In doing our investigations for assets in divorce, we often work with a forensic accountant. Sometimes they bring us into the case and sometimes it’s the reverse.

When do you need one, the other, or both?

  1. If you have all the pertinent records and you don’t think there is much being hidden, the forensic accountant is probably your best bet.

Say you have all the tax and business records you think are out there, but things still aren’t adding up. An accountant can do a lifestyle analysis that can indicate spending that isn’t supported by the stated income and assets. Records of banks, brokerages, and credit card companies give you details of sources of funds and where they are spent.

Credit reports are also critical. Those can give you bank and credit card information you didn’t already have.

A few examples of alternative sources of data include telephone records, UPS or FedEx records and airline receipts. These can get you to business relationships, sales and shipments to customers, travel activity, and major expenditures.

  • Interest – May indicate the existence of bank accounts, certificates of deposits, bonds, investment accounts, or loans receivable.
  • Dividends – Indicates the existence of bank accounts, investment accounts, stocks, or other investments in business entities.
  • Capital Gain or Loss – May point to investment accounts, stocks, business interests, or other investments.
  • IRA Distributions, Pensions, Annuities – Points to the existence of retirement accounts, annuities, or other valuable retirement assets.
  • Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts – Indicates the existence of income-producing assets (real estate or business) or an interest in estates or trusts.
  • SEP, SIMPLE, Qualified Plans – Indicates retirement accounts for self-employed individuals.
  • IRA deduction – May also signify the existence of retirement accounts.
  • General Sales Taxes – This could point to the purchase of substantial assets.
  • Mortgage Insurance Premiums – Points to real estate.
  • Investment Interest Paid – Can indicate the existence of investment accounts.
  • Other Expenses (Investment, Safe Deposit Box, etc.) – This may point to investment accounts, safe deposit boxes at banks, or the like.
  1. You Have No Records or Incomplete Records, Try an Investigator

If you have nothing, think you have incomplete records or haven’t even filed for divorce yet, an investigator could help. We’ve written about this before with The Offshore Asset Starter Kit but usually recommend starting onshore.

What are the person’s businesses? Are there other assets and corporate interests he has never divulged? Old mutual fund holdings buried in securities records? An investigator can help find those.

Remember, a forensic accountant can’t analyze accounts of companies you don’t know about.

A lot of what’s out there is in public records. Anyone can get them, but the United Statese has more than 3,000 counties. Each keeps records in its own way, and a lot of the information is not on line – you have to send someone in there to look for it.

As I explain in my book, The Art of Fact Investigation, the real challenge of fact finding is in knitting together the output of various databases. More importantly, it’s playing smart hunches about which search terms to use and filing in the blanks the databases always leave. “John B. Smith and hidden assets and companies” as a search term will never get you very far.

  1. When you need both professionals

Once the investigator is done, you may still want an accountant if the numbers don’t make sense. Finding a new business is not the same as going over that entity’s books and records to see how they relate to known assets or yet further undivulged assets.

Sometimes, a forensic accountant will find a hole in the accounts that they can’t explain. Who is behind Argo Industries LLC, a payee for suspiciously expensive catering services? Is Argo really a way our person is paying himself? This is where an investigation can help.

Sadly, the answer is usually, “Longer than you’re willing to give me. You should have called me sooner.”

We get inquiries from time to time from divorcing parties who are going to trial within the next month or even just a few weeks. They want to know whether we can look for offshore assets in time for trial.

My answer is usually something like, “I would be wasting your money to start now.”

Asset searches – even without an offshore component — take time. Not years, but certainly weeks and to get to a usable outcome, often more than a month. This is how they work:

  1. You give us the other person’s name and any information you have about (let’s say for this example) him. You may do this using our divorce asset questionnaire.
  1. We turn over every public piece of information we can get on him. All of his companies (private and public), securities filings, mentions in regulatory records, and court cases involving him and his companies. We look at media, social media, dark web dumps, and more. Some of this information is on line, but court records especially are often still on paper and not available remotely. We have to send people to those places and have the papers scanned.

