Clients who hire us for asset searches always want to know what we find. As often as not, the big news after an asset search is when we don’t find something we should be seeing but are not.

When someone is concealing the truth, they often put in place a lie to throw you off. One of the best ways to figure out if someone is lying is to ask yourself, “is this likely?”

Remember the Bernard Madoff Ponzi scheme? The people who managed not to get burned turned away from Madoff because of what they didn’t see:

  • No major accounting firm auditing what purported to be a multi-billion-dollar fund.
  • No independent custodian.
  • No regulatory filings in the last couple of years that reflected billions of dollars in holdings.

Computer programs are terrible at telling you what they should be seeing but are not, which is why so many investors never clued in to the Madoff risks that many experienced professionals noticed.

When we do an asset search, we are always on the lookout for what doesn’t make sense. In the past three years, we’ve seen the following:

  • A man who claimed to put no money in any financial institution, yet whose computer showed a browsing history at two-dozen brokerages. You can keep your money out of banks, but still on deposit with Schwab or TD Ameritrade. Next step: 24 subpoenas to those brokers.
  • A divorcing husband’s loss-making entity that did no business (zero sales) yet persisted in paying one employee $75,000 a year. And, bank accounts showed the business paid plenty of taxes.

Both of these fit the common scenario in divorce: appearing to have fewer assets that you really have. In the first case, the husband hoped to get money out of his brokerage after the divorce was final. In the second, the company may have been in partnership with another company that was holding back the first company’s share of the profits until after the divorce. The second company could also have been owned by the husband or trusted friend or relative.

As with the Madoff fraud, a computer program did not point to either of the divorce cases above and spit out a “High Risk” or “Possible Asset Concealment” result. Instead, both findings were the product of hours of slow and careful research.

The next time you wonder why an asset search takes hours and not just the feeding of a few names and numbers into a database, remember: Databases tell you (sometimes) what’s there – not what isn’t.

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.

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.

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.