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Divorce

Financial Infidelity: Grounds for Divorce

Divorce

Financial Infidelity: Grounds for Divorce

Table of Contents

How does financial infidelity, or the concealment or deceit about finances in a marriage, factor into divorce. We examine the legal ramifications of such betrayals, including the erosion of trust and the potential for financial ruin, which often compel couples to consider dissolution of their marriage as the only recourse.

Author

Andrea Keith, Esq.

Andrea Keith, Esq.

Managing Partner, Keith & Highland Law, PC

Andrea graduated from Whittier Law School as a Children's Rights Fellow, Dean Merit Scholarship, Law Review and Moot Court Board. She was a junior and senior clerk for the Los Angeles County Public Defender's Office throughout law school. She was a law clerk for the Honorable Judge Ferguson of the Ninth Circuit Court of Appeal. In 2007, she worked as an attorney with the Los Angeles County Public Defender's Office. In 2016, she began her appellate work with the Second, Third, and Fifth District Court of Appeal as well as the California Supreme Court. She has continued that work today and is now in private practice.

Going through a divorce is tough, and it gets even trickier when it's because someone was dishonest about money. In this article, we're going to break down the legal side of getting a divorce because of financial infidelity in a way that's easy to understand. We'll cover how the law looks at hidden or lied-about finances, what you need to show to prove it, and how it can affect the splitting up of stuff and financial support after the divorce. By explaining the steps and what to expect, we hope to make this difficult time a little easier to manage, guiding you through the process with clear, helpful information. In a 2021 Harris poll, 85% of people said that financial dishonesty by their spouse or partner harmed their relationship; 52% of people said financial infidelity is worse than adultery.

Here's a story: Elena and Mark had been married for eight years when Elena discovered a hidden trove of credit card statements and investment accounts, revealing Mark's secret life of financial infidelity. For years, he had been siphoning off parts of his income into a private account, accumulating debt on credit cards Elena didn't know existed, and investing in risky ventures without her consent or knowledge. The revelation shattered the trust and financial stability Elena thought they shared, leading her to confront not only the betrayal but the reality of navigating a future that was now uncertain. As she embarked on the painful journey of divorce proceedings, Elena grappled with the deceit that had silently eroded the foundation of their partnership, determined to rebuild her life on pillars of transparency and financial independence. Here's the information that can help you rebuild your life as well.

What is financial infidelity, and is it a ground for divorce?

Financial infidelity is a grounds for divorce in "at fault" states and also in a no-fault divorce. Financial infidelity in a marriage, which can complicate divorce proceedings, includes behaviors such as:

  • Concealing debt from one's spouse.
  • Secretly making large purchases or investments.
  • Hiding assets or savings.
  • Lying about one's income, earnings, or financial losses.
  • Opening secret bank accounts or credit cards.
  • Engaging in gambling or speculative investing without the other's knowledge.

Signs of financial infidelity include: 

  1. Secret Accounts: Discovering bank or credit card accounts that you were unaware of is a red flag for financial infidelity.
  2. Unexplained Withdrawals or Expenses: Regular, unexplained withdrawals from your bank accounts or charges on credit cards can indicate hidden spending.
  3. Reluctance to Talk About Finances: If your partner becomes evasive or defensive when discussing finances, it could suggest they have something to hide.
  4. Missing Financial Statements: A sudden lack of financial statements arriving by mail or email might mean your partner has rerouted them to keep you from seeing their contents.
  5. Overprotectiveness of Devices: A partner who suddenly becomes very protective of their phone or computer might be trying to hide financial transactions or accounts.
  6. Changes in Credit Scores: An unexpected drop in one’s credit score could be due to financial activities the other partner is not aware of.
  7. Increased Stress or Guilt Around Money: If your partner seems unusually stressed or guilty when money topics arise, it could be a sign of financial deceit.
  8. Unusual Cash Flow Issues: Experiencing cash flow problems without a clear explanation, especially if you know your income should be sufficient, might indicate hidden financial activities.
  9. Sudden Changes in Financial Habits: If your partner suddenly becomes frugal or starts spending extravagantly without a clear reason, it may be a sign of underlying financial issues they are not sharing.
  10. Receipts for Unexplained Purchases: Finding receipts for significant purchases or transactions you were not aware of can be a sign of financial infidelity.

