Concealing Assets in a Divorce – Badges of Fraud 

Spouses often want to conceal assets from their spouse during divorce. They ask questions like what would happen if I transferred my house into my brother’s name? What if I gave my sister my truck? What if I transferred my bank account to my mom? What if I created a corporation and transferred all my property to the corporation? 

For the record, this is a bad idea. Even financially savvy spouses who try to hide assets get caught. An attorney who conducts a comprehensive disclosure and discovery process during a divorce will expose the fraud; there are few places to hide. Less sophisticated fraudsters get caught before the litigation even begins. Your spouse is going to notice that a car, jewelry, or thousands of dollars have gone missing. 

These transfers rarely work and almost result in the transferring party being severely sanctioned—almost always, they are ordered to pay the attorney’s fees of their spouse. It is not a risk worth taking. Worse, the fraudulent party could be in a situation where they owe their spouse half the value of what they transferred plus their spouse’s attorney’s fees; this is often in addition to other possible sanctions including interest, lost appreciation, costs incurred by any private investigators or forensic accountants to locate the property, and you no longer own the property in question. 

Courts and lawmakers have long known that spouses want to hide assets to defraud their spouses. They have worked hard to close any loopholes that would allow such transfers. 

Arizona, like many other states, has adopted the Uniform Fraudulent Transfer Act. See A.R.S. § 44-1001 et seq.  

In re Marriage of Benge

This played out in a case called In re Marriage of Benge, 151 Ariz. 219 (App. 1986). In that case, the Husband was ordered to pay an equalization payment to Wife in monthly installments. He quit paying and transferred all his assets (worth approximately $3.0 million) into a corporation and trust, both of which he controlled. The judge ordered him to pay $12,000 for the payments he missed, her attorney’s fees of $21,555.79, an additional $10,000 in attorney’s fees as a sanction, and $72,000 in punitive damages. The Court of Appeals affirmed all those sanctions. 

Consider—Husband tried to save $12,000.00. Instead, he had to pay out $105,555.79. That’s exactly why it is not a risk worth taking.  

Badges of Fraud

The Benge Court cited to Cashion Gin Co. v. Kulikov, 399 P.2d 711 (App. 1965). That case included a non-exhaustive list of the “Badges of Fraud.” “‘Badges of fraud’ are facts which throw suspicion on a transaction, and which call for an explanation. They are the signs or marks of fraud.” Carey v. Soucy, 245 Ariz. 547, 553, ¶ 24 (App. 2018) (cleaned up). Those badges of fraud are as follows:  

• Insolvency/Indebtedness of the Transferrer 
• Lack of consideration for the conveyance 
• Retention by the debtor of possession of the property 
• Relationship between the Transferrer and Transferee 
• Reservation of Benefit to the Transferrer 
• Pendency or Threat of Litigation 
• Secrecy or Concealment 
• Transfer of the Debtor’s Entire Estate 
• Conduct of transfer not in usual course of business 
• Transfer to person having no apparent use for the property. 

When these indicators are present, the Court has authority to unwind the transfer, return the property already transferred, garnish the transferor’s wages or bank account, and impose any other sanctions they deem fit. 

Concealing assets to defraud your spouse is not a risk worth taking.   

Related Pages and Posts

Five Ways Discovery Can Help You Find Hidden Assets in a Divorce (state48law.com)

Financial Impacts of Divorce in Scottsdale, Arizona (state48law.com)