For Better, Worse, Or Divorce Podcast

In this episode, Brian Walters meets with one of the firm’s Dallas-based partners Carson Steinbauer to discuss the issue of fraud in family law cases. From hidden assets to fraudulent documents and misrepresentations, Brian and Carson break down how types of fraud can impact divorce proceedings, custody cases and property division.

If you suspect that your spouse has committed fraud, you should contact an experienced family law attorney. With the right team behind you, you can protect yourself and your assets. If you are interested in speaking with one of our attorneys on your situation, visit www.waltersgilbreath.com or feel free to email us directly at podcast@waltersgilbreath.com.

Your hosts have earned a reputation as fierce and effective advocates inside and outside of the courtroom. Our partners are experienced trial attorneys who have been board-certified in family law by the Texas Board of Legal Specialization.

Brian Walters: Thank you for tuning into the For Better, Worse, or Divorce Podcast where we provide you tips and insights on how to navigate divorce and child custody situations here in Texas. I’m Brian Walters. Today I’m joined by one of our Dallas based partners, Carson Steinbauer to discuss fraud issues in family law cases. Welcome back, Carson.

Carson Steinbauer: Good morning, Brian.

Brian Walters: All right. Fraud, what does that mean? That’s a pretty broad word that can mean a criminal thing, but we’re talking about it in the context of family law primarily. Do you want to tell us a little bit about your understanding of fraud as it relates to family law, or divorces in particular? The common types of fraud that we might see.

Carson Steinbauer: Sure. So when a couple is married they have a fiduciary duty to one another. It’s a very high duty that you are not to take advantage of your spouse financially. Unfortunately in our line of work we see that happens when people are going through a divorce. I guess the non-legal definition of fraud is taking advantage of someone or being dishonest. Transferring assets to the disadvantage of your spouse to the benefit of yourself. A lot of times people are not suspicious of it. They may be in a long-term marriage and one spouse may be the breadwinner and hold all the keys to the bank account.

There’s a lot of trust between spouses and sometimes that trust is misplaced. In terms of fraud, it could be fraud in terms of a fraudulent transfer. Say someone bought a piece of property and then fraudulently transferred it to their brother to hold for them in the divorce. Or fraudulent transfer of money, transferring it to a bank account, girlfriend, boyfriend or Swiss bank account for example. There’s hiding of assets. Fraudulent inducement, I could fraudulently induce my spouse to sign a gift deed. Deeding over the house to me and my spouse may do it unsuspectingly. I could say, “Here, sign this. This is just something for the business.” And in fact it’s a gift deed. So there’s all sorts of fraudulent transactions that we uncover in our divorces.

Brian Walters: Yeah, I agree. Probably in order of common broad things. Number one would be spending money on somebody else, girlfriend, boyfriend, transferring money to a family member overseas or something like that. That’s pretty common. Sometimes that’s small amounts, sometimes it’s very large amounts, but that’s a pretty common one. Concealment or the minimization of the value of assets is another one. Certain assets are hard to conceal. If you’ve got a 401(k) that you’ve been contributing to for years and there’s line items on your tax returns and your pay stubs saying that you’ve got 3% of your paycheck going to your 401(k), it’s pretty hard to conceal that. Most people don’t try that stunt very often. More common assets to conceal are either things like jewelry, gold, cash, items that are easy to hide or say, “I don’t know what you’re talking about. I don’t have those.”  

I think the other one is just saying something’s not worth as much. That could be as something like the appraisal district value of the house says it’s worth $800,000, but you know it’s really worth $950,000 based on sales in the neighborhood. Another that is probably more common would be something like the value of a business. I’ve got this business that’s not really worth anything. It’s not doing very well, when you know darn well it’s valuable. To me, those are the most common ones. The misrepresentation of facts and things that can be more difficult to prove is fraud. A lot of times people just say, “Well, that was my impression of things”. Or, “that’s my interpretation of reality”. Every two people can see the same thing differently. Those are the types of things that I see on a more common basis.

Let’s talk about some strategies to detect fraud and then dealing with what happens if you figure it out. Let’s talk about detecting fraud. Let’s talk about the financial thing. How can we be sure or pretty sure that we’ve got all the assets and debts in a divorce on our spreadsheet, so that we’re not missing something? Let’s say the husband has a hundred thousand dollars in a 401(k) that’s not listed. It’s in his name and he thinks if the divorce is finalized and it’s not mentioned, he’s going to get it. Which actually probably would be the case if it’s not detected. So how would we go about trying to figure out things like that? And also make sure that our clients aren’t cheated by that type of fraud. 

