Secret Trusts in Bitter Divorces

Secret trusts in bitter divorces can create significant legal complications, especially when one spouse attempts to conceal assets from the other.

When a couple goes through a bitter divorce, emotions run high, and both parties may seek to protect their assets. One way some individuals try to shield their wealth is through secret trusts, a legally complex mechanism that can complicate divorce settlements. But what exactly are secret trusts, and how do they impact divorce proceedings?

What Is a Secret Trust?

A secret trust is an arrangement where one person, known as the settlor, transfers assets to a trustee with the expectation that the trustee will hold and manage those assets for the benefit of another individual (the beneficiary). However, the trust is not formally documented or disclosed in legal records. Instead, the details of the arrangement are kept private between the settlor and trustee.

Secret trusts are often used for discretion in estate planning, but during a contentious divorce, they may be used to conceal assets.

The Role of Secret Trusts in Divorce

In divorce cases, especially bitter ones, it’s not uncommon for one spouse to attempt to hide assets. Secret trusts can be used as a tool to do just that. If a spouse sets up a secret trust, they might think they can shield certain assets from being considered part of the marital estate, making it harder for the other party to claim their fair share in the divorce.

However, hiding assets in a secret trust can lead to serious legal consequences. Divorce courts have broad powers to investigate financial matters, and if a secret trust is discovered, the individual who set it up could face penalties, including a less favorable division of assets.

Legal Ramifications of Secret Trusts

1. Failure to Disclose

A key requirement in divorce is full financial disclosure. If one spouse deliberately hides assets in a secret trust and fails to disclose them, it could be considered fraudulent behavior. This could result in the court ruling against the offending spouse, awarding the other party a larger portion of the marital estate.

2. Tracing Hidden Assets

Courts often employ forensic accountants to trace hidden assets. If a secret trust is suspected, investigators will analyze financial transactions, tax returns, and other documentation to uncover the trust and its contents.

3. Breach of Fiduciary Duty

If one spouse establishes a secret trust to hide assets that should have been part of the marital estate, they may be found to have breached their fiduciary duty to their spouse. This can lead to legal penalties, including monetary sanctions or adjustments to the divorce settlement.

4. Impact on Child Support and Alimony

Secret trusts can also affect decisions around child support and alimony. If assets are hidden, the court may not have an accurate understanding of one spouse’s financial situation, leading to unfair calculations for support payments.

How to Protect Yourself in a Bitter Divorce

If you suspect your spouse is using a secret trust to hide assets during divorce proceedings, here are a few steps you can take:

Hire a Forensic Accountant: A skilled accountant can help trace hidden assets and bring them to the attention of the court. They will investigate financial records and identify discrepancies that suggest the existence of undisclosed trusts or accounts.

Work with a Knowledgeable Attorney: Divorce lawyers who specialize in high-asset or contentious divorces are familiar with tactics like secret trusts. They can guide you through the process of gathering evidence and presenting it in court.

Seek Full Financial Disclosure: Insist on full and transparent financial disclosure from your spouse. Courts require both parties to disclose all assets, including trusts, and your attorney can help ensure compliance.

Understand Your Rights: If a secret trust is discovered, it’s important to understand your rights. Depending on the nature of the trust and the assets involved, you may be entitled to a share of the hidden funds.

Secret trusts may seem like a clever way to hide assets in a bitter divorce, the legal risks far outweigh the potential benefits. Courts take financial transparency seriously, and individuals caught attempting to deceive the court often face severe consequences.

If you suspect that a secret trust is being used in your divorce, taking immediate legal action can help protect your rights and ensure a fair settlement. Full disclosure, professional support, and careful investigation are key to ensuring that hidden assets don’t go unnoticed in the process.

Frequently Asked Questions (FAQs) About Secret Trusts in Divorce

1. What is a secret trust?

A secret trust is an arrangement where a person (the settlor) transfers assets to another person (the trustee), who holds these assets for the benefit of a third party (the beneficiary). However, unlike regular trusts, the terms and even the existence of a secret trust are not made public or officially documented.

2. How does a secret trust affect a divorce?

In a divorce, both spouses must fully disclose all assets. If a spouse creates a secret trust to hide assets, it can severely impact the division of property, alimony, and child support decisions. Courts may impose penalties if the trust is discovered.

3. Can a secret trust be discovered during divorce proceedings?

Yes. Divorce courts often employ forensic accountants and investigators who can trace hidden assets. If financial inconsistencies are found, they may uncover the existence of a secret trust.

4. Is it legal to hide assets in a secret trust during a divorce?

No. Hiding assets during divorce proceedings is considered fraud. Failing to disclose a secret trust can result in serious legal consequences, such as fines, a larger share of the assets awarded to the other spouse, and even criminal charges in some cases.

5. What happens if my spouse hides assets in a secret trust?

If a secret trust is discovered, the court can penalize your spouse by awarding you a larger portion of the marital estate or imposing fines. In some cases, the court may also order your spouse to pay your legal fees or impose other sanctions for the fraud.

6. How can I protect myself if I suspect my spouse has a secret trust?

If you believe your spouse is hiding assets in a secret trust, consult with a lawyer and consider hiring a forensic accountant. They can help investigate any hidden financial arrangements and ensure that your spouse is held accountable for disclosing all assets.

7. Can assets in a secret trust be considered marital property?

Yes. If the assets were acquired during the marriage and are placed in a secret trust, they are still considered part of the marital estate. Courts can require that these assets be disclosed and included in the property division.

8. What should I do if I discover a secret trust after the divorce is finalized?

If you discover a secret trust after the divorce is finalized, you may be able to reopen the case based on fraud or misrepresentation. This can allow the court to adjust the settlement to account for the hidden assets.

9. Can secret trusts affect alimony or child support?

Yes. If a secret trust is used to hide income or assets, it can lead to inaccurate alimony or child support calculations. If discovered, the court can modify the payments and impose penalties on the party that created the trust.

10. Are secret trusts commonly used in high-net-worth divorces?

While secret trusts are not common, they are more likely to be used in high-net-worth divorces where one party may attempt to hide significant assets from the other. However, courts take hidden assets seriously, and using a secret trust can lead to severe legal consequences.