Your Soon-to-Be Ex:
“Nothing is in my name. Go ahead. I want you to spend your money, whatever you have, trying to get a penny from me. I have nothing. You’re going to go broke trying, and when all is said and done, you are going to be paying me spousal maintenance and child support. Just take what I’m offering you and get lost. You think things are financially bad for you now? Keep testing me and you’ll see how much worse things can get for you.”
As Mark Twain would say, this misplaced sense of confidence is the result of the less than beautiful union between arrogance and ignorance. Arrogance comes from the sophomoric belief that one can trick a matrimonial judge by merely committing textbook fraud against one’s spouse, and that the aggrieved spouse’s divorce attorney would unlikely uncover or unravel the fraud. Ignorance comes from lack of knowledge of how routinely sham fraudulent conveyances are reversed, the protections of the corporate or LLC form are pierced and disregarded, and income is imputed onto a spouse engaging in such fraudulent tactics against his own spouse (and children). Along with the laundry list of penalties and sanctions matrimonial judges almost always slap on to anyone who seeks to defraud his or her spouse, courts have noted outright that they have an obligation to report tax fraud directly to the Internal Revenue Service once it becomes apparent during the litigation.
See e.g. Beth M. v. Joseph M., 2006 NY Slip. Op. 51490(U).
Hiding Assets (i.e., Fraudulent Conveyances)
The two most common assets a person seeks to hide behind in a divorce are real estate and interest in corporations or limited liability companies (i.e., businesses or holding companies). Amateur fraudsters transfer ownership to a family member, a friend, or sometimes, even their current girlfriend. These fraudulent conveyances and instances of marital waste are relatively simple to prove. More sophisticated fraudsters set up networks of off-shore irrevocable trusts, making very close friends and family the “beneficiaries” of such trust. On paper, they own nothing and are entitled to receive nothing. In reality, all one needs to do is follow the money and communications to quickly recreate the picture of exactly who “owns” the property in substance, notwithstanding the sham form. A divorce attorney’s job is to seek these out and bring them to light.
Practice Commentary: investigating concealment of assets between spouses is part forensic accounting and part FBI criminal investigation. An analysis of an individual’s bank statements often paints less than half of the story. Instead, it is often necessary to subpoena a person’s telephone records, text messages, social media communications and activity, travel records, depose distant family members and persons on the outskirts of the individual’s social circle. In almost all cases, laziness, sloppiness, and a healthy list of witnesses not willing to lie or go to jail betray the amateur con artist.
Hiding Income (i.e., Tax Fraud)
The benefit to an aggrieved spouse of the defrauding spouse hiding income is that everyone has the annual obligation to accurately and truthfully report his or her true gross income. Just like any tax fraud case, hiding income usually involves some combination of understating (to the court and tax authorities) one’s income, and overstating (to the court and tax authorities) one’s expenses. Concealing business assets also necessarily involves shifting income tax attributes to a completely different taxpayer, which is again tax fraud. There are also tactics for hiding income that will not necessarily expose the defrauding spouse to the risk of tax fraud. For example, if the individual is a “cash basis” taxpayer, he may forego invoicing customers for what is “earned revenue” for services rendered or goods sold, and simply let to “account receivable” exist as a phantom on his books and remain uncollected. Crooked divorce lawyers seek to help in this process.
Practice Commentary: investigating concealment of income between spouses is part forensic accounting and part IRS criminal tax investigation. While investigating concealment of income is generally forensic accounting heavy, the ultimate goal is to present the court with both a lifestyle analysis and a quasi-penal basis for imputing what the court can justify as the defrauding spouse’s “likely true income” or “earning capacity.” The result is often worse for the defrauding spouse than if he had just been honest with the court, which is the point as courts seek to incentivize parties to be honest and avoid clogging up matrimonial calendars with frivolous conduct.
Wasteful Dissipation of Assets
Think of waste of marital assets like the United States borrowing and spending so much money on private jet travel, lavish parties and golf outings so that anyone seeking to invade it is left with nothing of real or tangible value to plunder. The offending spouse starts to pawn away valuable personal property at a steep discount (for cash), take cash advances on credit cards or payday loans with borderline usurious interest rates, and go on personal spending sprees.
