The Divorce Asset Hunter

The Divorce Asset Hunter

Happy Tax Day: How to Find Assets Using Tax Returns

Posted in Banking and Investments, Common, Finances

It’s everyone’s favorite or least favorite day of the year—tax day.  While some people are rejoicing about their anticipated refund check, others are reluctantly handing money over to the government.  Here, we’re thinking about the wealth of information tax returns hold and how we regularly use them in our asset searches.

We often blog about the situations in which tax returns would be helpful to identify hidden assets.   For example, see our posts on finding royalties and tracking down trusts and pensions.  At a certain point, we advise that you hire an investigator and/or forensic accountant to really dig down deep into potential hidden assets, but there is no reason you can’t do some preliminary research on your own by looking at tax returns.

What should you look for?  For starters, make sure that the tax return you’re reviewing is actually the one that your debtor sent to the IRS.  It’s possible that your debtor provided you with a doctored return to conceal assets from you.  The best way to ensure you’re looking at the true return is to request it from the IRS.  If you filed jointly with the debtor, you have to right to access this material.  If you filed separately, you may have to wait until discovery.  Request tax returns going back 5 years to get a fuller picture of your debtor’s finances.

Take a close look at information about your debtor’s wages on both the 1040 and any attached W-2s.  Does it match up with the information he’s provided you on his statement of net worth?  Does it look like there have been any unexplained significant changes year to year?  You should also look for deferred compensation and unexercised options to see what kind of income may come in the future.

Review any retirement account distributions on the 1040 (lines 15a and 16a).  Did your debtor take any significant distributions from his retirement accounts in any given year, perhaps in order to appear to have less money set aside for retirement?

To see if your debtor has any foreign investments, check 1040 line 47 in addition to Form 1116 (Foreign Tax Credit) and Form 8938 (Statement of Specified Foreign Financial Assets).

There is certainly more information you can gather by looking at tax returns, but these are some basic check points to get started.  Tax returns aren’t 100% trustworthy.  People do lie.  However, it seems that most people are sufficiently deterred from doing so by the harsh penalties that await tax evaders. As a result, tax returns can uncover much unknown information about your debtor’s finances.

When You’re Allowed to Look Through Your Debtor’s Computers and Phones

Posted in Ethics

PROBLEM: 

You want to know what your debtor is hiding from you but you’re not sure if it’s okay for you to secretly look through your debtor’s phones and computers.

SOLUTION:

Although privacy laws vary state by state, as a general rule, you should be more cautious than not in this territory.  In New York, for instance, you could be convicted of a Class A Misdemeanor if you access or use a computer without authorization.  You might even risk running up against federal law.

Say you want to take a look through your debtor’s files on the family computer–the issue boils down to whether or not you are authorized to access the computer.  If the computer is a shared computer, the answer is probably going to be yes.   If we’re talking about password protected files and computers, things get a little murkier.

If the computer or file was password protected, did your debtor willingly give you the password at some point?  If he did, you probably have authority.  If not, steer clear.

If you’re thinking about trying to crack your debtor’s work blackberry or work computer, don’t.  You are not authorized to view information on devices paid for by your debtor’s employer and you do not want to risk accessing his employer’s proprietary business information.  Be careful.  Judges do not hesitate to exclude evidence that was improperly obtained.  What’s the point of gathering information if you’re not going to be able to then use that information in court?

We like to take a cautious approach here.  If you’re authorized to use the computer or phone, take a copy of the hard drive, preserve chain of custody by properly bagging and tagging it, and then let the judge decide what you can look at.  Patience pays off.  This approach may take longer, but it will be worth it to avoid the potential exclusion of probative evidence, ethics inquiries and possible criminal penalties.

Hidden Assets and the Gray Divorce Revolution

Posted in Common, Finances, Property, Uncategorized

A recent study has shown that divorce rates for people over 50 has skyrocketed during the last 20 years in what has been dubbed the “gray divorce revolution.”  This has two implications for people like us who are tasked with finding hidden assets in divorces.  First, couples nearing the end of their careers are more likely to have more and more sophisticated assets than they had when they got married at 23.

Over the course of a 30-year marriage, people have time to buy a vacation home, amass a sizeable 401k, build an antique car collection, or start several companies.  They also may have time to funnel money into those companies little by little, or to transfer the condo they secretly own to a relative or close friend.  Asset searches in long-term, high net worth marriages can be extremely complicated, and our clients are often astonished to find that the husband they thought they knew so well had actually been adding marital assets to his divorce emergency fund for the last 15 years.

