Red Flags During a Divorce: Are You Watching for Clues?

Before we discuss the red flags during a divorce, let’s realize what red flags are all about. Red flags are warning signs that should be addressed because they may lead to some serious issues.

Red Flags – What Are Warning Signs?

Your home has circuit breakers that protect your home from overload or short circuits in the electrical system and shut off automatically when there is an issue with the electrical system. It is a safety feature in every home.

If a circuit breaker shuts off in your home, you immediately investigate the issue at the circuit breaker box to see which breaker switched off. What do you do then? Most people would just turn on the circuit breaker with no concerns. However, there is a reason why the circuit breaker tripped, and it could be a warning sign that there may be a serious problem. Hence, it should be investigated. It could be as simple as a circuit being overloaded. However, it may be something more severe, like a short circuit in the wiring hidden in the wall, which could be disastrous.

How Does This Relate to Divorce?

This same philosophy applies when you are going through a divorce. No different than a circuit breaker switching off, observations of warning signs should be pursued. However, you need to be aware of the warning signs in order to pursue them. Warning signs are just that; issues that need to be pursued. The investigation may lead to a simple explanation like an overloaded circuit, or it could mean something more serious than that and should be investigated further.

There are several red flags that can be present during a divorce proceeding. It is important to be able to recognize those red flags and know how to investigate them.

More often than not, marital dissolutions are not settled with minimal conflict. When a divorce is not settled harmoniously, spouses often feel they have an incentive to hide assets, not release all relevant financial information, or be very secretive in responding to inquiries and document production.

Different laws in each state govern the division of assets in a marital dissolution. In general, the laws provide that all relevant financial information must be delivered by each spouse.

There are many warning signs that may appear throughout a marital dissolution that should raise a spouse’s antenna. Some red flags that should be considered are provided below. The list below is not intended to be exhaustive, but is intended to discuss common red flags.

• Lifestyle changes are a very common indicator of manipulation of assets or hiding income. Expenditures for a lifestyle that is not analogous to the salary claimed by that spouse are a red flag. For example, if a spouse claims to having a salary of $60,000 in a year and is driving a luxury car, taking vacations to exotic destinations or purchasing clothing not normally acquired in the past, this is an obvious red flag, and determining how the spouse is enjoying these lifestyle enhancements often leads to hidden assets or underreported income. To be fair, the spouse may have won the lottery or inherited some money from a relative.
• Spending behavior changes are related to lifestyle changes as described above. When one spouse is spending more money than has historically been spent, investigation could lead to hidden funds or assets concealed from the other spouse. These changes may be attributable to gambling, more travel for pleasure, or gifts to a new partner.
• Unusual withdrawals from bank accounts or those that are larger than historically made could be a red flag. Such withdrawals may indicate transfer of funds to hidden accounts, which may be located domestically or internationally. Information on such accounts maintained internationally may be difficult to determine and the assets themselves may be problematic to retrieve. Such withdrawals may also be paid to friends and family members to be held until the divorce is finalized and then paid back to the spouse who originally withdrew those funds. These types of transfers may be disguised as loans or merely gifting property, but the fact of the matter is that these transfers are disguising the real reason for such transfers—the manipulation of marital assets for illegitimate purposes.
• Unusual cash withdrawals used to acquire hard-to-trace assets are a red flag and should be investigated. Such hard-to-trace assets may include, but are not limited to precious metals, artwork, cryptocurrency, high-value watches and jewelry, to name a few. The acquisitions may also be as simple as gift card purchases or prepaid debit cards. One spouse may be using marital property to convert cash to assets that could be hidden until after the divorce is finalized.
• Changes to passwords and accounts, whether online or at financial institutions, is a strong warning sign of wrongdoing. When passwords are suddenly changed for no apparent reason, chances are the changes in the passwords are for deceitful purposes. Access to those accounts is now restricted, and the spouse who has been locked out is at a disadvantage because any activity is now hidden from scrutiny. This type of red flag is usually the impetus for assets to be concealed or transferred from marital property.
• Missing bank and/or brokerage statements. The refusal to share these statements that were once shared as a normal ongoing event may be a warning sign. Such refusal may indicate that there has been transactional activity that the offending spouse does not want to show to the other spouse or that one spouse has opened up new accounts without the other spouse’s name on the new account. This red flag also pertains to refusing to share income tax returns, pay stubs or any other financial documents that were once shared in the normal course of events.
• Variance in transaction activity. When bank statements are shared and the transaction activity does not coincide with the amounts historically documented on the bank statements, this may be a red flag. For example, monthly transfers from brokerage accounts to bank accounts that are lower than historical amounts or are missing from the bank statement. Also, a lesser amount on a spouse’s paycheck or the omission of a spouse’s regular paycheck is a red flag. These instances should be investigated to question why this is occurring. There may be a viable explanation, but chances are it is an improper handling of the marital assets.
• Significant travel to a foreign country may be an indication that certain assets may be kept in that foreign country or assets are being transferred to that country. It could also indicate income is being earned in that foreign country and not being brought back to the United States or not being reported as income.

Conclusion

When in the middle of a marital dissolution, one should pay special attention to red flags that appear. Red flags should raise one’s antennae. Remember that red flags are warning signs; they may not mean anything bad, but they should be pursued. Not unlike a short circuit in the wiring hidden in the wall, you do not want a red flag to be a warning sign that was not investigated and turned out to be detrimental to an equitable marital dissolution.

Contact a member of our Marital Dissolution team to learn more about our marital dissolution services.