California is a community property state where all assets and debts acquired during marriage are presumed to belong equally to both spouses. When it comes to divorce, many couples expect a straightforward 50/50 split, but this idea is usually an oversimplification of what actually happens.
The landmark California divorce case In re Marriage of DeSouza (2020) is a cautionary tale about financial secrets. After filing for divorce, Francis DeSouza engaged in cryptocurrency transactions involving over 1,000 Bitcoins without the knowledge or consent of Erica DeSouza. The court found that he had violated Automatic Temporary Restraining Orders (ATROs) and breached his fiduciary duty. The legal consequences? He was ordered to transfer half of what was known to be the original amount of bitcoin to Erica and to pay her attorney fees and costs.
Failure to disclose all assets & debts during divorce proceedings is considered financial fraud. This guide explores the financial risks that often surface in high-net-worth divorces and the legal strategies typically used by an attorney to protect your interests.
8 Risks to an Equitable Divorce Settlement: Hidden Assets, Financial Misconduct, & Mistakes
Whether due to intentional concealment, genuine oversight, or factors that were not understood or appreciated during the marriage, several issues and surprises may surface as divorce unfolds.
Hidden Bank Accounts or Secret Transfers
Your spouse may try to interfere with the equitable division of community property by hiding wealth in undisclosed bank accounts or digital wallets (cryptocurrency), or through temporary transfers to friends or shell companies.
Underreported or Undisclosed Income
Spousal support and child support are calculated based on income. Your spouse may declare a lower income than their actual income to try to reduce potential spousal support or child support obligations.
Deferred Compensation & Stock Options
Compensation in the form of RSUs (Restricted Stock Units) or stock options may represent a significant portion of your marital estate, especially if a spouse works in California’s startup or corporate technology sectors. Vesting schedules, grant dates, and date of separation are crucial factors in calculating the value of the community property share. Due to their technical structure, these assets can be incorrectly valued or classified without the specialized analysis of forensic accountants.
Commingling: Mixing Separate & Community Property
The definition of separate property in California includes inheritances. However, commingling complicates the characterization of assets. For example, if your spouse inherited a house that became the marital home, but community income was used to pay for the mortgage, maintenance, or improvements, the community may acquire a reimbursable or proportional interest in the property and any appreciation.
Fabricated Personal or Business Debt
Your spouse may misrepresent debt or report fake liabilities to deflate the apparent net worth of the marital estate available for division.
Wasteful Dissipation Of Marital Assets
Your spouse may squander community assets in anticipation of divorce by misappropriating funds for purposes that do not benefit the marriage. They may behave vindictively and recklessly engage in activities such as adultery, excessive spending, substance abuse, or gambling.
Secret Debt or Financial Infidelity
Wasteful Dissipation Of Marital Assets often involves financial infidelity, which is when a married individual uses community property without their spouse’s knowledge or consent. For example, your spouse may have taken on loans or incurred debt to make large purchases without your knowledge.
Business Manipulation
If your spouse is the owner of a business or is largely in control of the finances of your family business, forensic accounting may uncover evidence of manipulated financials (e.g., inflated expenses, unreported revenue).
How Financial Lies and Omissions Impact Your Divorce Settlement and Future
- Inequitable Settlements: You may receive unfairly low child support and spousal support payments, and significantly less than what you are legally entitled to in the division of property.
- Breach of Fiduciary Duty (Family Code §1101): A spouse who deliberately conceals marital assets or makes false financial disclosures may face civil penalties and potential criminal charges for perjury. California courts may award the other spouse payment of their attorney fees and up to 100% of the hidden asset.
- Omitted Asset Claims (Family Code §2556): Under California law, the court maintains “continuing jurisdiction” over omitted community assets and debts. You may file a post-judgment Motion or Request for Order to divide any assets that were not previously adjudicated.
How a High-Net-Worth Divorce Attorney Uncovers Hidden Wealth & Protects Your Interests
Financially complex or high-net-worth divorces demand more than simple negotiation. Kaspar & Lugay LLP specializes in cases that involve financial discrepancies and require rigorous legal intervention. Our attorneys advocate for your rights before, during, and post-divorce, and combine legal expertise with sharp business and financial acumen. Partner Brent Kaspar is a Certified Public Accountant (CPA), and Partner Arvin Lugay has advised and represented some of the country’s most prestigious financial and banking institutions in high-stakes litigation. Legal intervention may involve:
- Strategic Discovery: Questioning your spouse under oath during a deposition, or subpoenaing financial institutions to uncover information related to issues like hidden assets, understated income, inflated expenses, or fabricated debt.
- Forensic Accounting: Meticulously analyzing and comparing reported income to records, such as credit card statements, bank statements, employment contracts, compensation documents, and lifestyle & spending patterns. Forensic accounting also involves tracing commingled funds and potentially substantiating separate property claims.
- Private Investigation: Observation conducted by a private investigator may produce legally admissible evidence of financial misrepresentation or misconduct. Verified information uncovered through forensic accounting or private investigation can serve as powerful leverage to resolve divorce cases through negotiation rather than trial.
Accurate information is the foundation of post-divorce financial stability. Call Kaspar & Lugay LLP today at 415-789-5881 or contact us online to schedule a discreet consultation with our experienced family law attorneys in San Diego, Corte Madera, Napa, and Walnut Creek.
Frequently Asked Questions
What Financial Disclosures Are Required in a California Divorce?
Under California law, both spouses are required to complete and exchange financial disclosure forms declaring their income, expenses, community property, separate property, debts, and all assets, including investment accounts, retirement plans, real estate, and business interests.
Can Spousal Support or Child Support Increase After Divorce?
Either spouse may request support modification upon a material change in circumstances. For example, a court may grant an increase in child support if the paying spouse experiences a significant increase in income. If you believe your former spouse is underreporting income, an attorney may pursue legal discovery and, where appropriate, work with forensic accounting professionals or private investigators to obtain evidence to support a modification request.
What Should I Do If I Suspect My Spouse Is Hiding Assets but Can’t Prove It?
Consult a divorce lawyer who specializes in complex financial disputes. Identifying financial issues early can help avoid unfair outcomes and reduce the risk of future disputes. If you haven’t yet decided to seek a divorce but already suspect your spouse of wrongdoing, now is the time to speak with a family attorney, even if you are unsure of how much evidence can be compiled.