For overseas records, it all usually takes longer. It’s one thing to look up company records in England or France, but try doing a remote search on the United Arab Emirates or searching Cayman Islands corporate records for all the but the least useful stuff. You have to have someone there and it doesn’t get turned around overnight.

  1. The results from the first phase of an asset search may not turn up a killer finding that reveals $450,000 of cash sitting in a bank account. In fact, if you have access to bank accounts already, you should have been able to grab the low-hanging fruit by seeing where money was sent. If you are going to need to subpoena bank accounts (or anything else), that doesn’t get done in a week or two.

Oftentimes, our asset searches will discover a new company a person controls. While that moves the ball forward, it’s sometimes just the beginning of another phase of the litigation.

None of the above take into account the interviews that you sometimes need to do: Litigation opponents, disaffected former employees and others can reveal all kinds of good information. But first you have to do your research, find out who they are, where they are, and what to ask them about. Not a one-week proposition

All of this to say that it’s never too early to talk about an asset search, and it’s rarely too early to get going on one.

But being too late – that’s what can cost thousands or millions of dollars.

 

 

When people come to us for financial investigations, it’s rare that the information they are seeking is right out in the open. But sometimes, the values are not very far under the surface.

When the hints are there,  it can be a matter of simple arithmetic to figure out the answer. Other times, you can “back in” to a rough figure based on a bunch of other easily-accessed figures sitting right there on the public record.

  1. Simple Equation: How much did a house sell for when the price isn’t on the deed?

Some places such as Texas just don’t put property prices on the deed. You can approximate with asking prices in comparable homes. Elsewhere the answer is right there for you.

In California, for instance, everyone pays $1.10 per $1,000 of value when a home changes hands. That’s a rate of eleven one-hundredths of a percent, but easier just to write as 0.0011. The amount of tax paid is on the deed, so if someone paid transfer taxes of $5,500, you divide that by .0011 and see that they paid $5 million.

It seems simple and in retrospect, it is. But try handing an investigator a California deed and asking him to figure out the sales price. Many won’t be able to do it, so for any inquiry with any kind of financial component, they are not the investigator for you.

One thing to add: California deeds (and deeds in many other places) aren’t just sitting on the internet waiting for you to download them. You have to send someone to the county where the property is and get the deed in person.

  1. Backing In: What are the sales of a private company?

Private companies in the U.S. don’t report sales and profit figures. But unless it’s a perennial money loser, a company should have sales greater than its costs. Figure out what the costs are, and much of the time you can get a rough floor for what the company takes in based on some numbers that are sitting on the public record.

  • Rental costs. Say they have a big factory but they don’t own the building. You can find out the square footage of the place they rent from the county assessor. Then online, it’s not hard to find out what the prevailing rents are in that area. Dollars per square foot per year times the square footage, and you’ve got the annual rental bill.

You need to be careful about other tenants. If they share the premises, they don’t foot the bill for all the rent. If you’re on the ground you can often tell how many companies operate out of the building. But if not, Google Maps can show you how many logos are on the building.

This is not a precise figure we’re talking about, just an approximation. But if someone claims they operate a “mom and pop” micro business and you see a rental nut of $2.4 million a year, you can be pretty sure they’re hiding something.

  • Payroll costs. That kind of thing isn’t always public, but lawsuits are. We recently looked at a private company that was sued by a fired worker, who said in the complaint how many people worked in his department. We had been wondering whether this was just a small company or something much bigger.

The plaintiff’s single department in the company had 35 people. Even at minimum wage, you can figure that those people cost the company $31,200 each (never mind FICA, disability, worker’s comp and the like). Call it $1.4 million for just those people, not to mention the rest of the staff.

