Unfortunately, in this day and age the word money is more synonymous with marriage than the, seemingly, once more important synonyms such as allegiance or life partner. In addition, the termination of marriage is at an all time high. Currently, 75% of marriages end in divorce. Source: www.californiality.com (accessed May, 2012).
With that being said, although in recent years marriage rates have declined, there is no sign of the institution of marriage ending anytime soon. Therefore, every spouse should be an active financial participant in his/her marriage, both before the nuptials and, throughout the marriage. This is especially true if the other spouse is the breadwinner, or what is known as the managing spouse.
Having knowledge of the marriage finances is not only important during the marriage, but imperative in the event of a divorce. Many non-earning spouses become ‘lazy’ during the marriage and do not inquire into the marriage finances-instead they rely on their spouse’s promises that they ‘will be taken care of. This is very poor advice and gives the spouse a false sense of security.
What many people do not understand is that, despite the fact that your husband or wife is the working spouse and handler of investments, any and all money earned during the marriage is a part of the community (meaning owned jointly by the spouses) in which each spouse has a one-half interest.
Spouses concealing money from each other is, not only unethical and illegal but, one of the most common occurrences in a marriage. The following are five of the most common signs that your spouse may be hiding money from you, and what you can do to ensure that you receive your proper share of the community estate, in the event of a divorce:
1. Your spouse does not answer, or is candid in answering, your questions regarding the family finances.
Spouses owe each other, what is known as, a ‘fiduciary duty.’ This duty, in essence, obligates the spouse in control of the finances to allow the other spouse access to all finances related to the community. In addition all finances related to any property acquired by a spouse before the marriage which may affect the community, must be made accessible. This includes access to all financial books related to: any businesses owned by either spouse or in which either spouse has an interest, investments, stocks, bonds, checking accounts, savings accounts, trading accounts, etc.
Therefore, your spouse is legally obligated to answer any questions you may have regarding the family finances and provide you with access to all information related to the family finances during the marriage.
If your spouse refuses to answer questions regarding the family finances, this should raise a red flag, and is usually a sign that he/she is hiding something from you. Remember, even though your spouse may be the ‘working’ or ‘earning’ spouse, half of this earned money is yours and you have a right to know where it is, how much there is and how it is being handled, just as if you were receiving a paycheck yourself.
Also, having an interest in the family financial situation tends to give the non-earning spouse a sense of involvement and purpose in the family planning and may even result in the providing of constructive guidance and assistance to the managing spouse.
2. Your spouse keeps financial accounts in his/her name.
This is a common method employed when spouses intend to keep their earnings separate. There is a common misconception among married people that by keeping financial accounts in their name, alone, that it will separate the assets of these accounts from their spouse.
This is not true. Without a specific written agreement signed by both parties to the contrary, all earnings, regardless of what account they may be held, are community funds, and thus equally shared by the parties. Without a written, signed, agreement by both parties, it does not matter that money earned during the marriage is deposited into an account in one spouse’s name – this money is still considered community property.
However, in the event of an impending divorce, many spouses will attempt to withdraw money from accounts and hide these funds in an attempt to avoid splitting the funds with their spouse. This is why it is imperative that spouses play an active role in the finances of the marriage so that they will have an idea of where money may be located, in the event of divorce.
3. Your spouse does not involve you in preparing annual tax returns.
Preparation of tax returns is the one time of year where every person is legally obligated to report all income to the IRS. This is also a time when business interests and financial accounts will be divulged and analyzed. In essence, preparation of an individual’s, and business’s, tax returns is the best way to get a ‘snapshot’ of the financial situation of an individual and/or business.
Preparation of tax returns is also a time when people may misrepresent their income. This is why it is important to be involved in the preparation of the tax returns. The preparation period is when all financial information is divulged and discussed (usually with an accountant).
In the event of a divorce, tax returns are a presumptively correct indicator of income for purposes of spousal and child support, and the burden will be on you to prove otherwise should your spouse be underreporting his/her income to the IRS.
There is no legitimate reason for your spouse to not involve you in the tax return preparation; and if he/she refuses to involve you, this is almost a sure sign he/she is hiding something.
4. Your spouse, despite your showing of interest, does not involve you in the nature of his/her businesses.
Another common misconceptions among married couples is that if your spouse started his/her business before the marriage and he/she was the only reason for the business earning money during the marriage, that any money earned from the business is his/her separate money.
This misconception is pervasive among non-earning spouses. Not only is this not true, a successful business is often the greatest source of community assets. First of all, regardless of when a business was started, all earnings by either spouse during the marriage is community property and, therefore, either spouse owns such property jointly, and is entitled to half of its value upon divorce. Furthermore, in the case of businesses started by either spouse before the marriage, where the business increased in value during the marriage, that increase in value becomes part of the community (subject to certain, fact specific, rules).
Therefore, it is prudent that every spouse keep an active interest in any family business.
Anyone who denies their spouse an active interest in the family business is generally hiding financial aspects of the business that they want to keep a secret. Furthermore, in the event of a divorce it will be up to you, or your lawyer (who will be charging you an hourly rate), to analyze and value your spouse’s business; this can be a very time-consuming, costly, endeavor which can be greatly reduced through proper due diligence during the marriage.
5. Your spouse routinely uses cash for purchases.
Dealing with cash is by far the number one way people hide their income; not only from the IRS, but from spouses, creditors, lien-holders and anyone else who may have an interest in their assets. Cash flow is extremely difficult to trace and very easy to conceal. Furthermore, in this day and age with credit cards, debit cards, ATM cards, interest bearing savings and investment accounts, and free checking accounts, there is really very few legitimate reasons to be using cash for anything other than routine, inexpensive, purchases.
Although, you may not know exactly where your spouse keeps all of the family money, as long as you have a good idea of how money is being spent, and where it is being kept, you will play an integral role in the division of the marital property, determination of child support and spousal support, and your spouse’s contribution to your attorney fees.
Therefore, as you can see, every spouse, regardless of the status of their marriage, owes it to the well-being of themselves, their children and their future to be thoroughly involved in the finances of the marriage, from the beginning.
Jeff Layfield, Attorney at Law
Los Angeles, CA