Recognizing these signs early can help address the issue before it severely impacts the relationship or financial standing of the partners involved. It’s essential to approach the subject carefully and consider seeking the assistance of a financial advisor or counselor to navigate the conversation and resolution.

Is financial infidelity illegal?

Financial infidelity, while deeply damaging to the trust and foundation of a marriage, is not illegal in the criminal sense. However, it can lead to legal consequences in the context of divorce proceedings. The act of hiding assets, incurring secret debts, or engaging in deceptive financial practices can be sanctioned by family courts, especially when it comes to dividing marital assets or determining alimony and child support. Courts expect full financial disclosure from both parties in a divorce, and failure to provide this can result in legal penalties, such as a more unfavorable division of assets for the deceitful party. While not criminally prosecutable, financial infidelity can thus have significant legal and financial repercussions within the framework of family law.

Can you sue your spouse for financial infidelity?

Suing a spouse for financial infidelity specifically is not a straightforward legal action under most family law frameworks. However, during divorce proceedings, a spouse can pursue legal remedies if financial infidelity has led to the dissipation or concealment of marital assets. In such cases, the court can be petitioned to make adjustments to the division of assets or award damages to compensate for the financial harm caused by the infidelity. This is often handled within the divorce process rather than as a separate lawsuit. While direct lawsuits for the act of financial infidelity are not typically viable, the legal system provides mechanisms through divorce and marital property laws to address and remediate the financial damage caused by such actions.

What is the impact of financial infidelity in the divorce legal proceedings?

Impact on dividing marital property and asset division

Financial infidelity can significantly affect asset division in divorce proceedings by introducing complexity, mistrust, and potential legal ramifications that alter the equitable distribution of marital assets. When one spouse hides, misrepresents, or squanders marital resources, it disrupts the foundational principles guiding fair asset division. Here's a more thorough explanation of its impact:

Equitable Distribution and Fairness

Most jurisdictions aim for an equitable distribution of marital assets during a divorce, meaning the division should be fair though not necessarily equal. Financial infidelity undermines this process by concealing the true financial picture, making it difficult to achieve a fair division. If hidden assets are discovered, the court may adjust the division to penalize the deceitful spouse and compensate the other, potentially granting the wronged spouse a greater share of the assets that were properly disclosed.

Legal Process for Uncovering Hidden Assets

The legal process to uncover hidden assets can be intricate and costly. It often involves forensic accountants who examine financial records, track transfers, and identify discrepancies. This process not only adds to the financial burden of the divorce but also prolongs the proceedings, as thorough investigations take time to complete.

Impact on Valuation of Assets

Financial infidelity can affect the valuation of marital assets. If one spouse has secretly diverted or depleted marital funds, the total assets available for division may be significantly less than what should have been. This can directly impact the settlement, leaving the wronged spouse with less financial security post-divorce.

Impact on Marital Asset Pool

Financial infidelity that involves spending marital funds on non-marital purposes (e.g., gifts, travel, or support for an affair) can lead to a reduction in the marital asset pool available for division. Courts may compensate the wronged spouse by awarding them a larger share of the remaining marital assets.

Influence on Debt Allocation

Similarly, if one spouse has accumulated undisclosed debt, this can affect how liabilities are divided. Typically, both assets and debts acquired during the marriage are subject to division. Discovering undisclosed liabilities may shift the balance of how debts are allocated between the spouses, potentially saddling the wronged spouse with a higher debt burden than anticipated.

