Issues regarding finances are often a common denominator across all divorce cases. Along with custody and child support, division of the marital property is a major component of a divorce case.
Each spouse must fully disclose all assets and debts to each other in order to effectuate a proper division of the marital property. This process can be hindered, or even made impossible, when one spouse is improperly hiding, transferring, or gifting property that belongs to the community property estate.
This article will discuss the concept of marital fraud committed by one spouse against the other, examples of marital fraud, remedies available to the spouse who is negatively affected by financial infidelity, and how financial infidelity can affect a proper division of the marital property.
What is Marital Fraud?
First, it is important to understand the concept of community property. Texas is a community property state when it comes to laws regarding the dissolution of the marriage. Community property is property that is acquired or created during the marriage by either spouse. Each spouse owns an undivided one-half interest in the property. In a suit for divorce, all community property must be divided between the spouses in a “just and right” manner.
Fraud on the community arises when one spouse unfairly or improperly disposes of community property that belongs to both spouses without the knowledge of the other spouse.
Examples of marital fraud include, but are not limited to:
- Transfer of community assets by one spouse to a third party immediately or soon after the couple’s separation,
- Use of community funds to pay expenses for extramarital affairs that include trips, meals, gifts, hotels, etc.,
- Use of community funds for the benefit and well-being of a spouse’s paramour,
- Transfer of community assets, such as stock, to a third party for no value in return,
- A spouse’s failure to disclose bank accounts, or other cash assets, containing community funds
- Hiding community assets in secret or alternative accounts unknown to the other spouse,
- Making significant cash withdrawals of community funds, and
- Failure to disclose securities or investments owned by the community.
Signs that Financial Infidelity has Occurred
Although not glaringly obvious, there are signs that marital fraud exists between two spouses. Such signs could include: limiting or denying access of the spouse to his or her own financial accounts, limiting or denying access of the spouse to the other spouse’s financial accounts, removing a spouse’s name from an account that he or she has always had access to, storing or recording financial records in remote locations unknown to the other spouse, keeping spending records and habits entirely separate from the other spouse, etc.
Warnings or signs of financial infidelity do not guarantee or prove that marital fraud occurred. Every couple establishes its own methods, procedures, and patterns regarding finances. What can serve as a red-flag for financial infidelity is when that pattern suddenly changes.
Full Disclosure of All Assets is Necessary to the Divorce
Often times, a spouse is not aware that this type of financial infidelity occurred until there is a divorce case pending. During the divorce proceeding, it is pertinent that both spouses make a full disclosure of all community assets and separate property owned by the parties. Without a full financial disclosure, the Court cannot effectuate a just and right property division.
Through a detailed information gathering process of the divorce case, each spouse has the opportunity to request and produce all the financial information relevant to the marriage. Once all the financial information is gathered, a thorough inventory and appraisement of the couple’s property will be generated. Issues of marital fraud can become apparent or arise during this phase of the divorce proceeding.
It is not uncommon that one spouse will manipulate the information gathering phase or fail to disclose financial information altogether. When this deceit occurs, family law attorneys are equipped to search and determine the location and value of all community property. Because this process can be convoluted and challenging, family law attorneys often employ other financial and forensic experts to trace and identify all the community assets.
What Are the Legal Remedies Available to the Injured Spouse?
It is crucial that the client is awarded the correct portion and value of the community property he or she is entitled to receive under the law. The legal effect of a divorce will last for several years or even decades beyond the conclusion of the case. Where the division of the community property is not proper due to marital fraud by one spouse, there could be long lasting financial damage against the victimized spouse.
The Reconstituted Estate
There are legal remedies available to a spouse who is the victim of financial infidelity by the other spouse. If the Court has determined that one spouse has committed marital fraud against the community, the court can create what is called the “reconstituted estate”.
The Court must calculate an amount that the community estate was depleted by as a result of the fraud on the community. Then the Court will use that amount to calculate the reconstituted estate. A “reconstituted estate” is the total value of the community estate that would exist if the fraud on the community has not occurred. The Court must then divide the value of the reconstituted estate between the parties in a just and right manner.
There are several options available to the Court when deciding how it will divide the reconstituted estate between the parties. A few options the Court has are: awarding the wronged spouse his or her appropriate share of the community property, awarding a money judgment in favor of the wronged spouse against the spouse who committed the fraud, or awarding the wronged spouse both of the above-mentioned options.
Negotiation Power of the Wronged Spouse
In addition to remedies involving the reconstituted estate, a wronged spouse’s proof of marital fraud can serve as influential bargaining power during divorce negotiations. The wronged spouse will be armed with leverage when entering into mediations or negotiations regarding property division.
Contact a Family Law Attorney if You Suspect Financial Infidelity
It is in the best interest of the wronged spouse to contact a family law attorney to discuss his or her options moving forward. Proving marital fraud is a complicated and detailed process that demands the expertise of a family law attorney.
Our goal at The Skillern Firm is to rectify your present divorce concerns while establishing a plan that will enable you to prevail in the long term. Our attorneys at The Skillern Firm are motivated to fight for a property settlement that will ensure your financial safety and success beyond the divorce proceeding.
Please contact our team at The Skillern Firm to schedule a confidential consultation to discuss any questions or concerns you may have regarding your family law matter.