  1. Connecting the Behavioral Dots: Evaluating Signs of Financial Distress

How are the owners behaving? In a divorce (business or personal), you can expect some people to want to appear judgment-proof or at any rate, poorer than they really are. Big new mortgages can give the impression that someone is not taking enough money out of the business to pay all the bills and therefore has to tap home equity. But what if the big new mortgage comes just as social media reveals a $100,000 trip to Dubai and Morocco, staying in ultra-expensive hotels, all flying by private plane?

We once helped a landlord recover $72,000 from a longtime tenant crying business distress. Once we found that this tenant had recently gotten a bunch of valuable modern paintings out of hock at one of New York’s auction houses, the game was up, and he paid the landlord in full.

It all comes back to looking as widely as you can. While you can’t look everywhere, there is a tendency to limit where you do look for budgetary and time reasons.

Balancing economy with breadth is where fact investigation goes from science to art.

A client came to us and asked us to look for assets owned by her husband. They were going to get divorced and she needed to know what he had.

In briefing us, she told us that she didn’t know much, but one thing she was certain of was that a piece of property she and her husband owned was not worth much and not worth spending any time on. “I already know all about that,” she said.

In the space of an hour we found:

  1. The property was in fact very valuable.
  2. The husband and his relatives had secretly and improperly sold the property to his brother.

When we found the property, we saw that it was at the intersection of two interstate highways and contained a large facility to service long-haul trucks. There was no way this was a valueless piece of property. In addition, we told the client that she had probably not seen any of what should have been years of substantial rental income from the truck facility.

Even worse was the way her husband’s family had disposed of the property behind her back.

She had been induced to provide a signature specimen the year before and had never understood why it was needed. The husband’s family took that signature and convinced a county clerk to take it as her consent to sell the property. Worse still was the counter-party in the sale: A company controlled by the husband’s brother.

This was easily discoverable because the family had taken no measures to conceal the ownership of the purchasing company. A few dollars to set up a Delaware company would have done it, but they had assumed that the wife would never check and would never hire anyone to check for her.

The asset went from $30,000 in perceived value to more than $2 million. Our bill was $2,400.

The case is one I’ve discussed when I talk to the American Bar Association’s Section of Family Law and the National Association of Divorce Professionals. I belong to both.

Brief Us, Then Let Us Work

In addition to the obvious value to the client, the case stands for the proposition that as well informed as a spouse may be about their partner, there is often a danger that the spouse can turn your investigation off before it even gets going.

After all, if they knew everything, they wouldn’t need to hire someone to do the asset search in the first place.

So, in the nicest possible way, I tell our new divorce clients (in so many words): Tell me everything you know about them, be prepared for some questions along the way, and now please step aside and let us do our work. You may be surprised at what we come up with.

 

Want to know more about how we work? Our website has a wide range of publications and videos. You can also read my book, The Art of Fact Investigation which is available at bookstores online and for order from independent book sellers. And check out our other blog, The Ethical Investigator. We take you through the process step by step in Why Does My Investigation cost $2,400? A Breakdown of a Typical Bill.

Everyone would love to have more information, but getting information is not always free. At what point does it become too expensive to pay for more?

We get this question a lot, especially when divorcing parties call us directly about our asset search services.

Firstly, before you file for divorce there are lots of things we can legally find out, and some we can’t:

We Can Locate Undisclosed Companies and Real Estate

  • Whether before filing suit or attempting to collect on a judgment, a good picture of an opponent’s assets can be crucial. The key to many asset searches is discovering names of side companies controlled by your subject and then looking at what those companies control. There can be many layers to the structure.
  • You may need a forensic accountant, but look to us first. Forensic accountants excel at looking at information they are given, but our specialty is finding extra information to give to your forensic accountant and/or business valuation expert.

We Can’t Get Bank Account Information

  • Detailed bank account information the U.S. is not available without a court order or subpoena. If an investigator tells you otherwise, show him my article The Illegal Trade in Bank Accounts in The American Journal of Family Law.
  • Typically, finding the assets in the form of companies or real estate can then lead us to bank account information or give us leads for issuing subpoenas or applying for an order from the court. You do this through your family law attorney once the divorce case has been filed.