That said, the second implication of gray divorces is that long-term spouses have time to learn a lot of information about one another and often have good clues that can help us find hidden money.  All of our matrimonial clients complete a detailed asset search questionnaire before we begin our investigations.  We ask our clients to tell us about their spouse’s relationships, employers, hobbies, and favorite vacation spots, among other information.

This can help us find companies where the spouse may have hidden money, properties the spouse may have transferred to a friend or family member, stock holdings, and other income sources that may not have otherwise been readily ascertainable. We would usually be able find the same information the spouse gives us in our questionnaire if given enough time and budget, but it avoids lots of false starts and wasted client money searching for assets she already knows about.  The questionnaire allows us to focus our investigations in a way that saves our clients money while providing the most thorough results possible.

Former Brooklyn Prosecutor Convicted of Fraud on NYC Transit Authority

Posted in Business, Finances, Small Business

According to the New York Law Journal, yesterday, a Brooklyn jury convicted former Brooklyn prosecutor, John Headley, of fraud and misconduct over his misuse of New York City Transit Authority funds.  Headley’s company, Advance I.M.E. Co., was hired by the transit authority to obtain medical records and expert witnesses for the authority.  However, Headley did not reveal that he was the principal in Advance I.M.E. Co.  Rather, he used the name James Douglas to get around inevitable conflicts of interest he had in taking on the work–he was dfraud, nyc transit, John Headley, money trainating the transit authority employee responsible for selecting and paying vendors and he also worked as outside counsel to the transit authority on other matters.

So what was Headley’s defense?  He claimed that he masked his ownership in the company to hide assets from his wife in their then-imminent divorce proceedings rather than to bilk the transit authority out of money.  We haven’t seen this type of defense before—usually people don’t want to admit to hiding assets from their spouse.  Given his conviction on six counts, the jury may not have bought it.

If, indeed, Headley was hiding assets from his wife at the time of their divorce, hopefully she was hip enough to his tricks to hire an investigator.  We frequently help our married clients uncover hidden assets and it is not uncommon for one spouse to hide money in a secret company as Headley claims he did.  Using proprietary databases and other resources, we regularly find secret companies, unknown to one spouse, and position our clients to get all the information they need in discovery.

We also help clients find company affiliation information by using databases and individual secretary of state records, among other means.  In this case, it does not appear that “Advance I.M.E. Co.” is registered to do business in New York, however, the indictment indicates that “Advance I.M.E. Co.” may be a fictitious name for Headley’s company.  It states that Headley opened a business checking account at Bank of America in the name of “DBA Advance I.M.E., Co.”  We often find evidence of fictitious names in our databases and run searches at the county level to determine a company’s true legal name.  Had there been some form of vendor verification or approval process, outside of the purview of Headley’s transit authority girlfriend, a few quick searches might have revealed that Headley was the principal of the company.

Man Who Faked Bankruptcy to Avoid Child Support Gets 17 Years

Posted in Uncategorized

California businessman Steven Zinnel was sentenced to a 17 year prison term last week for defrauding the bankruptcy court in an effort to avoid paying child support and alimony to his ex-wife.  The prosecutors on the case believe this to be the longest sentence for bankruptcy fraud ever handed down in the Eastern District of California.

In 1999, Zinnel and his wife initiated what later turned into an acrimonious, drawn-out divorce.  In 2001, Zinnel threatened to file for bankruptcy to keep his ex from accessing their marital assets.  Zinnel followed through on his threat in 2005, claiming that he was millions of dollars in debt.

All the while, Zinnel was in fact a successful business owner with a substantial income.  Zinnel’s attorney, Derian Eidson, helped him hide his money from his wife and the bankruptcy court by funneling cash into shell companies held in relatives’ names.  Eidson also laundered money through her attorney-client trust account, companies she owned, and her personal bank account.  Eidson will soon face sentencing for her role in Zinnel’s crimes.

Schemes like Zinnel’s are precisely why we have all of our matrimonial clients complete a detailed asset search questionnaire before we begin our investigations.  As we wrote here, it is important to remember when starting an asset search that you should look for clues that lead to assets, not just the assets themselves.  Looking at Zinnel’s bank accounts would probably have given you little or no information about his hidden money.  Instead, you would have needed to look at companies and property owned by his attorney and family members.