Practice Commentary: hope they enjoyed it – that seems to be the attitude from the bench. Waste of marital assets is a factor to be considered in formulating both spousal maintenance and equitable distribution. Arguments from the offending spouse to the effect of, “What kind of life do I have left to live after I pay my taxes and my ex,” fall on deaf and unsympathetic ears.
Sudden Income Deficit Syndrome (SIDS)
SIDS is a joke between matrimonial lawyers and judges. Before the couple filed for divorce, business was doing well, growing and picking up steam. Coincidentally, as luck would have it, just as the couple filed for divorce, business is bad, things are just not the same as they were, and it’s nothing short of a miracle how the complaining spouse has been able to avoid filing for bankruptcy.
Practice Commentary: SIDS is different from hiding income. Unlike tax fraud, a spouse suffering from SIDS is genuinely shooting himself in the foot, or as the British say, “hoisting himself by his own petard.” When a spouse intentionally decreases his “actual earnings,” he invites the court to award child support and spousal maintenance based on “earning capacity,” which often is much higher than what the clever spouse is “actually earning.” The courts do this in order to incentivize the clever spouse into actually earning what he has the capacity to earn.
The Less Monied Spouse & Attorneys’ Fees
In a marriage, spouses are sometimes financially equals. More often than not, however, the coin does not land perfectly on the end, but on one side or another. In other words, most marriages have a monied spouse (i.e., someone who makes most of the money) and a less monied spouse (i.e., someone who makes less money, or is completely financially dependent on the monied spouse). A frequent source of anxiety or fear that the less monied spouse has is reaching out to a lawyer to discuss his or her potential divorce case.
Domestic Relations Law 237 allows a court in a divorce action to award divorce attorneys’ fees to the less monied spouse. The purpose of such an award, often pendente lite(i.e., pending the final outcome or determination of the litigation), is to place the monied and less monied spouse on equal footing. Conceptually, a pendente lite award of attorneys’ fees is a form of spousal maintenance, arising from the more monied spouse’s marital obligation to provide for the less monied spouse’s legal representation in an action for divorce similar to how the more more monied spouse would be obligated to provide for the cost of a necessary dental procedure. Otherwise, the less monied spouse would have less access to justice and a hampered ability to obtain what he or she is entitled to receive from the marriage with the help of the court (in an adversarial system of justice).
Cravo v. Diegel, 163 A.D.3d 920 (2d Dept. 2018) recently affirmed an award of attorneys’ fees in favor of the more monied spouse:
“The determination of what constitutes reasonable counsel fees is within the court’s discretion (see DeCabrera v Cabrera-Rosete, 70 NY2d 879, 881 ; Baron v Baron, 71 AD3d 807, 810 ). In its determination of a counsel fee application, the trial court must consider the relative financial circumstances of the parties, the relative merit of their positions, and the tactics of a party in unnecessarily prolonging the litigation (see Baron v Baron, 71 AD3d at 810; Kaplan v Kaplan, 51 AD3d 635, 637 ). Although the defendant correctly contends that he is the less monied spouse, the Supreme Court’s award to the plaintiff of 55% of her total counsel fees, upon its determination that the defendant’s obstructionist conduct unnecessarily prolonged the pretrial motion practice and the trial, was not an improvident exercise of discretion (see Meara v Meara, 104 AD3d 916, 917 ; Quinn v Quinn, 73 AD3d 887, 887 ).”
The Second Department’s affirmation of the trial court’s exercise of discretion over an award of a divorce attorneys’ fees confirmed the long-standing experience of divorce lawyers, namely, that spouses effectively owe each other a duty to wind up the marital partnership honestly and efficiently, otherwise the spouse found to be intentionally delaying, obstructing, or engaging in dishonesty during the process will not be permitted to benefit from such bad behavior. Phrased differently, the court’s power to remove any reward for bad litigation behavior and compensate the spouse aggrieved by such bad litigation behavior (irrespective of whether the aggrieved spouse is the more or less monied spouse) will very likely be affirmed by the Second Department.
As such, pendente lite attorneys’ fee awards are simply intended to genuinely place the less monied spouse on equal financial and legal footing, so that both parties are represented competently and diligently. The purpose of a pendente lite award is “not” to grant the less monied spouse some license or power to financially punish the more monied spouse or create some incentive to drag out or prolong the matrimonial litigation.