What is Financial Fraud

For many people, the financial aspect of their divorce is one of the most stressful. There are many questions that come up regarding what marital assets are available, what debts have been incurred, and how the two individuals are going to be able to afford to live separately. One member of the couple may feel out of their element when dealing with finances and have more questions and concerns in this area than their soon-to-be ex-spouse. The fear that arises can lead to the feeling that their spouse is hiding something … sometimes this is true, others not … but a trained financial professional can help to discover the truth.

Financial Fraud. Wow, that’s a scary phrase. Financial Infidelity. That certainly can push some emotional hot buttons. So, let’s get down to defining what those terms are and the differences between the two before we talk about how to deal with them. Fraud, in any circumstance, is defined as “wrongful or criminal deception intended to result in personal or financial gain”. The key word here is criminal. The most common types of financial fraud are tax evasion, money laundering, embezzlement and insider trading. More often than not, these are not the types of things that happen during a divorce. On the other hand, financial infidelity which is defined as the act of hiding money or information about money and finances from the other spouse, does happen more than you think. Common activities include having a separate, previously undisclosed savings account, wracking up huge amounts of credit card debt on a personal card and losing money because of gambling or addiction.

There are definite red flags of suspicious behavior that can point to financial infidelity. Is your spouse very controlling over the household finances and spending? Is your spouse suddenly engaging in very expensive habits or hobbies? Is there a history of lying about money? You may feel a bit paranoid. Understandably so. Have you noticed that there are a lot more “cash transactions” than in previous years? Is money moving around from account to account making things more confusing? Are statements coming in the mail from banks and credit cards that didn’t exist before? Have valuable assets suddenly disappeared?

Taking control of the situation is essential and the first step is to hire a financial professional … a CDFA (Certified Divorce Financial Analyst) or a Forensic Accountant to help you get to the bottom of it all. This individual will act as your financial advocate and be there to help uncover whether there is financial infidelity or fraud and work with your legal team to best serve your interests. The financial professional will need as much back-up documentation as possible in order to help you figure the puzzle out and put together the right picture. Copies of statements from bank accounts, financial accounts, credit cards and retirement accounts will create a paper trail that can lead to the answer you need in order to be prepared when you sit down at the negotiating table.

If you feel that you are the victim of financial fraud or financial infidelity, please contact me for a free consultation at 516-234-7522.

Recession and Divorce

Many people are asking me, “How will a recession affect my divorce? Should I wait?”. While this is an extremely personal decision and has more to do with your individual circumstances than world events, we can certainly look to the past to give us some guidance.

Statistics:

During the last recessionary period of 2009-2011, there is evidence to prove that, in fact, divorce did decline about 4% from anticipated totals. Some experts believe that the reason for that was the housing market, and if we think about that for a minute, it does make some logical sense. There are, however, many other factors to look at and take into consideration when contemplating a divorce during an economic downturn.

Account Values:

When the stock market is on the decline, there is a direct cause and effect relationship on your portfolio values ie: retirement accounts and other savings. During equitable distribution discussions this results in “less to share” which can be looked at as a positive result. Unfortunately, the flip side of this is that the account owner also has “less to keep” making it a scarier prospect of splitting that account, especially when retirement age is looming.

Real Estate:

Let’s return to the real estate market. It’s not unusual that the marital residence can be one of the, if not THE, largest asset in a marriage. When prices start declining it is natural to ask if the couple contemplating divorce have lost their “selling window”? Maybe, maybe not. A great deal of that depends on location. If, on the other hand, interest rates are also on the rise, this could pose a problem for one member of the couple considering buying their spouse out which could necessitate a refinance.

Income:

For those individuals who are contractually salaried employees (teachers, firefighters, police officers) a recession’s effect on their income is not as much of a concern as it is for those individuals in corporate America or self-employed professionals such as doctors, attorneys etc. Since spousal support and child support are calculated based on household income, a recession will have an immediate effect on available resources to support what will now be two households. That is one of the reasons why it is important to look at three years of average income in order to determine what is customary for the lifestyle of the family. A forensic accountant or CDFA can provide a lifestyle analysis to assist with these calculations.

Business Valuations:

As with income, the value of businesses will be adversely effected by a recession. In this current economic environment, coming out of a global pandemic, businesses are still trying to recover their value and many are struggling to survive. Prior years records are crucial to determine a fair value for a family or individually owned business during equitable distribution discussions.

While all of these issues need to be taken into consideration, divorce still remains a very personal and difficult decision to make. Consulting with a team of professionals is your best defense.

Divorce and Family-Owned Businesses

Donna LaScala, CDFA®

President, Comprehensive Divorce Solutions, LLC.

During a divorce, one of the most challenging areas to tackle is division of the family’s assets and liabilities.  Between brokerage accounts, retirement accounts, pensions and the family marital residence, things can get pretty contentious as emotions run high.  What may once have been considered “ours” now gets thought of as “what’s mine is mine” especially when discussing retirement accounts and pensions.  Temperatures rise when one or both spouses take the position that their retirement account or pension is something that he/she “earned” and their spouse has no right to receive any portion of it.  Of course, we know that this is not the case and there are clear ways to define what is marital, what is non-marital, and what portion will be divided according to the rules of equitable distribution.

Furthermore, the issue of who will remain in the marital residence, how long that person is be able to stay there, if and when the house gets sold and who can afford to buy the other out comes up in many situations and, when there are minor children still living at home, it raises many more questions that need to be answered. Many couples opt to sell the marital residence, split the proceeds and go their separate ways in a new location.  This seems like a simpler solution to a complicated problem and can be mentally and emotionally beneficial, allowing both parties to start fresh.


Above and beyond these common scenarios, one of the more complex issues for a couple is when there is a family-owned business. This always presents unique challenges to the clients and their attorneys.  Does one spouse own the company?  Was it passed down through generations within that spouses’ family? Are there sibling partners involved? This issue could certainly throw a monkey wrench into what otherwise could have been a relatively straight-forward financial negotiation. Is the other spouse a silent partner without a day-to-day working knowledge of the business? Normally, if only one spouse is actively involved in the company, the other spouse will be appropriately compensated once a forensic accountant has been engaged to determine the value of the business and the marital portion to be awarded to the non-owner spouse.

However, the situation may be more complicated when both spouses are owners AND hold important positions within the organization.

What happens if both spouses are vital to the ongoing success, profitability, and value of the company? Will they be able to work together in the future? They and their advisors must weigh advantages and disadvantages of trying to divide the corporation between the spouses versus having them continue to work together, IF that’s even a viable option. Can they continue to work together? Should they? Is either spouse so indispensable that the business would suffer irreparable damage due to their departure? Will the profitability and viability of the business suffer if one spouse leaves? Can the remaining spouse buy the other spouse out of their share? Is there a buy/sell agreement in place? Is the company an asset that can be sold or is it a business that is dependent on the intellectual capital of one or both of the spouses?  And, let’s not forget liabilities! Is the business in debt? Is this debt the responsibility of one or both parties in the marriage? Is there cash available? All of these questions need to be addressed before a determination can be made regarding how the business will be handled as an asset.

With all these questions needing answers, there is some positive news. The loss of value due to the departure of one spouse after divorce can be temporary.  The health of the company may actually improve after the spouses have gone their separate ways… just like ending a bad marriage might improve the lives of the now separate individuals.  Neither scenario is out of the realm of possibility … it all depends on the individuals involved and the compromises that can be reached during negotiations.