Financial Infidelity: Hiding Assets

Financial infidelity in divorce occurs when one spouse intentionally conceals assets, debts, or spending habits to manipulate the division of relationship property. This deceit ranges from hidden bank accounts to complex cryptocurrency schemes, often requiring forensic intervention to ensure a fair legal resolution and equitable asset distribution.

Divorce is rarely just a legal dissolution of a contract; it is an unraveling of a shared life. In the realm of high-conflict divorce and relationship psychology, particularly within the New Zealand legal framework, the discovery of financial infidelity can be as devastating as an emotional affair. When trust is broken through the concealment of wealth, the path to a fair settlement becomes a complex navigational challenge involving legal strategy, forensic investigation, and psychological resilience.

Understanding Financial Infidelity in Divorce

Financial infidelity refers to any act where one partner hides financial information from the other. In the context of a failing marriage, this often escalates into a strategic attempt to “starve” the other spouse out of litigation or to hoard resources for a post-divorce life. While minor discretions like a secret credit card purchase might be forgivable in a healthy relationship, the systematic hiding of assets during separation proceedings is a serious legal transgression.

In New Zealand, the Property (Relationships) Act 1976 is built on the presumption of equal sharing. Both parties have a strict duty of full and frank disclosure. When one party violates this duty, they are not merely lying; they are undermining the judicial process. This form of economic abuse is frequently observed in high-conflict personalities, including those with narcissistic traits, who view the division of assets as a zero-sum game where they must win at all costs.

The impact of financial infidelity extends beyond the balance sheet. It creates a power imbalance that can force the financially weaker spouse to settle for less than they are entitled to, simply because they lack the resources to fund an investigation. Recognizing the gravity of this deception is the first step toward rectifying it.

Signs of Financial Infidelity Alongside Affairs

It is a common adage in divorce law that “how they leave is how they lived.” Financial infidelity rarely happens in a vacuum; it often accompanies emotional or physical affairs. The psychology behind an extra-marital affair—secrecy, entitlement, and compartmentalization—mirrors the psychology required to siphon off relationship property.

If you suspect your spouse is hiding assets, look for these behavioral and administrative red flags:

1. The “Change of Address” Tactic

One of the earliest signs is the sudden disappearance of physical mail. If bank statements, investment reports, or insurance renewals stop arriving at the matrimonial home, it is likely they have been redirected to a P.O. Box or a work address. This is often done to hide withdrawals or the existence of new accounts.

2. Defensive Behavior Regarding Finances

A spouse who is hiding assets will often become irrationally angry or defensive when asked simple questions about the family budget. They may accuse you of being controlling or paranoid—a classic gaslighting technique used to deflect scrutiny.

3. Unexplained Cash Withdrawals

Small, frequent cash withdrawals can add up to significant sums over time. This “drip-feeding” method is used to stockpile cash that cannot be traced once it leaves the banking system. Additionally, look for “cash back” transactions at supermarkets which are harder to spot than ATM withdrawals.

4. Sudden Business “Failures”

If your spouse owns a business, be wary of a sudden drop in revenue coinciding with marital trouble. It is common for business owners to defer invoicing, prepay expenses, or pay “ghost employees” to artificially lower the value of the business before a valuation takes place.

The Role of Forensic Accounting in Relationship Property Cases

When financial infidelity is suspected, a standard accountant is often insufficient. You require the expertise of a forensic accountant. Unlike general accountants who organize and report on financial data, forensic accountants are investigators trained to look behind the numbers to identify discrepancies and fraud.

In New Zealand relationship property cases, a forensic accountant performs a “lifestyle analysis.” This involves comparing the reported income of a spouse against their actual spending habits. If a spouse claims to earn $80,000 a year but is sustaining a lifestyle that costs $150,000, the difference must be coming from somewhere—likely undisclosed assets or unreported income.

Forensic accountants also analyze:

• Inter-company transfers: Moving money between shell companies to confuse the audit trail.
• Loan manipulation: Creating fake debts to friends or family members to reduce the net asset pool.
• Deferred compensation: Asking employers to delay bonuses or commissions until after the separation date.