Our Value for Divorcing Spouses

Consider the following case studies from actual cases we have done.

Husband Disclosed 30 Companies, We Found 30 More

               Wife showed us husband’s net worth statement and disclosure from husband’s accountant, with accounts from 30 companies that husband controlled. We advised that she hold off on getting the opinion of a forensic accountant because we found 30 additional companies associated with the husband. The court ordered the appointment of an independent business valuation expert as a result of our work. Our bill was $2,500.

 “Worthless Property” Turned Out to Be Valuable and Stolen from Client

               Client briefed us that she and husband co-owned “worthless” piece of vacant property. We found this property was highly valuable and had produced significant rental income, but husband had fraudulently sold the business to his brother without informing the wife. Asset went from $30,000 in perceived value to more than $2 million. Our bill was $2,400.

 Net Worth of Debtor 8-10 Times Higher Than Stated

               In a regular commercial dispute, a debtor company presented our client (the lender) with a net worth statement of $12 million for its owner, who personally guaranteed the debt. Two years later the company defaulted and the owner claimed he was down to $1 million, offering a settlement of 10 cents on the dollar. We found that not only was he worth far more than $1 million, but that he had also failed to include lots of wonderful assets on the original net worth statement he provided to back up his guarantee. Settlement prospects improved by more than $2 million. Our bill was $5,000.

 

Want to know more about how we work? Our website has a wide range of publications and videos. You can also read my book, The Art of Fact Investigation which is available at bookstores online and for order from independent book sellers. And check out our other blog, The Ethical Investigator. We take you through the process step by step in Why Does My Investigation cost $2,400? A Breakdown of a Typical Bill.

When was the last time you gave something away from your professional practice? I’m not talking about pens, calendars or tote bags. When did you give away knowledge about what you do?

Not, “Look at the results we get,” but rather, “Here’s how we do it.”

I’ve done a lot of speaking over the years, but last month I gave a 40-minute talk that generated the most positive response I’ve ever had. The speech was called “The Five Essential Free Sources of Information that Investigators Use in Asset Searches After Google Gets Them to a Dead End.” In it, I gave away the basics on how look up companies, real estate holdings and more.

Business inquiries followed immediately from the talk, plus an invitation to speak to a national group of divorce lawyers on the same topic. Divorce lawyers commission asset searches for their clients and so like to hire us.

The idea about the speech to the National Association of Divorce Professionals was to showed people the sources that any decent investigator would be checking in the course of just about any investigation, but certainly during an asset search. Not just talk about the sources, but show them how to use the sources – for free.

The sources were: Company records, real estate records, court records, securitized debts, and securities records. I walked them through some Secretary of State websites, county recorders, EDGAR and on down the list. Not everything is online, I said. Sometimes you have to send people to retrieve paper documents. But at least you will be able to do a little research yourself, if only to make sure your investigator is on the job. Sometimes, what you find online will be enough and you won’t want to hire anyone.

 

People Do Business with People They Like

Why give away such information when that is what people hire you to find?

Two good reasons. The last thing this speech will do is put us out of business. These sources of information aren’t nearly everything you need to do a good investigation most of the time. I told them this a few times during the talk.

Even if they were, people who are not used to navigating in a sea of a million facts won’t usually be able to make as much out of what they are looking at as a professional will. If you show someone a video about how to drive an 18-wheel truck, would you feel confident riding along with them on their first try?

Yet in showing people what it takes to investigate thoroughly you are helping them see the value in hiring you, while being open about what you do. In a business in which your client needs to trust you with a lot of sensitive and very personal information, that’s not a small thing.

Another more powerful reason to give knowledge away is that people do business with people they like. It’s just likeable when someone takes the time to give you valuable advice at no cost, and with no expectation that you will have to repay him.

If someone helps you at no cost to himself, don’t you like that person better than the one wants something in return?

