  These women often admit to us that they left all of their financial decisions to their husbands, and have never so much as glanced at a bank statement or tax return.

Even in these cases, all hope is not lost.  Our clients often have far more valuable information than they realize when it comes to tracking down hidden assets, even if they did not control the family finances.  For example, a client may tell us that her husband loves skiing in Colorado, which would lead us to look for a vacation property in that state.  Or she may know the name and address of one of her husband’s companies, which could lead us to a dozen other LLC’s that he kept hidden from her.  We are often able to find hidden companies, real property, stock holdings, and other assets through in-depth client interviews and our meticulous investigation process.

This week, the U.K. Supreme Court is reviewing the cases of Alison Sharland and Varsha Gohil to determine whether a spouse can reopen a divorce case in instances of fraud or misrepresentation after the parties have reached a settlement agreement.

Reopening divorce cases in instances of fraudSharland contends that her husband misled her into believing that his software company was worth a fraction of its actual value.  Gohil accepted a modest settlement from her husband in 2004, only to find out years later that her husband had been hiding tens of millions of dollars from her.  This all came to light as part of a criminal trial against Gohil’s ex-husband in which he was convicted of fraud and money laundering to the tune of £37 million.

Here in the U.S., it can be extremely difficult to reopen a divorce action once the parties have reached a settlement agreement.  The degree of difficulty varies from state to state, but in general, most state courts will only set aside a divorce settlement in a few limited circumstances.  Some states will allow a party a second bite at the apple if he or she can show deceit or fraud by their spouse, as in Sharland and Gohil’s cases.

This is where we come in.  Our clients or their lawyers hire us to help find assets that their spouses either under-valued or omitted from their statement of net worth altogether.  For example, a client might accidentally receive a bank statement for an account with her ex-husband’s name on it that he did not disclose during their divorce.  If he hid that account from her, what else did he keep secret?  We have found millions of dollars’ worth of undisclosed assets in divorce cases, assets like real estate, stock options, and ownership interests in companies or partnerships.  This information may help form the basis of an argument to reopen a divorce case on the grounds of fraud.

While it is certainly best to start looking for assets while a divorce is ongoing, all is not necessarily lost if you have already signed a settlement agreement when you find out about hidden assets.  Your lawyer can advise you on your chances of success, and can help you decide when the right time might be to stop relying on that net worth statement and start digging for what he didn’t tell you.