People often ask us about divorce and hidden assets when they come to us about legal advice and the BC Family Law Act. They want to know what happens if their spouse may have hidden assets from them. Is there anything they can do about it?
When figuring out who gets what, almost always (and like all laws, there are exceptions), when parties who have been living together or married for more than 2 years, the growth of any of their assets will be divided with their spouse upon separation.
Of course, if one spouse does not disclose some of the assets, then it will be difficult for the other spouse to know of their entitlement. In essence, people want to know how to “divide the pie” when you don’t know how big the pie is in the first place?
Let’s think of an example. John and Mary are in the process of separating. They have been married for 12 years. Mary focused mostly on raising Maya and Jack, their two children, while John ran his business and took care of the finances.
John is a mortgage broker and he has had a pattern of earning a fluctuating income. Some years are great in terms of income and other years are not so great. Although Mary has seen John experience money stress from time to time, she always knew that bills were ultimately taken care of and that their family’s needs were met. Mary also assumed that John was putting funds away on a regular basis for their future retirement but she never really asked John much about this.
Mary has also heard John brag many times about being a shrewd business negotiator. He has always prided himself on being smarter than most others. He brags that he has been able to take advantage of those less intelligent and crafty than himself.
Now Mary is worried.
Now that Mary and John are separating, each of them have sworn financial statements and John’s financial statement states that other than the family residence, and about $50,000 in RRSPs, that there are no other significant assets of any sort. Mary has a hard time believing this to be true. What has John been doing all these years in terms of their savings? If he has been so great about negotiating business deals, why is it that their savings are so small compared to what she believed would be the case?
At the same time, although she has always seen John as a shrewd in business, Mary has never thought John as someone who would be intentionally dishonest.
Then again, she also never thought John would leave her and the children during a “mid-life crisis.” It is like John is a person she doesn’t even recognize at the moment.
Mary asked her lawyer about divorce and hidden assets. She had no idea where to turn in terms of reducing her suspicions about the potential that John could have been hiding assets for all these years. After all, it is the only way it makes sense in terms of how little savings they have.
Mary’s lawyer explained the “equitable remedy of tracing” to her. This is what you do when there is a divorce and hidden assets.
The equitable remedy of tracing tracks all funds coming into any of John’s business and personal accounts. You find out where they were spent and whether or not they were used to purchase any assets of significance (like real estate for example). Mary’s lawyer will also have the opportunity to ask John questions about his business, spending and investments under oath at an examination for discovery.
Will John be successful in hiding assets from Mary now that they are separating? Has he, in fact, hidden assets? Time will tell.
If someone really wanted to hide assets from their spouse in the long run, they might have been able to do that if they thought of doing so right at the beginning of the relationship and in so doing, they have taken lots of steps that will deceive their spouse (hidden bank accounts, company’s, email accounts etc. right from the start). They would have had to have gone through a lot of work to do so and for many people, taking such steps to deceive their spouse is not something they do going into a marriage (remember this is the person they love and have built a life with).
To proceed with divorce and hidden assets, the spouse will have to have been hiding assets from the beginning. They will have to have sworn false materials to continue keeping those assets hidden. They would be acting fraudulently and are, in fact, acting criminally.
It is always important to do due diligence if you have any suspicions whatsoever regarding divorce and hidden assets. Your lawyer will help you do that.
What should Mary do? She should ask her lawyer about the equitable remedy of tracing. She should insist upon disclosure of all of John’s bank accounts, investments, real estate, and all other business interests along with bank account numbers. She should review the financial statements. She should take the time to understand how John ran things and find out where is funds went. Her lawyer (and potentially an accountant) will help her with this process or do it for her.
This article was written by Val Hemminger, lawyer and mediator
Return from divorce and hidden assets