Along with the dangers of tax evasion and tax fraud, the possibility of marital fraud lurks for divorcees and soon-to-be singles in the group of more than 4,000 who will have their secret UBS bank accounts probed by the IRS in coming weeks.
divorce
The publicity of the investigation will likely arouse suspicion among many exes, causing a number of divorce cases to be reopened. But cheated spouses don't have to wait for IRS notification to verify their suspicions, said Sandy Ain, principal and co-founder of Ain & Bank law firm.
"There are very sophisticated means that investigators can use to track down assets," Ain said. "If you take people's lifestyles and their incomes and their assets and go back far enough, frequently you can find a pattern that has developed with people where you know there's more money than what they're showing."
More common in cases with people of a higher net worth, hidden assets are a major cause of concern for divorce lawyers, said James Korman, an attorney with Bean, Kinney & Korman. Methods of deceit range from offshore bank accounts and trust funds, to siphoning money into secondary accounts and withdrawing cash.
Ain has seen people withhold from cashing checks until the divorce is complete, and he has even been approached to assist with fraud.
"People will occasionally call me and say, 'I'm thinking about getting divorced, but I'd like to hide some assets from my spouse. Can you help me?'" Ain said.
Divorce cases can be reopened at any time. If too much time has passed to file an appeal, a separate action can be brought specifically for fraud.
When a spouse suspects that his or her counterpart is withholding assets, lawyers hire forensic auditors to study investments, income tax returns and corporate tax returns, Ain said. If the person in question owns his or her own business, they can subpoena the firms' accountants and clients.
"The likelihood that they can successfully hide significant sums of assets is enormously reduced as our world has gotten more technologically sophisticated," Ain said. "If you're determined to find things, it's very difficult to successfully hide money against a firm who is rigorous about tracking it down."
But investigations can be costly. On top of lawyer's fees, which can run around $400 an hour or more, it costs about $350 an hour for a forensic accountant. Depending on the amount of time spent on an investigation, as well as how many lawyers and accountants are needed, clients can easily rack up between $5,000 and $15,000 in legal fees, Korman said.
While IRS spokesman Robert Marvin did not specifically say whether spouses would be overtly informed of the illegal accounts, he pointed to a press release that said, "Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations."
If this includes notifying exes, it would save suspicious parties a significant amount of time and investigative fees. On the upside, if someone does pay to for an investigation and finds money, these costs are almost always recouped.
"Judges are appreciative of the fact that it takes a great deal of money to find money," Ain said. "They award the economically dependent spouse hefty fees so they can find those assets."
And while it's possible an individual could spend money pursuing an investigation when their spouse hasn't actually hidden any money, the probes typically stop before a significant amount of money has been wasted, Ain said. Korman always makes sure a spouse's suspicions are well founded before he starts an investigation, because often times people are so hurt by the divorce that they falsely suspect foul play.
When it's proven that assets were hidden, though, severe repercussions typically follow. If the case is still open, fraudsters can be jailed for contempt of court until they disclose the assets in question, Ain said. For reopened cases, judges typically have little patience for those found guilty of perjury, and they will often award victims larger sums of money than they would have originally issued as punishment.
"When people try to [hide money] it can have the opposite effect because judges get really upset," he said. "They have a very low tolerance for people who are trying to upset our system of justice."
In one of Ain's earlier cases, a swindler withheld $60 million in offshore trusts from his wife. When the man arrived in court, the judge threatened him with perjury if he didn't hand over the information. He was instantly surrounded by U.S. Marshals.
"It's that power of the court that will frequently persuade people to cough up the money," he said.
The man eventually disclosed the money and his wife received half — $30 million.
For some spouses, though, the money is as far as it goes. Sending an ex to prison isn't a viable option for everybody, because if the swindler provides the family's main source of income, it could result in a significant monetary loss for the victim, Korman said. If there are children involved, often times the spouse won't want the kids to deal with the repercussions of having a parent in prison.
As a premeditated precaution against marital fraud, many lawyers add provisions to documents saying that if any additional assets are found after the divorce, the client will be forced to turn over 60 to 70 percent of their value, Ain said.
"If you get pushback, that’s a sign that hey, wait a minute, maybe this person hasn't been completely honest."
