A 2012 study by the National Endowment for Financial Education indicates that about one out of every three spouses has lied about money, according to Forbes. If this is the case when marriages are sailing smoothly along, it’s no wonder the divorce process has known its share of dishonesty. The fallout isn't always the same from state to state or even from court to court, but hiding assets in a divorce is illegal and some penalties are common across jurisdictions.
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The Discovery Process
Unless spouses negotiate and sign a settlement agreement before either of them files for divorce -- eliminating the need for much court involvement -- proceedings usually include a discovery phase. This is a period of time before mediation or trial when spouses exchange information pertinent to the case. Discovery might include an exchange of documentation, such as retirement account statements, stock portfolios, pay stubs and tax returns. It might include depositions, where one party or her lawyer gets to question the other under oath in a less formal setting than a courtroom, usually the lawyer’s office. Interrogatories -- written questions that must be answered under oath -- are another common part of these proceedings. Under oath is the pivotal term in all cases. Telling lies or omitting certain information means committing perjury, In some cases, this could lead to jail time, because perjury is a crime.
The Financial Affidavit
All states require spouses to file financial affidavits as part of the discovery process, at least in contested matters. Sometimes they’re even required in uncontested divorces, since there must be full disclosure between spouses before any agreement can be upheld and enforced. Each spouse must have all pertinent information so he can make reasonable decisions or – in the case of more contentious divorces – educated and knowledgeable arguments to the court. The financial affidavit details the extent of marital and separate assets, debts, expenses and income.
Full disclosure means that a spouse must volunteer information. If he owns a large estate in Tahiti, he must list it even if the affidavit doesn’t specifically ask, “Do you own a large estate in Tahiti?” He must sign the affidavit under penalty of perjury.
Courts have various ways of dealing with perjury and omissions, and some states are tougher than others. In one infamous case, a California court awarded one spouse an entire marital asset – lottery winnings the other spouse tried to conceal – when he would only have received half under the state’s community property law if she had just been forthcoming. Courts have been known to reopen divorce cases to readdress property division when hidden assets come to light after the final decree. If nothing else, this can result in a new avalanche of legal and attorney fees, particularly if the court orders the duplicitous spouse to pay the other’s costs incurred in sorting things out, which can happen as well. When hidden assets are discovered before or during trial, monetary fines called sanctions are a common punishment even if the discovery doesn’t tilt the outcome of property division in favor of the innocent spouse.