Divorce is the main reason one spouse may hide assets in a family business.
As a community property state, California recognizes the equal, not equitable, distribution of assets in the event of a divorce. Sometimes spouses go to extreme measures to hold to assets they do not want to divide.
Community property under California law
Community property refers to anything purchased or acquired during the course of the marriage. Any of the following may fall under community property:
- Items or property purchased during the marriage
- Salaries acquired during the marriage
- Money earned through businesses
- Winnings from gambling, including the lottery
- Earnings generated through investments
Unfortunately, divorcing spouses in community property states often resort to vengeful behavior.
Tracing the money’s path
Business owners sometimes undervalue assets to sell to friends and family who hold them until the divorce is final. They may also delay the arrival of monetary assets by resorting to tactics such as overpaying taxes so they can request a refund after the divorce is final.
You can typically trace such actions using financial documents, such as reports showing net worth, credit card receipts, tax returns, and bank statements. Other discovery tactics include:
- Searching for falsified transactions and shell corporations
- Using forensic accountants to weed out intentional depreciation of business assets
- Dig through social media to find evidence of greater cash flow
Business owners can hide assets in many different ways. When you know where to look, you often find them easily. Once you reveal hidden assets, the business owner struggles to maintain credibility in probate court.