Carson Steinbauer: In the normal course of a standard divorce, typically once a divorce is filed we will start what we call the discovery process. That can entail sending out written document requests, asking the other spouse for all financial documentation, bank accounts, credit card statements, and business information. That would be again, business accounts, lines of credit, profit and loss statements. Very, very detailed information about the businesses and someone’s personal finances. As we start gathering all that documentation and reviewing it, you may have some clients who are very involved in the finances of the marriage and understanding of their spouse’s business. Some are completely in the dark. It’s really kind of piecing a puzzle together. Whether it’s just ourselves engaging the services, or our client engaging the services of a forensic accountant; you start looking at all of these pieces of evidence or financial documentation and you say, “Ooh, there was a transfer out of the business a year before the divorce was filed of a hundred thousand dollars. What was that for?”

A lot of times whether it’s in a deposition or another document request to find out where it went, the answers aren’t necessarily quickly forthcoming. It’s really interesting when this kind of stuff comes out. A lot of times our clients may know about it or suspect it, which kind of gets us on the trail. Other times you just stumble upon it when you’re gathering the financial information. But we’re always looking, that’s the benefit of an experienced lawyer. We’ve seen this unfortunately so much in our career that once we start gathering the financial documentation we’re kind of trained to look for mysterious transfers and large transfers that seem suspicious. Then we start asking questions.

Brian Walters: Carson, let’s talk about remedies for a victim of fraud. I think there are really two parts. What if we catch the fraud in the middle of the divorce? “Hey, you were hiding $300,000 in an account and we found it”. What are some remedies in that case versus the remedy where let’s say they didn’t get detected. For example, we get hired two years later to say, “Hey, I don’t think my lawyer did a very good job figuring out what was going on, and I’m pretty sure he had $300,000 in an account and that wasn’t included in the divorce”. So tell me, Carson, if you could talk a little bit about what the court can do for those two different types of victims. One caught in time, one caught after the divorce.

Carson Steinbauer: It’s always nice when we find it or find an asset in the middle of a divorce. Most of the time that’s an easy fix. As we’re doing all this information and gathering we plug everything into a spreadsheet to get a big picture of the entire financial estate. A client may come in saying, “I’m not really sure, but I think we’re worth combined assets a million dollars”. Then all of a sudden, like you said, we may stumble on an account somewhere that was hidden that has $300,000 in it. So in that case, the court can pull that into the estate. Instead of it being a million, it’s $1,000,003, and the court is tasked with making what we call a just and right division, which isn’t always necessarily 50/50. And if the court feels that that one spouse was trying to defraud the other spouse, the court can make a disproportionate division of that $1,000,003 estate in the favor of the defrauded spouse.

Let’s make it $1.4 million to make it easy math. So instead of giving $700,000 to each party, for example, the judge may give $800,000 or $900,000 to the defrauded spouse to compensate for the bad acts of the other spouse. Or they may award attorney’s fees to that spouse, or they may do a combination of both. We call that reconstituting the estate when there’s an asset that’s been transferred or missing that can be brought back into the estate.

That way you get a bigger pie to divide so to speak. That’s how we deal with it when it’s discovered in the divorce. If it’s after the divorce it becomes a little bit more difficult, but it’s still achievable. For example, if a couple gets divorced and let’s say the husband had a business and kept telling his wife, “Hey, you don’t need a lawyer, you don’t need a lawyer. They cost so much money. Let’s just agree upon ourselves. My business, it took a hit these past couple of years during COVID, my business is really only worth $500,000. So here’s a check to you for $250,000, easy-peasy, let’s get divorced and we’re not having to spend any attorney’s fees”.

Great. Then she signs off on the deal and then a couple months later she reads in the newspaper that the business is worth $5 million. Then she comes to Walters Gilbreath and says, “Hey, I was really taken advantage of”. So we look into it and we file. Depending on the timeframe we will file a motion for a new trial or bill of review and there are certain things that we have to prove. Assuming that we prove all of those elements that our client was defrauded, then the court can award our client damages or re-compensate her for the value that she lost out in the divorce. Or the court can undo the divorce and start fresh as if there never was a divorce, which is always a good scenario as well.

Brian Walters: Yeah, that’s true. But I will say that is a difficult row to hoe and you don’t want to be in that situation if you can avoid it. That brings me to the next topic of how does a client or just somebody listening here avoid these kinds of things, being taken advantage of by fraud? Unfortunately the answer is you’re going to have to spend some time and money to be sure. The example you just gave is a great example. “Hey wife, let’s not spend much money on lawyers. Let’s just do this by agreement”. That’s fine. If you trust the other person and you’re willing to take the risk that they’re going to treat you fairly, there’s nothing wrong with that. But that’s not the case a lot of times. When you’re getting divorced there’s a pie that’s going to be divided. And the bigger the other person’s slice is, the smaller your slice is. There’s just no two ways about it. If there’s a million dollars to be divided, then that’s all that’s going to be divided. I’m assuming that’s the full amount out there.