According to the New Zealand Ministry of Justice, the court relies heavily on accurate valuations to determine the division of property. A forensic report serves as critical evidence that can compel the court to issue orders for further disclosure or to set aside previous agreements based on fraud.

Tracing Hidden Assets: Bank Accounts and Cryptocurrency

The digital age has made hiding assets both easier and harder. While digital footprints are difficult to erase completely, the avenues for concealment have multiplied. Tracing these assets requires a sophisticated understanding of modern banking and blockchain technology.

Offshore and Hidden Bank Accounts

Traditionally, hiding money meant opening an account in a jurisdiction with high banking secrecy. However, with the implementation of global reporting standards, this is becoming more difficult. Today, hidden accounts are often domestic but disguised. They may be custodial accounts opened in a child’s name or accounts linked to a business entity that the other spouse is unaware of.

Tracing these involves looking for “exit points” in the known bank statements—transfers to unknown account numbers, large payments to credit cards that don’t match known liabilities, or transfers to digital wallets (PayPal, Wise, Revolut) where the money can be moved internationally with ease.

The Cryptocurrency Challenge

Cryptocurrency has become a preferred vehicle for financial infidelity due to its perceived anonymity. A spouse can convert tens of thousands of dollars into Bitcoin or Ethereum and store it on a “cold wallet” (a physical USB device), effectively taking the asset off the grid.

However, crypto is not untraceable. Most people enter the crypto market through a centralized exchange (like Coinbase or Binance) which requires KYC (Know Your Customer) identification. A forensic accountant will look for:

• Transfers from traditional bank accounts to crypto exchanges.
• Apps installed on the spouse’s phone (e.g., trust wallets, authenticators).
• Emails confirming trades or login attempts.

Once the entry point is identified, the blockchain ledger can often be analyzed to trace where the funds went, even if they were moved through “mixers” or “tumblers” designed to obscure the trail.

Legal Penalties for Non-Disclosure

The consequences of hiding assets in a divorce can be severe. Courts take a dim view of parties who attempt to defraud their spouse and the judicial system. In New Zealand, and similarly in other common law jurisdictions, the penalties for non-disclosure are designed to be punitive to deter such behavior.

Setting Aside Agreements

Under Section 21 of the Property (Relationships) Act, a contracting out agreement (pre-nup) or a settlement agreement can be declared void if the court is satisfied that it would be effectively unjust to give effect to it. Non-disclosure of material assets is a primary ground for finding an agreement unjust. If a spouse is found to have hidden assets years after the divorce is finalized, the entire settlement can be reopened.

Cost Orders and Penalties

If a spouse is forced to spend money on forensic accountants and lawyers to uncover assets that should have been disclosed voluntarily, the court may order the hiding spouse to pay the other party’s legal costs. This is often on an indemnity basis, meaning the full cost is covered, not just a standard portion.

Compensatory Adjustments

In some cases, the court may award the innocent spouse a larger share of the known assets to compensate for the hidden assets that cannot be fully recovered. For example, if a spouse dissipated $100,000 on an affair or hid it in untraceable cash, the court may award the other spouse an extra $100,000 from the remaining home equity.

Steps to Take if You Suspect Asset Hiding

If you suspect financial infidelity, immediate and strategic action is required. Do not confront your spouse immediately, as this gives them time to destroy evidence.

1. Gather Evidence: Secure copies of all tax returns, bank statements, credit card bills, and business records available to you. Take photos of documents if you cannot remove them.
2. Monitor Digital Mail: If you share a computer, check the browser history for banking sites or investment platforms you don’t recognize. check the recycle bin for deleted financial PDFs.
3. Secure Representation: Hire a lawyer who specializes in high-conflict divorce and has experience with complex relationship property pools.
4. Freeze Assets: If there is an imminent risk of assets being moved offshore or spent, your lawyer can apply for a freezing order (Mareva injunction) to lock the assets until the court can determine ownership.

Financial infidelity is a breach of the fiduciary-like duty that exists between spouses. By understanding the signs and utilizing the power of forensic accounting and the law, you can protect your financial future and ensure that justice is served.

Frequently Asked Questions