Impact on alimony (spousal support) and child support

When financial infidelity occurs during the marriage, its discovery can also significantly impact the determination of alimony (spousal support) and child support during divorce proceedings, even if the deceit isn't ongoing at the time of the divorce. Here's an overview of the potential impacts:

Alimony (Spousal Support)

  1. Influence on Financial Need and Ability to Pay: The revelation of past financial infidelity can affect assessments of each spouse's financial needs and the other's ability to pay spousal support. For instance, if it's discovered that one spouse squandered marital funds or accumulated undisclosed debt, this could impact the perceived financial standing and needs of both parties. Courts may adjust alimony awards to more equitably address the financial harm inflicted by the financial infidelity, potentially increasing support payments to compensate the wronged spouse.
  2. Adjustments Based on Misrepresented Lifestyle: Alimony is partly determined by the standard of living established during the marriage. If financial infidelity masked the true lifestyle of the couple (either inflating it through undisclosed income or assets, or deflating it through hidden debts or expenses), the court might adjust alimony to what it deems a fair representation of the marital standard of living, once the truth is revealed.
  3. Erosion of Trust Affecting Settlements: The betrayal felt by the discovery of financial infidelity can sour negotiations, making it harder to reach amicable agreements on spousal support. The wronged spouse might be less inclined to compromise, seeking higher alimony as a form of recompense for the financial betrayal, which could lead to prolonged litigation and increased legal expenses.

Child Support

  1. Impact on Income Calculations: Child support calculations are heavily influenced by the parents' incomes. Discovering that one parent hid income or assets during the marriage can lead to a reassessment of their financial capacity and, subsequently, their child support obligations. If a parent's income is found to be higher than previously disclosed, their child support payments might increase to reflect their true ability to contribute to their child's upbringing.
  2. Consideration of Children's Financial Needs: The primary concern in setting child support is the well-being and financial needs of the children. If financial infidelity has affected the marital finances negatively, impacting the children's standard of living, courts can consider this when determining child support amounts. The goal is to ensure that children are not financially disadvantaged by the actions of the financially deceitful parent.
  3. Legal Repercussions and Enforcement: The discovery of financial infidelity can lead to legal actions beyond the adjustment of support payments. This might include sanctions against the deceitful spouse or orders to pay the legal costs incurred by the other spouse in uncovering the deceit. Such measures are intended to deter financial dishonesty and ensure that support calculations are based on accurate financial information.

Impact on child custody

Evaluation of Parental Responsibility

  • Character Assessment: The legal system evaluates each parent's character and responsibility as part of the custody determination process. While financial infidelity might not directly pertain to parental fitness, it could be considered as part of a broader assessment of a parent's responsibility and integrity. Judges might view financial dishonesty as indicative of a pattern of behavior that could impact the child's well-being.

Financial Stability and Custody

  • Provision of a Stable Environment: The court's paramount concern is the child's best interest, including their financial stability. Legal considerations include whether a parent's financial behavior has jeopardized the child's standard of living or stability. If financial infidelity results in significant financial instability, this could be a factor in determining which parent is more capable of providing a stable home environment.

Impact on Legal and Psychological Support

  • Ability to Provide for the Child's Needs: Courts consider a parent's ability to meet the child's physical, emotional, and educational needs. If financial deceit has depleted family resources, limiting the child's access to educational opportunities, healthcare, or psychological support, this could legally influence custody decisions. The court may favor the parent who can ensure the continuation of support and resources necessary for the child's development.

Legal Consequences and Custody Adjustments

  • Adjustments Based on Financial Misconduct: In some jurisdictions, if financial infidelity is found to have directly harmed the child's welfare or the marital estate, courts might consider this in custody decisions. For example, if one parent's financial dishonesty has led to a significant reduction in the marital assets meant for the child's future (like education funds), the court could take this into account, potentially adjusting custody or visitation rights to safeguard the child's interests.

