Hidden Income and Assets and Discovery

It is far too common that a party hides income and assets before and/or after filing for divorce. However, uncovering hidden income and assets is possible through the discovery process.

It is the court’s job to make rulings to ensure that the parties and their children receive support and an equitable division of assets. If one party is not forthright in their disclosure, then the burden is on the other party to provide the judge with a full and complete picture of the respective financial situations. The following blog discusses how income and assets are defined by law in Massachusetts, and how the discovery process can help to uncover income and assets that have been hidden by a party.

Income and Assets

In Massachusetts, all income is considered when calculating alimony and/or child support. “[I] income is defined as gross income from whatever source . . .” Massachusetts Child Support Guidelines amended June 15, 2018. However, under state law, the court will exclude any payments or benefits obtained through “means-tested” public assistance programs from a party’s income when calculating child support. “Means-tested” public assistance programs are based on a party’s income and include, among others, TAFDC, veteran’s benefits, and Social Security Insurance benefits.

Further, when calculating an appropriate amount of alimony owed to a spouse, the court will exclude the following:

Gross income that the court already considering in determining child support; and,
Capital gains income, dividends, and interest income derived from assets that have been equally divided between the parties

See M.G.L. ch. 208, § 53. In addition to income, if the parties cannot come to an agreement regarding how to divide their marital property, Massachusetts courts will apply an “equitable division” standard. Marital property, which may be limited to property that is obtained during the marriage, can include assets, such as cars, homes, jewelry, bank accounts, stocks and bonds, art, cryptocurrency, memberships in clubs, retirement accounts, pensions, and collections with value. The “equitable” division standard for divorce means that the courts will seek to achieve a fair division, given the circumstances of the parties. This does not mean that the property will be split evenly; in some cases, the court can assign all, part, or none of a particular asset to either party. See M.G.L. ch. 208, § 34.

Given the “equitable division” standard in Massachusetts, a party with substantial income or assets that would be categorized as the marital property may be motivated to hide or transfer those assets. If you believe that the other party is hiding income and/or assets it is important to verify whether your suspicions are valid prior to a judge entering a court order for support and/or alimony or regarding the division of assets. Discovery is a party’s most powerful tool when it is necessary to discover assets.

Discovery

Discovery is the fact-finding process used to gather information. Discovery provides the parties with the ability to seek non-privileged information from the other party or from a third party, such as information related to the other party’s income, assets, and liabilities. This is a powerful tool because all parties are required to comply with the rules of discovery. The failure to properly disclose information or documents requested during the discovery process can result in substantial penalties. It is necessary to be persistent and organized to unravel the complex financial situations.

Financial statements

The starting point in discovery is a financial statement. These statements are court forms that require the parties to list all of their income, expenses, assets, and liabilities. Rule 401 of the Supplemental Probate and Family Court requires that when financial relief is requested, a financial statement be provided to the other party and the court within forty-five (45) days from the date of service of the complaint about divorce.

If the other party is hiding income or assets, it may become apparent after a review of their financial statement. If it is clear that the other party is hiding assets, or the other party appears to have understated his/her income or assets, further discovery is likely necessary. The following are four (4) commonly used discovery tools: Requests for Production of Documents, Interrogatories, Subpoenas, and Depositions.

Requests Between the Parties

Requests for the Production of Documents are “written request[s] that another party provides specified documents or other tangible things for inspection and copying.” Black’s Law Dictionary. Through a Request for the Production of Documents, a party can request bank statements for past years, communications, invoices, purchase and sale agreements, and documentary evidence of recent and historical transactions. This allows a party to confirm any contested issue. This can include the expenses of a business, use of personal expenditures, communications regarding custody, or financial matters.

Similarly, interrogatories are requests for information from the other side, in the form of a list of questions. “The responding party must sign answers to interrogatories under the pains and penalties of perjury; therefore, the signed answers are equivalent [to] sworn testimony given under oath.” Massachusetts Discovery Practice, s. 10.1.

After these requests are sent, the other party has thirty (30) days to respond (forty-five if served with the complaint for divorce). These above requests can only be served on the parties involved in the case, not on any third parties such as individuals or entities to which the other party may have transferred assets. Although these requests are helpful and may lead to useful information, they still may not fully disclose hidden income and assets. A careful review of the documents should be completed by an experienced attorney or a forensic accountant as it will provide clues as to what is missing or complete the financial picture.

Subpoenas

The next tool frequently used in Massachusetts is a subpoena. Document subpoenas are requests on third parties to provide documents directly to the requesting party. Mass.R.Dom.Rel.P. Rules 30 and 45. Subpoenas are often one of the best ways to uncover hidden income and assets because they request a disinterested party to provide documents. Examples of third parties commonly subpoenaed are: banks, employers, mortgage companies, and governmental agencies.

Subpoenas can be sent at any point during the discovery process. However, when serving a subpoena, ample time should be given to the responding third party to allow for a thorough review of their records. Although subpoenas have a service fee and third parties typically charge for the information, the information is not pre-screened by the other party and is invaluable.

Depositions

The final most commonly used discovery tool is deposition. A deposition is the out of court questioning of a witness under oath. Mass.R.Dom.Rel.P. Rule 30. Depositions allow a party to ask questions of the other party and/or third parties. Depositions tend to be the costliest discovery tool due to the time necessary to adequately prepare for the deposition. However, they may provide answers to questions you would otherwise not know or, at the very least, hold a party or witness to a statement or narrative under oath.

Conclusion

Divorce can be an emotionally and time-intensive process, particularly when the other party may be hiding his/her assets or income to reduce his/her alimony and/or child support obligation. Discovery, while time consuming, is a critical tool that, when used correctly, can help you determine whether the other party is being honest and truthful with regard to his/her income, assets, and liabilities.