Our clients often know more than they think when it comes to tracking down hidden marital assets.  We ask our clients to tell us about their spouse’s relatives, hobbies, and favorite vacation spots, among other information.  While these questions may seem irrelevant at first blush, we often find that debtors hide money in companies named after something dear to them, like the street they grew up on.  We once had a client whose husband had cached assets in a series of shell companies named after his favorite movies.

We can also look for companies or real property that the debtor’s relatives acquired under suspicious circumstances.  For example, it might raise some eyebrows if your spouse’s favorite unemployed cousin purchased a $2 million home in cash or suddenly became the president of four companies the month after you filed for divorce.  If you are thorough, keep an open mind, and think creatively, then you will have a much better chance of finding hidden money.

Tracking Down Life Insurance Settlement Payouts

Posted in Finances, Uncommon

PROBLEM:

You are fairly certain your debtor has a life insurance policy and you are worried he may try to cash in on it before you get divorced.

SOLUTIONS:

The law surrounding life insurance policies in divorce can be confusing and fact-specific.  Whether or not a life insurance policy is separate or marital property will depend on factors such as the owner of the policy, the funds that paid thlife insurance settlements, life insurance beneficiary, hidden assetse monthly premiums and whether the policy was purchased before or after the marriage.  Nonetheless, it is not uncommon in divorce proceedings to see an automatic temporary restraining order which prohibits selling assets and modifying beneficiaries on life insurance policies.  You are therefore right to be concerned with the status of your debtor’s life insurance policy, and it is quite possible that he is prohibited from selling the policy or removing you as the beneficiary while the proceedings are ongoing.

There is indeed a market for the purchase of life insurance policies where the insured is still living.  In most cases, this market is for seniors.  There are a few ways you could go about learning whether or not your debtor may have sold his policy for cash, known as a life insurance settlement.  First, as we often blog about, tax returns are key to uncovering this asset.

The surrender of a life insurance policy falls under ordinary income for tax purposes.  The best place to find evidence of a life insurance settlement is to look through your debtor’s 1099 forms.  If your debtor sold his policy, he should have received a 1099 form reflecting the difference between the life insurance settlement payment and the total premiums paid on the policy.

Depending on when your debtor sold the life insurance policy, it’s possible that it may not appear on the most recent tax return.  If this is the case, there are other places to look.  If you have a shared computer, take a look through the browsing history.  Does it look like your debtor visited life insurance settlement websites?  If you legitimately have access to the computer, the browsing history is a fantastic way to uncover information.  Be careful, if it is not a shared computer, you may be breaking the law by accessing it.

Finally, don’t forget to use the court’s discovery process to your advantage.  Tell your lawyer everything that you know.  If you think there is a life insurance policy, make sure that you ask for all documents concerning the policy in discovery.  Your lawyer has a general idea of the types of discovery to request, but you probably have an even better idea of the specific types of assets your debtor might have.

Divorce Lawyer Jailed for Using Shady Investigator

Posted in Ethics, Legal issues

San Francisco area divorce attorney Mary Nolan was sentenced last week to two years in federal prison on multiple felony charges, including illegal wiretapping and tax evasion.  Her crimes included hiring private investigator Christopher Butler to use dirty tactics to gather incriminating evidence against her clients’ husbands.

At Nolan’s direction, Butler planted listening devices in the husbands’ cars and used beautiful women to trap them in compromising situations.

Nolan and Butler’s most sensational scheme was that of the “dirty DUI.”  Butler would hire attractive women to meet the husbands of Nolan’s clients at a bar and lure them into having a few drinks.  Butler, an ex-cop, would then tip off his friends in law enforcement as the husbands left the bar, and the cops would catch the husbands driving under the influence.  Butler is currently serving an eight-year prison term for his illegal investigative tactics, along with robbery, conspiracy, and extortion.

We speak to lawyers all the time who tell us that they don’t mind if their investigators break the rules, so long as they don’t know about it.  Well lawyers, I hate to break it to you, but you should mind.  ABA Model Rule of Professional Conduct 5.3 requires lawyers to “make reasonable efforts to ensure” that people you have hired to act on your behalf conduct themselves according to the “professional obligations of the lawyer.”  Comments 2 and 3 of the Rule specifically refer to investigators and state that the supervising attorney must instruct their investigators on ethics requirements and that the attorney is ultimately responsible for the investigators’ work.  Finally, Rule 8.4(a) prohibits lawyers from using a non-lawyer to do something the lawyer is proscribed from doing under the Rules of Professional Conduct.

