By Thomas A. Bailey, Bailey Law Offices, Whitefish Bay
March 4, 2009 – If you have come to this article in the hope of learning clever ways of hiding assets in a divorce, you need a “timeout.” Instead, let’s talk about this problem and what should be done about it.
In 40-plus years of law practice, the vast majority spent handling thousands of family law cases, I have seen numerous attempts to hide assets in a divorce, ranging from backdating documents to trying to hide gold bullion. The Wisconsin Court of Appeals tackled the issue of hiding assets in divorce in two recent cases.
Real estate transfer to avoid marital property division
The case of Jasewski v. Jasewski, 2009 WI App 8, not only provides a nice refresher course on potential consequences of perpetrating a fraud on the court, it also provides a good laugh.
Stanley and Rosalie’s marriage was on hard times and seemingly headed for the shoals of irretrievable breakdown. Stanley did not want a 28-acre parcel of land gifted to him by his mother to be included in the marital estate during a divorce from Rosalie, so he concocted a plan to transfer the parcel to his brother, Tom. The plan was spelled out in a contract signed by both brothers in which Tom promised to transfer the parcel back to Stanley after the divorce was finalized.
It was almost two years later before Stanley filed pro se for divorce from Rosalie. The case proceeded swiftly and six months later they were granted the divorce. In his financial disclosure, Stanley did not identify the parcel he had received from mom.
After the divorce, Stanley demanded that Tom transfer the parcel back to him. Tom refused unless Stanley granted Tom and their third brother, Dan, unrestricted access to the parcel and provided for Tom and Dan to receive ownership upon Stanley’s death.
Stanley refused and sued Tom for breach of contract. The trial court, Judge Richard Rehm of Green Lake County, refused to enforce the contract and was affirmed following Stanley’s appeal.
Somewhere along the line, a little bird whispered in Stanley’s ear that the land gifted to him by his mom was not subject to division in the divorce. So on appeal, Stanley argued for enforcement of his contract with his brother because although he may have had bad intentions, nobody got hurt, and as he later learned the gifted property qualified as exempt, so Rosalie would not have received anything anyway.
The majority opinion in the court of appeals states:
“Stanley’s ‘no harm, no foul’ argument – the parcel was gifted property that is not included in the marital estate so no one was harmed by this contract – is wide of the mark. Each party in a divorce has a statutory obligation to disclose all assets, no matter how acquired. Wisconsin Stat. § 767.127(1) provides, in part, explicit directions on what a party must disclose:
“REQUIRED DISCLOSURE. In an action affecting the family … the court shall require each party to furnish … full disclosure of all assets owned in full or in part by either party separately or by the parties jointly. Disclosure may be made by each party individually or by the parties jointly. Assets required to be disclosed include, but are not … limited to, real estate … The court shall also require each party to furnish, on the same standard form, information pertaining to all debts and liabilities of the parties. The form used shall contain a statement in conspicuous print that complete disclosure of assets and debts is required by law and deliberate failure to provide complete disclosure constitutes perjury. (Emphasis added.)
“Stanley is partially correct that under Wis. Stat. § 767.61(2)(a)1. gifted property is not subject to division. However, that is not a hard and fast rule; inherited or gifted property may be divided if the court finds that refusal to do so will create a hardship on the other party. See § 767.61(2)(b). It was not Stanley’s job to unilaterally decide not to disclose this parcel because he believed it was not subject to division. While we will not speculate on what the family court might have done if it had been aware of the parcel, we will note that the parties had few assets and a large number of debts.
“The contract aided Stanley in secreting the parcel from Rosalie and the family court, when he had a statutory obligation to disclose all of his assets. In fact, a specific penalty is provided for the failure to make a full disclosure. Wisconsin Stat. § 767.127(1) instructs that the ‘deliberate failure to provide complete disclosure constitutes perjury.’ The contract is invalid and unenforceable because it assists Stanley in violating a civil statute to which a penalty is attached.”
The court then directed the file be referred to the Green Lake County district attorney for consideration of filing perjury charges against Stanley under § 767.127(1) and pointed out that Rosalie could seek to have the family court divide the gifted real estate parcel by proving that it would be a hardship not to include it in the marital estate, and to impose a constructive trust on the parcel under Wis. Stat § 767.127(5).