“Your battery’s dead and you need a boost? OK, I’ll help you, but in exchange for that $100 value I’d like you to buy a subscription to these publications I’m selling.” What do you think of that guy?

Think of giving good advice as part of the entire picture of customer satisfaction, as in the diagram at the top of this article. You have to perform, you have to be competent and offer support, but prospective clients won’t know how good you are until they hire you. They will, however, be able to take some valuable advice.

 

Givers Get More than Matchers and Takers

One group of professionals to which I belong lives by the creed that being nice to people with no strings attached is a plus, so much so that every new member gets a copy of Adam Grant’s Give and Take – Why Helping Others Drives Our Success.

Grant divides businesspeople into three groups: givers, takers and matchers. Takers are not what this article is about. I made my speech in exchange for no money, no list of leads to which to market – I just knew that if I gave away some useful information, people might appreciate it and appreciate me. If it didn’t lead to business directly, one of them could be in touch down the road. Or, as happened, one of them sent me to someone in her organization who asked me to speak to that group – again, for free.

The other kind of non-giver Grant discusses is the matcher, like the guy above who will give you a boost for a price. Maybe I would have spoken in exchange for something – money, a list of members, an ad in their magazine. Matchers build up smaller networks than givers.

If you haven’t done so, try giving in the context of your business. Maybe it will help the bottom line right away, and maybe it won’t.

But it will probably help in time, and you’ll feel great right away. Not only will you have done a nice thing, but people will probably pay more attention to your speech.

As Bitcoin surges in value once again, divorcing spouses may be tempted to convert cash into electronic currency. Finding it can be harder than finding cash, but if you do find it, you can make a comparatively fast case that your spouse is undercounting assets.

Photo: FlippyFlink, CC BY-SA 4.0 via Wikimedia Commons

Faster cases cut down on legal fees, and what client doesn’t want that?

But how can this be? Isn’t crypto untraceable, just a big string of letters and numbers with no name attached to it? That is true, but if you can get hold of a person’s crypto code, you can get a snapshot of cash flows going back years – something that would take much longer to do if you needed to look over bank statements from a variety of institutions and jurisdictions.

One search on the blockchain (the public electronic ledger that contains all transactions of a particular crypto currency) will tell you how many transactions have taken place with that wallet and for how much. Those blockchains are wide open. Imagine being able to see every wire and ACH transfer for every bank account in dollars (minus the name of the account holder). Incomplete, sure, but it would still be something to behold and potentially very useful.

Assume Husband says he’s worth $250,000, but you see that in the past two years $2.5 million has passed through his blockchain account. That’s going to make a judge sit up and take notice.

How to Get That Code

This is the hard part. If you are allowed to look at a computer or phone, you can look for crypto “wallet” apps on the device. Not all crypto transactions need be through an app, however. Some can be web-based and the user can try to delete the history. It’s always good to have a computer expert look over the device because “deleted” material can often be reclaimed unless overwritten several times by someone who knows what he’s doing.

And when are you allowed to look at a spouse’s computer or phone? When that device is marital property. If it’s owned by his employer, it’s probably off-limits. We’ve written about this issue in When Spying on Your Spouse’s Computer Turns into Wiretapping and When You’re Allowed to Look Through Your Debtor’s Computers and Phones.

One work-around if you are not sure (and in good faith, not sure) is to copy the device and preserve the evidence. Then, let a judge decide whether or not you may look at the copy.

Not So Impregnable

We saw clearly the benefits of searching for money on the blockchain earlier this year, after Colonial Pipeline was able to recover a chunk of the millions of dollars in ransomware it had paid to hackers. The pirates locked down Colonial’s computers and demanded payment to a crypto currency account in order to release the lock. Once investigators had the crypto address of the payee, they were able to see just where that payee had forwarded bits of the ransom currency. It turned out it went to a bunch of crooks authorities already knew about, and so some of the money was recoverable.

