When it comes to making a marriage last, financial infidelity is as serious a marital infraction as sexual infidelity, according to experts.
“Usually financial manipulation has been going on for a while before anyone suspects it,” says Stewart Gagnon, partner at Fulbright & Jaworski. "One person may decide that the marriage is broken and start moving assets around by hiding money in accounts under another person’s name or a company or by purchasing precious metals—either way, this money is squirreled away in a place that’s hard find."
Whether it’s excessive shopping, overspending on a hobby or hiding funds in a secret account, financial infidelity comes in many forms and can be easy to hide.
People feel less obligated to be honest with their spouse about finances than they do about emotional or sexual relationships—hiding assets is easier, says Laurie Dyke, certified public accountant and managing partner at IAG Forensics.
“There are lots of divorces where one partner pays the bills and doesn’t know where the money is in the marital estate,” says Stacy Collins, certified public accountant and managing director at Financial Research Associates. “This can happen across the board [in different levels of net worth]—there really isn’t a rule of thumb.”
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Suspicious partners can conduct their own probe to uncover any unscrupulous financial behavior. Here's how to start a hunt:
Review Documents. Experts suggest reviewing tax returns, bank account statements and credit card statements regularly. Look at the inflows and outflows and where the money goes, suggests Collins.
New bank accounts that pay interest have to be reported on tax returns, so suspicious partners should review forms; the IRS only requires one signature to request a form.
When money’s been hidden, the biggest sign is a real disconnect between income reported and money available to pay bills. “If the salary isn’t 100% available to pay bills, ask what happened to it,” says Gagnon. “There could be expenditures or habits or they’re just hiding the money.”
Look for transfers between accounts that don’t ring a bell. “If we see that, we try to get info on why that money was transferred to that account and where that account is,” says Collins. Accounts are tracked by Social Security number but the bank name is necessary.
Changes in behavior. Establish a baseline and then look for changes—compare financial documents from before suspicion with today’s, says Dyke.
“If one partner takes control and doesn’t give the other person access or if your spouse doesn’t let you look at the tax returns before signing it, it’s a change,” says Collins. These changes don’t always mean your partner’s hiding something though.
Excessive secrecy. Experts say that while it’s acceptable for couples to have separate accounts, they should have access to review account activity. Both partners should review tax forms before they’re filed, adds Dyke.
“Secrecy creates an opportunity but that doesn’t mean something bad is happening.”
Changes to accounts. “If all the accounts are disclosed and addresses are changed and statements go to another address, that’s a red flag,” says Dyke.
Bank accounts in a family member’s name can raise questions, says Gagnon. A bank statement showing regular wire transfers or checks to a random person should also raise red flags.
Also look for unexplained gaps between income and expenditures. “Small gaps are easy to explain but a big gap can take a lot of explanation to figure that out.”
Review all signed legal agreements. “During a certain period of time, [a spouse] may have been asked to sign legal agreements that they didn’t know anything about,” says Collins.
The agreement may not have had full disclosure and could have the potential for financial infidelity, particularly if assets were removed out of the marital estate. Gifting money to children or a charity may have unwanted financial implications.
When one spouse has a privately-held business, Collins says, there may be more opportunity to shield money beyond the other spouse’s control.
Hunt for hidden income. Having more assets than income is a red flag, says Dyke. “Search for hidden assets and undisclosed income. There are times when a party will discover an affair or hidden assets which will lead to a divorce.”
“Cash-based businesses are hard to track,” says Dyke. Make sure money ends up in an account because it’s easier to track. It takes a lot of work to figure out what happened to an unpredictable income source and if undeclared, you could have a tax issue.
How to Prevent Financial Infidelity
Both partners need to be involved in the finances, says Dyke. “The way people get stolen from, no matter the relationship, is when they fall asleep at the wheel. You need to trust your partner but you should know what’s going on. When you don’t know what’s happening, it opens the door for someone to take money out of the marriage.”
To add a level of transparency to your family’s finances, Dyke suggests using financial software for household budgets so you know what’s coming and how it’s being spent.