Whether it is known or merely suspected that the opposing party may be hiding assets and/or accounts, the process should begin by asking the client questions in order to establish a “profile” of the OP. Important questions include, but should not be limited to:
- Does the OP own their own business/self-employed? This is an important factor because it is often easier and in some cases more likely for an individual that owns their own business or is self-employed to hide assets or maintain offshore accounts.
- Please describe the lifestyle you (the client) and OP live or lived. The OP’s lifestyle, or change in lifestyle, can also be an indicator of the possibility of hidden assets/accounts. For example, the OP may make expensive purchases (i.e., cars, homes, etc.) in an attempt to squander funds from hidden assets/accounts throughout the divorce process.
- What financial records/documents do you have in your possession and what accounts do/did you share with OP? Answering this question at the onset will be helpful once the discovery process begins so the attorney/paralegal will know what documents to request and where to look.
- Do you remain in contact the OP, and if not, do you know their home and work address? While this question may be basic, it is important to maintain a good idea of the OP’s whereabouts in case they attempt to leave town (not uncommon in cases involving hidden assets/accounts).
Collecting basic information about the OP before beginning the discovery process is helpful and will aid you throughout the discovery process. Start with an initial checklist of background of the OP, such as place of employment, date of birth, social security number, and the individual’s last known address. Also consider collecting information regarding the identities of the OP’s close friends and relatives. This can often come into play because they will transfer or hide assets in those individuals’ names in an attempt to avoid detection.
The three primary sources with regards to the discovery process will be tax documents; financial documents including bank and credit card records, insurance policy information, retirement plan documentation, and any investment records; and email & text records. Of course, the relevant discovery requests will vary from case to case but this is a broad overview of the common sources for discovery of hidden assets and is similar to discovery in a standard divorce case. Each of these sources and specific discovery tactics will be analyzed more in-depth throughout the rest of the presentation.
It is also important to point out other resources which may be useful in a case with hidden assets, specifically forensic accountants and private investigators. While they may be costly, utilizing such resources may be extremely helpful, depending on the complexity of the case. Forensic accountants are especially helpful and often necessary when analyzing tax and financial documents for potential hidden assets.
There are several Tax Forms (other than the 1040) that may or may not be applicable. It’s important to know the standard IRS forms required for offshore asset reporting and their purpose. Other than the standard 1040, there are 7 IRS forms applicable to offshore assets:
· FBAR (Foreign Bank Account Reporting ) Form: TD F 90-22.1 (Prior to 2014, FinCEN Form 114 (Present) are required for U.S. citizens who have foreign bank accounts;
· Form 8938-required under the Foreign Account Tax Compliance Act for individuals who own certain foreign financial accounts or assets with a total value of $75,000 or more at any time during the tax year.
· Form 3520-reporting requirement for U.S. individuals who receive a foreign gift or bequest valued at more than $100,000 from a foreign individual or estate.
· Form 3520-A-required reporting of a foreign trust with at least one U.S. owner to provide information such as the owners of the trust, the value of the owners’ interest, and the FMV of distributions (if any).
· Form 5471-Requied for U.S. citizens and residents who are officers, directors, or shareholders in Certain Foreign Corporations (CFC).
· Form 8621-Required information return by a U.S. citizen or resident that is a shareholder of a Passive Foreign Investment Company (PFIC) or Qualified Electing Fund (QEF).
· Form 8865-Required return of U.S. persons with respect to Certain Foreign Partnerships.
However, requesting these tax forms during discovery, either from the individual or the IRS, is only effective if they have in fact been filed. Individuals with hidden assets typically do not adhere to tax reporting and filing requirements, hence the hidden classification. Therefore, requesting these tax forms is only the starting-point. These can be helpful because hidden assets are typically under a false name or entity but the individual is still likely to receive notifications to their personal email or phone. Resources such as a forensic accountant or a private investigator, while helpful, can also become very costly. Using such resources is primarily recommended in situations when it is known that OP has hidden assets in order to better find them.
The key sources of hidden assets include cash-either actual cash or cash converted into property (common method of hiding assets). The rationale of hiding assets is typically to convert an individual’s income, wealth, etc. into forms that are either difficult to discover or perceived to not be of significant value. Assets such as cars and homes are more obvious forms of property with perceived value, but in some cases client may not be aware as to the OP’s possession of such items. Somewhat to the contrary, clients may be aware of various investments, insurance policies, or memorabilia but not necessarily the value of those assets. Either way, these assets, no matter how obvious they might seem, should be considered when beginning the discovery process.
In some cases, assets may be overlooked rather than hidden-that being said, the OP is unlikely to voluntarily disclose such assets. Therefore, it is important to keep an “open-mind” throughout the discovery process; whether through document request, depositions, or interrogatories, consider assets that may be overlooked:
- Stock Options & Restricted Stock
- Capital Loss Carryover
- Cemetery Plots
- Collections or Memorabilia
- Intellectual Property
- Retained Earnings
- Credit Card Reward Points
- Country Club, Golf Course and Other Memberships
All of these examples may easily get overlooked but potentially carry significant value.
Nicholas L. Bourdeau, Steps for Successful Investigation, The Determination of Income for Child Support, http://www.jameseducationcenter.com/articles/uncovering-hidden-assests/ (last visited Sept. 24, 2015).
FACTA Information for Individuals, IRS (Apr. 2, 2015), http://www.irs.gov/Businesses/Corporations/FATCA-Information-for-Individuals.
Gifts from Foreign Person, IRS (Feb. 11, 2015) http://www.irs.gov/Businesses/Gifts-from-Foreign-Person.
Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner (Under Section 6048(b)), (Feb. 5, 2015), http://www.irs.gov/uac/About-Form-3520A.
Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, IRS (Feb. 19, 2015), http://www.irs.gov/uac/Form-5471,-Information-Return-of-U.S.-Persons-With-Respect-to-Certain-Foreign-Corporations.
Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, (Dec. 5, 2014), http://www.irs.gov/uac/Form-8621,-Return-by-a-Shareholder-of-a-Passive-Foreign-Investment-Company-or-Qualified-Electing-Fund.
Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships, (March 16, 2015), http://www.irs.gov/uac/Form-8865,-Return-of-U.S.-Persons-With-Respect-to-Certain-Foreign-Partnerships.