The short answer is you need to do the proper diligence in a divorce. You need to get a good lawyer that understands this. They need to get documents that may need to be subpoenaed because the other side may not provide them either thoroughly or at all. You may need to hire an expert on finances to do an audit or to do a forensic evaluation of things. All of that stuff costs money and it takes time. Your spouse on the other side will not like that you’re doing that because either they’re hiding something and they don’t want it to be found, or because they don’t want to have the divorce dragged out or spend a bunch of community money on attorneys. But that’s the way to protect yourself. The scenario you gave where someone finds out later, “Hey, he cheated me on the business valuation”. Like I said, it’s a really difficult battle to get justice in that situation.

You may have waived all of your rights at that point. That is the answer, you need to do your due diligence. You need to get a lawyer and potentially experts and give them the ability to do their job, which will not be the quickest and cheapest route. Now, if you guys don’t have anything and if you’re living paycheck to paycheck in a short marriage, you guys have never had much – well, then you probably don’t need to go down that path. Because there’s probably nothing to find out. But it’s not so simple for many people.

Carson Steinbauer: We call it divorce planning. A lot of times people will come in for a consultation and say, “I’m thinking about getting divorce, but I’m not sure. We’re going to go to marriage counseling.” I always encourage my clients, particularly if it’s a stay-at-home mother or their spouse is the business owner and manages the business single-handedly and if they weren’t involved, to start opening the mail. Start tucking away, making copies of tax statements, tax returns, bank statements, and credit card statements. Start planning and gathering that documentation so that we’re not necessarily starting from scratch when the divorce trigger is pulled. For example they can start looking to see if there’s any fraud or any funny business going on.

Brian Walters: Yeah, like you said, open the mail. Although I guess these days most of those statements come by email.  Or just say, “Husband, I like to sit down at the end of every month and go over the budget and see the money that’s coming in and where it’s going out. I want to talk about planning for retirement or our children’s college education. I want to know what’s out there”. A normal spouse who’s not hiding anything would say, “Great, I’d love to, let’s sit down and do it this evening. Here’s our assets, here’s our debts, here’s the in and out and everything’s fine.” The spouse who reacts to that by being defensive or saying, “No, we don’t need to do it” or if they are trying to avoid doing it, that’s a red flag. I think that’s an indication of somebody who you should be very suspicious about.

Lastly I’ll say that I don’t think most people who are married, that one spouse from day one starts hiding money away. I mean, that could happen. I think that’s fairly rare. I think what generally happens is that when somebody starts to sense that there’s the possibility of a divorce or the likelihood of divorce, that’s when you have a much higher risk of these kinds of things happening. Because now people start thinking, “Oh, okay, well, I need to protect myself because I’m not going to be married to this person that much longer and I want to have the best financial situation”. I will say that the highest risk time for fraud is probably the year or two before a divorce actually gets filed. When someone gets wind of it or starts thinking about it. At least that’s been my experience from what I’ve seen. Anything else you add on this topic?

Carson Steinbauer: Not to be down on marriage, but I’ve had a couple of cases where a spouse has been divorced, they’ve been through one divorce. In fact it was two gentlemen who were wealthy individuals, through their first divorce. As they were getting married a second time, whether or not they realized it or not, they were doing what they could to protect themselves. And it ended up in both cases being horrible. For example, in one of the cases, the husband was a physician, got divorced and then decided that he wanted to get married again. He said “I don’t want to ever go through an expensive divorce again and lose my assets”. Before the second marriage, he formed a partnership that was just a shell. Then he remarried and with his community income started buying up clinics, medical facilities throughout the area.

He would put those entities inside his separate property partnership. So 20 years later when the divorce was filed, he said, “Hey, all of these entities are my separate property. See, they’re in my separate property partnership.” And that’s the benefit of a forensic accountant because you can imagine with all of these entities being bought at different times, there’s hundreds if not thousands of financial documents. And we had to piece all of that back.

They were originally started out with community funds. He took community funds and bought those entities. Then slid them or transferred them into his shell, which was a separate property partnership formed before marriage and it ended up being fraud. It does happen from the outset of a marriage. Not always, as you said. Most of the time I think it’s somebody planning for it when they suspect a divorce is imminent. But it does happen occasionally at the beginning of a marriage. My advice to all of my clients, but particularly women, is pay attention to your finances. It’s important to be up and up as to what’s going on financially because you never know what’s going to happen these days.

Brian Walters: Yeah, I agree. All right, well, that’s all we have for today. Thanks for joining us, Carson.

Carson Steinbauer: Thanks, Brian.

Brian Walters: If there’s a topic that any of y’all would like to discuss on the podcast or if you’re interested in speaking to our legal team directly, just email us or contact us. We’re at podcast@waltersgilbreath.com, our phone and other contact info are online and easily found. I’m Brian Walters. Thanks for listening.

For information about the topics covered in today’s episode and more, you can visit our website at waltersgilbreath.com. Thanks for tuning into today’s episode of For Better, Worse, or Divorce, where we post new episodes every first and third Wednesday. Do you have a topic you want discussed or a question for our hosts? Email us at podcast at podcast@waltersgilbreath.com. Thanks for listening. Until next time.