Red Flags of Marital Fraud

There are plenty of warning signs or red flags that indicate that finances should be evaluated. The below list of red flags by themselves do not mean that your spouse is engaging in marital fraud, but they are signs that an investigation is warranted.

Behavior Indicators

Secretive about finances
Exclusive control of password(s) for online brokerage and bank accounts
Receives unfamiliar financial or bank account mail
Redirects financial mail from home to his or her office or a newly opened P.O. box
Does not leave a traditional audit trail, such as cancelled checks, bank statements, statements and invoices
Prepaying credit card balances or paying in excess of the balance due
Controlling with money
Everyone is on a budget except for the spouse in control of the budget
Pays for family and big-ticket expenses in cash
Pays personal living expenses in cash or from an account other than his or her personal account
Keeps cash in a safe in the home
Lies on loan applications
Asks for quitclaim deeds for real estate purchases, provides missing or incomplete records for refinancing, or performs overly complex transactions
Exhibits a willingness to cheat on income taxes
Asks for tax returns to be signed late at night on April 14 and makes every effort to discourage questions and explanations
Uses a questionable tax preparer or regularly changes tax preparation providers
Does not file tax returns
Exhibits a tolerance for risk, which is suggested by credit reports, type of investments, or lifestyle
Establishes elaborate trusts without obvious estate planning objectives
Has a rapid, unexplained increase or decrease in net worth
One of the spouses has a criminal record of any type
Evidence of any spousal or child abuse or anger management issues
Makes allegations about spouse
Files false charges against spouse to intimidate them
Frequently absent with no explanation, allegedly for business purposes
Changes work schedule
Can never be reached at work or business
Changes telephone or fax numbers
Spouse’s accountant fails to respond to parties’ expert, attorney, or either spouse
Spouse makes use of the diversionary tactic of filing motions
Makes threats against the expert
Tries to bully his or her spouse into firing his or her expert.
Intentionally provides incomplete responses to discovery requests and misleading declarations and testimony
Resists complying with stipulations and other court orders
Takes advantage of the passive spouse’s lack of business experience.
Receives telephone calls at home, to which he or she quickly or nervously responds, “I’ll call you”

Life Style Issues

Lives a lifestyle in excess of reported income
Purchases new “toys” which are above the standard of living indicated by income
Travel is inconsistent with other lifestyle activities
Exhibits significant flash and style, as compared to the passive spouse
Abuses alcohol, illegal drugs or pharmaceuticals

Diverted or Hidden Income

Income declines with the onset of marital difficulties
Conducts financial dealings with parents, siblings, adult children, or close friends.
Is unable to explain the appearance of unknown accounts or invoices
Has multiple bank or savings accounts, or both, in or out of state, or both
Spends a great deal of time in a foreign country where he or she owns property
Begins trips to the Cayman Islands, or other offshore haven, without his or her spouse
Has offshore and tax shelters
Has nonregistered assets such as gold coins or an undisclosed safe deposit box
Makes use of corporate cloaking to create business entities that hold assets and money
Is inconsistent by saying business is bad and then spending money
Takes out large new loans without being worried about repayment
Provides cash to pay bills instead of using credit cards or checks
Net worth exceeds the amount that the parties could have reasonably accumulated based on their incomes and not explained by inheritance
The subject of multiple IRS audits
Receives excessive mail from the IRS

Inappropriate Transfers

Pays large legal fees to divorce attorney from business account
Has unusual loan or note transactions such as loans to a losing business from nontraditional sources
Has multiple bank accounts with many transfers and large deposits and withdrawals
Conducts multiple transactions involving currency levels falling just below the $10,000 currency transaction reporting requirement
Conducts convoluted financial transactions involving numerous entities with a high volume of transfers
Conducts related-party transactions
Frequently refinances mortgage

Business

Has complicated multiple entity business investments
Has declining “Z” score, which measures the probability of bankruptcy
Starts a new business entity with a “partner” in or out of state or outside of the country
Employs “independent contractor” cash employees who give kickbacks to spouse
Has nonworkers on business payroll
Shuts his or her business down, if licensed, and starts employment with friendly competitor until divorce is final
Conducts stock transactions of his or her business with friendly third parties
Sells company to a third party during the divorce proceedings
Increases accounts receivable adjustments to cover money being taken from business
Is reimbursed by the business for entertainment that does not match his or her diary or calendar
Business constantly reimburses him or her for payments paid in cash
Takes loans from the company
Creates liabilities that are not real
Business creates fictitious invoices at year-end in accounts payable department
Business spreads large disbursements over several accounts to even out expenses
Business expenses are significantly above industry norms
Business invoices supporting purchases or expenses are like those generated by word processing and spreadsheet software
Business expense categories fluctuate significantly when a horizontal or vertical analysis is performed
Nonbusiness debt is carried and serviced by his or her business
Has nonbusiness leases (autos, paramour’s apartment, and toys) on business books
Business postpones income
Business gross profit is significantly below industry norms
Owns his or her own business, takes large salary with no withholding, and leaves community with large tax liability
Business compensation packages are restructured at separation
Offers unusual compensation packages for key employee.
Gives bonus to employee, such as a new girlfriend or boyfriend
Sloppy bookkeeping and accounting and commingling of personal and family finances and accounts
Has known or alleged business disputes
Relocates his or her business or changes staff, personal assistants, administrative assistants, managers and so on
Makes a drastic change in vendors for the business or customer base, which may indicate sales are being diverted to another company
Business vendors are paid by a company that does not exist in the phone book
Business reports less net income than the spouse can earn working for another company
Business fixed asset acquisitions are expensed as repairs and capitalized for depreciation
Business has a substantial increase in repair and maintenance expense
Business secures a loan without the usual paperwork or meeting the terms for repayment
Business either lacks loans or lacks fees and costs on existing loans
Business lacks inventory records
Business lacks an appointment book
Business customers’ accounts receivable balance is written off, but company continues to do business with the customer
Business has been losing money for several years
Business uses a single-entry accounting system
Business does not use an outside accountant
Business makes use of the barter system
Business makes use of a secondary endorsee on checks paid to spouse
Duplicate deposit slips for his or her business do not show cash dollars when the business receives cash
Business gross rents do not match the rent roll or leases
Business tax returns do not match books and records