The moral of the story is that turning a blind eye will not insulate you from responsibility if your investigator steps over the line.  Criminal liability is rare, but using unethical investigation tactics can lead to important evidence being excluded from court or other serious sanctions that will hurt your clients and your reputation.

We make every effort to stay apprised of the latest developments in ethics rules, and we are frequently called upon to teach continuing education courses on ethics in investigations to attorneys and investigators.  We are firm believers that with a little creativity and persistence, you can get the information you need without breaking the rules.

Soccer Star Property Fraud: How Experts Can Help Build a Case

Posted in Celebrity Divorce, Property, Real Estate

According to a recent story in the UK’s Daily Mail, Elie Taktouk, the estranged husband of Daniella Semaan, girlfriend of Barcelona soccer star Cesc Fabregas, is alleging that that the soccer star was involved in a property fraud.  Although the UK’s High Court seems skeptical of the allegations, they are interesting from an investigative standpoint, regardless of whether the High Court ultimately tosses the suit.

soccer, fraud, experts, hidden assets, forensics

Maxisport / Shutterstock.com

In 2013, as a part of their divorce settlement, a UK family judge ordered that Taktouk and Semaan sell their London flat in order to award Semaan a £1.4 million cash settlement.  Three weeks after this order was handed down, a company controlled by Fabregas put in a £5.4 million bid to purchase the flat.  Although Taktouk challenged the sale to Fabregas, the judge refused to block it and Fabregas ultimately became the owner of the couple’s former marital home.

Taktouk contended then, and still contends now, that Fabregas got the flat significantly cheaper than he should have and that others were willing to purchase the pad for upwards of £7 million.  A hearing re-examining these allegations will take place later on this year.  Although here, it was no secret that Fabregas was the purchaser of the marital home, it underscores the need to take an interdisciplinary approach to divorce at times.

When people think of the divorce process, they probably envision an embattled couple, their two lawyers and a judge.  In reality, there can be many other people involved.  For one, we, as investigators, are frequently called on to help clients find hidden assets or uncover any other kind of fraudulent activity.

We’ll dig in and help clients figure out what kind of property or other assets their spouse holds.  Hypothetically, maybe in this case Semaan was unaware of other properties owned by Taktouk, which might each have had millions of dollars of art sitting in them.  But beyond identifying hidden assets, we also work with a network of other professionals such as property valuation experts, forensic accountants and computer forensic experts.

We don’t know the degree to which a property valuation expert was involved in this case, but you can see how the testimony of one might have at least given the UK judge pause before permitting Fabregas to purchase the marital home for £5 million.  Also at issue in this particular case, was the amount of financial support Fabregas provided to Semaan at the time. That is, whether or not Taktouk should have been on the hook for Semaan’s living expenses if she already had her footballing boyfriend covering them.  Again, we don’t know the degree to which a forensic accountant may have been involved here, but a forensic accountant might have been helpful to examine just how much money from Fabregas was going in and out of Semaan’s accounts.

Gathering Intelligence in National Divorce Month

Posted in Finances

Every January, the depressing stories come back. Following the festive season, eating, drinking and family reunions come the reminders that January is “Divorce Month.”

This one at CNN is somewhat typical. But it turns out that January should be more accurately called “I’m Starting to Research My Options Month.”

Our frequent complaint when brought into a divorce is that we’re often called too late. Once a person files for divorce, the other side — who may have been ignorant that there was any problem in the marriage — suddenly begins to circle the wagons. From our perspective, that can mean hiding assets.

As soon as someone is thinking of filing for divorce and knows that she does not have a full grasp of what assets a spouse has, we argue that it makes sense to do a low-profile preliminary search. How does that work?

First of all, we ask all matrimonial clients to fill out a questionnaire about their spouse. We have argued consistently that spouses know much more than they think they do about their partner’s inclinations when it comes to money: what kinds of names could be preferred for secret companies? Names of favorite vacation places? Kids? Pets? Old addresses? Which friends or relatives could be asked to front businesses or real estate acquisitions to keep prying spouses away? Which unlisted cell phone numbers could be associated with businesses or secret real estate? Our writings about this topic can be accessed here and here (see Women Breadwinners and Hidden Assets).

Perhaps the most important thing to remember in an asset search is that you want to look not only for assets, but for things that will lead to assets. You want litigation, side companies and security agreements in addition to real and personal property registration. Maybe the spouse was sued personally along with two companies he runs — companies you knew nothing about.

It’s often there on the public record, and the sooner you look for it, the longer you have before the trail starts to go cold.