Influence on Co-parenting Arrangements

  • Co-parenting Relationship: The legal system favors co-parenting arrangements that support the child's emotional and psychological well-being. Financial infidelity can strain the co-parenting relationship, affecting communication and cooperation. If the court concludes that financial deceit has irreparably damaged the co-parenting dynamic, this might influence custody arrangements, with a preference for minimizing conflict and ensuring effective communication for the child's sake.

Can retroactive adjustments be made if a party concealed finances during the divorce?

If it comes to light during divorce proceedings that one spouse engaged in financial infidelity during the marriage, such as hiding assets, income, or debt, this revelation can lead to a reassessment of what constitutes marital property and debt. This can affect how assets and liabilities are divided, potentially leading to a redistribution that compensates the wronged spouse.

What can I do if I am the party who was financial deceptive during the marriage? What legal defenses or recourses do I have?

If you were financially deceptive during your marriage and are now facing divorce proceedings, it's crucial to take proactive steps to mitigate the legal consequences. First, consider full disclosure and transparency about your financial activities as early in the divorce process as possible. Coming clean about past financial indiscretions can sometimes be viewed favorably by the court, potentially leading to more equitable negotiations. It's also advisable to engage a skilled divorce attorney who can advise on the best course of action, possibly arguing that your financial actions did not materially harm the marital estate or the other party's financial standing.

Additionally, you may explore the possibility of mediation or collaborative divorce as alternatives to court litigation. These approaches allow for more flexible negotiations and could enable you and your spouse to reach a mutually agreeable resolution without the need for contentious court battles. Demonstrating a willingness to make amends, such as offering a fair settlement or agreeing to financial remedies, can also help in minimizing the negative impact of past financial indiscretions on the divorce outcome.

State by State Analysis: In What States Does Financial Infidelity Matter?

Financial infidelity can influence divorce proceedings differently across the United States, primarily depending on whether the state follows "equitable distribution" or "community property" principles, and on the specific state laws regarding divorce and asset division. Here’s a general overview:

States Where Financial Infidelity May Have More Impact:

  • Equitable Distribution States: In these states, assets and debts acquired during the marriage are divided equitably (fairly) but not necessarily equally. The impact of financial infidelity might be more pronounced here, as courts have the discretion to consider a wide range of factors in deciding what is fair. This can include the financial conduct of the parties. Most U.S. states follow this principle, including New York, Florida, and Pennsylvania, among others.
  • States with Fault-Based Divorce Options: Some states allow for fault-based divorces alongside no-fault options. In fault-based cases, the misconduct, including financial infidelity, can be a factor in the divorce proceedings. This could potentially influence asset division, alimony, and other financial determinations.

States Where Financial Infidelity May Have Less Direct Impact:

  • Community Property States: In these states, all marital assets and debts are generally divided 50/50. The states that follow community property laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. While financial infidelity might still be relevant, especially if it involves the dissipation of marital assets, the starting point is an equal division, which might limit the discretion of the court to adjust asset division based on financial misconduct alone.

Considerations:

  • Nature of Financial Infidelity: The specifics of the financial infidelity (e.g., hiding assets, incurring secret debt) can influence its relevance in the divorce process, regardless of the state. The more directly the misconduct impacts the marital estate or the economic status of the parties, the more likely it is to be considered by the court.
  • Legal Strategy and Negotiation: Independent of state laws, the discovery of financial infidelity can affect negotiations and settlement discussions. Even in community property states, if one party can prove that the other party wasted marital assets, the court might consider this when making its final decisions.

Do you need a divorce lawyer? What are your options?

The decision whether to file on grounds of abandonment is difficult in an already painful time. Consulting a lawyer that can help guide you through this process is often a good idea.

Hiring a lawyer is not your only path to getting legal guidance for your situation. Several lawyers and law firms have worked with Gavel to produce “legal apps” that can help you with this process:

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