The dissenting opinion agreed the contract was unenforceable but disagreed with the result that allowed brother Tom, a co-conspirator in the fraud perpetrated on the court, to keep the property.
The dissent states:
“Neither Stanley nor his co-conspirator Thomas should be allowed to benefit from a fraud imposed upon the courts of this State. The matter should be remanded to the trial court to take appropriate action based upon the asset belonging to Stanley now, and at the time of the divorce proceeding and judgment.”
Both the majority and the dissent agree that Stanley ought to be referred to the district attorney for possible perjury charges and the dissent would simply add Tom to that referral.
Hiding income for child support calculation
In In re: The Marriage of Stevenson (Appeal No. 2007AP2143, recommended for publication), the court of appeals addressed hiding assets in a divorce as they relate to the production of income for child support.
In a post-judgment motion to reopen the divorce judgment and modify child support retroactively, the trial court found the father either willfully or negligently failed to disclose all of the assets he had at the time of the divorce and that if he had disclosed his assets the court would have set child support at a different level. The trial court ordered the father to pay $159,532 as retroactive child support, including 12% interest, and to pay the mother’s attorney fees of $15,630.92.
For the most part, the case involved whether undistributed income from a nondisclosed trust should be used in calculating child support. The court of appeals agreed with the trial court that in not revealing that he was a trust beneficiary, the father failed to make proper financial disclosure at the time of the divorce as was required by the disclosure statute. The concurring opinion stated that what happened in this case was a fraud on the court, just as much as it was a fraud on the mother.
Section 767.127 (renumbered and amended in 2005) was part of the Divorce Reform Act of 1977 that brought no fault divorce to Wisconsin. While the statute has remained essentially the same for the last 30 years, there seems to be an increase in the incidents of attempts to hide and nondisclose assets required by the statute.
Steps to discovering assets
Some would argue morality is above the law and others would argue morality is equivalent to the law. But there seems to be an increasing segment that feels morality is what you can get away with. In truth, this latter group is probably not concerned about morality at all. Nevertheless, the hiding of assets is a problem that should be of increased concern to lawyers and courts engaged in family law. Here’s what you can do to encourage disclosure:
Your client usually is the best source of preliminary information about assets. Forensic examination of the last two or three years of tax returns and paper trails (including electronic trails) may reveal suspect transfers and withdrawals.
Examining the history of existing accounts with the help of a forensic accountant may help you find hidden assets.
Government registries are available to discover information about vehicles and real estate.
Examination of tax and credit card records may reveal money hidden by overpayment including manipulation of withholding taxes and estimated tax payments.
Bank and stock records may reveal evidence of cashed-in stocks or bonds and withdrawals from bank accounts.
Net worth statements filed with loan applications are an important source of information. The loan applicant usually wants to portray himself or herself in the strongest financial light, and it is a federal crime to knowingly provide false information to a federally insured banking institution.
At a minimum, you should require strict compliance with the statutory requirement for a sworn statement disclosing all assets (the statute requires disclosure of all assets, but not values). The value of all assets disclosed should be independently determined.
Finally, at the final hearing of all divorces, pursue a line of questions to establish the witness’s knowledge of the statutory requirements for disclosure, that the witness has made a full disclosure, and that the witness is aware of the consequences of nondisclosure, including prosecution for perjury.
Imposing dire consequences to discourage nondisclosure
Civil actions, including seeking award of punitive damages, may be pursued beyond the remedies available to the family court.
Family courts can protect themselves and the system by awarding fees and costs related to forensic examination and discovery of hidden assets together with other appropriate sanctions. District attorneys would serve the system well by taking significant action whenever there has been a fraud on the court.
It’ll take a while before stories of dire consequences befalling those who have lied, perjured, or defrauded the court trickle down through the media and by word-of-mouth, but imposing dire consequences and telling about it is an important and necessary effort if we are to maintain the integrity of the system.
Thomas A. Bailey,Marquette 1967,located in Whitefish Bay, practices family law throughout Wisconsin. He is a coauthor of the 2008 supplement of State Bar CLE Book’s Family Law Case Notes and a frequent lecturer at State Bar and American Academy of Matrimonial Lawyers seminars. He has served as president of the American Academy of Matrimony Lawyers in Wisconsin, chair of the State Bar of Wisconsin Family Law Section, and president of the Milwaukee Bar Association.