As the Wall Street Journal reported at the time, “crypto experts say it is at times easier to track than hard currencies such as U.S. dollars.” The article went on to explain:

Crypto wallets provide owners a measure of personal privacy and freedom from regulatory and tax oversight in some countries. But blockchains are visible to the public, enabling law-enforcement investigators and outside specialists to watch the funds move between addresses and through exchanges, online services where users can buy or sell holdings or cash out.

Crypto’s Other Weakness – The Need to Convert

Nobody starts out with crypto currency. You have to use traditional currency or credit to get the stuff using local bank transfers, international wire transfers, third-party processers, or credit/debit cards.

Where crypto currency provides an opening is that people still find it impractical to pay for things with crypto. A cup of coffee, a rental car, a hotel room – it’s just so much easier to use a card because crypto transactions can take an hour or more to clear. If you pile nearly all of your assets into crypto and then decide to wait it out for the end of the divorce, that could take time. What if you need to pay for something? Then, your crypto gets converted back into the conventional finance system.

Divorce attorneys are already onto the banking and credit card records: Any payment into or out of one of the crypto platforms will ring an alarm bell, allow you to subpoena those platforms for records, and get the crypto code for your debtor or litigation opponent.

Nobody is saying it’s easy to get at crypto assets, but it’s far from impossible much of the time. Given someone’s computer or phone, it’s probably easier than looking to unspecified “offshore jurisdictions” for evidence of stashed cash. If there is enough money at stake, that’s a good start.

If crypto ever becomes an everyday currency, so much the better for chasing it down. Follow the guy to the dry cleaner, then get the cleaner’s records to see where the payment for $29.75 came from. But that’s in the future. Then, the allure of crypto will be purely for its alleged sound-money properties, not its secrecy.

 

 

Some people just like privacy, but others form companies with a view to concealing any link between that company and themselves. If you are hiding assets from creditors, that’s a plus (for you, not the creditors).

Picking a company name can be more difficult than many think. A lot of the obvious company names are taken since you can’t have the same name as an existing company in your state. So people often follow rules that make it easier to pick a name quickly, a lot like the lazy way many choose passwords.

If you want to hide your company from an asset searcher’s prying eyes, don’t do the following.

  1. Don’t name your company after something guessable by those who know you. People name things after the street they grew up on, but ex-wives looking for assets often know what that street is called (and we ask that question in our divorce questionnaire). The same goes for a beloved summer camp attended in their youth or a favorite pet. Keep the sentimental out of your naming convention.
  2. Don’t pick an acronym of your children’s names and think we won’t see through that. ZKR Holdings could be anything, but if your kids are named Zach, Karen and Ryan, we will be onto you.
  3. Don’t name companies after things related to your hobby. An opera buff named all his companies after – yes – operas. He did this before his marriage began to disintegrate, but it was easy to find companies we didn’t know about by searching a list of the 200 most popular operas.
  4. Don’t group your names. If you name your first company after the street in Boston where you opened for business, using the street names all around there will make it easier to guess for new companies. Also, if we know your company is called Alpha Investments, don’t try for Alpha Investments II, III, IV etc. When we see that during an asset search, our eyes light up.
  5. Don’t name a company in a new state the same thing it was named in the old state, especially if everyone you’re hiding from knows the name of the one in the old state.

The hardest companies to find are those that followed these rules:

  1. They picked a name that could mean anything. If you are the owner of seven dry cleaners in northern Indiana, European Furniture Imports is a name we wouldn’t immediately link to you. Even better, Eusall Ltd. That could be anything.
  2. They paid someone to be the incorporator. It’s no good spending all this time on picking a sneaky name, and then putting yourself down as the incorporator or agent for service of process. Some states don’t list the name of the incorporator, but some do.
  3. When they paid someone to front for their company, they didn’t pay the same lawyer or agent who handles all of their other financial affairs. I once found a bunch of companies by going through the list of about 150 that a person’s lawyer had set up. We ruled out most of them, but a few turned out to belong to the person we were investigating.