Fraud Magazine Online
Login |  Become a Member
 
Share |


How to Take a Financial Pulse

Is That Deadbeat Really Broke?



September 2011

  

confidential-fileJohn "Mick" Elliott, CFE, has a new client. She is in a family court battle — one of the arenas in which Elliott provides litigation support. Although no children are involved, the stakes are high.

The client, a financially strapped divorcée, came to Elliott for help when her ex-husband stopped paying alimony. The former spouse says he is broke. Perhaps believing that the best defense is a good offense, he is trying to turn the tables by making his own demand for alimony.

But Elliott's client thinks her ex is lying. As a high-end professional, she says, he has always been a big earner.

ALL IN THE FAMILY
 


Elliott's practice and the former couple's now-separate residences are in California, which is one of nine community property states; the others are Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Under state law in these jurisdictions, couples have equal shares in all possessions they acquire during their marriage. If they divorce, those assets are divided between them. Each state's law provides its own criteria for determining what is an "equal" distribution of the couple's property and whether alimony to either party is warranted.

For example, to divide community property in California, the court would consider, among other things, a quantitative criterion — the provision in section 2550 of the California Family Code, which states that "… the court shall …divide the community estate of the parties equally."

Similarly, to determine whether spousal support is justified and, if so, who should pay it and how much, the court would consider, among other things, the qualitative criteria cited in section 4320 of the California Family Code. These include the "needs of each party based on the standard of living established during the marriage," and the "age and health of the parties."

As in all legal matters, relevant and factual evidence from reliable sources is essential to the effective administration of justice. Thus, the client engaged Elliott to obtain verifiable proof of her ex-husband's current income and other assets. If her suspicions prove correct, and his earnings are high and hidden assets are discovered, her attorney will be better able to persuade the family court judge to rule in her favor, mandating the resumption of alimony payments to her and denying them to her former spouse.

AN UNEXPECTED NICHE

After serving 26 years in federal law enforcement, Elliott retired as an FBI special agent, earned his CFE credential and became a licensed private investigator. His firm, Elliott Investigative Services, in Westlake Village, Calif., serves private and business clients in matters relating to family law and other civil litigation involving fraud.

"Family law turned out to be interesting work, and there's plenty of it," he said.

When Elliott opened his firm's doors in 1999, one of his first clients was a woman who was getting a divorce and suspected her spouse was hiding money from her. In building a financial profile of the client's husband, Elliott uncovered proof that she was right. Armed with that evidence, her attorney successfully argued for a better settlement than she would have gotten otherwise.

"Divorce is about money and emotions," Elliott said. "My job is to level the playing field. In the majority of my cases, the husband hides assets, and the wife engages me to find them. In fact, I can't recall a case in which a woman hid community property assets."

CRACKING THE CODE

During the 1940s, innovative private sector leaders and legal scholars believed that greater uniformity among the states' business laws would simplify and facilitate interstate commerce. To achieve this goal, they jointly developed a collection of standardized legislative models they hoped each state would implement with little, if any, modification. This body of recommendations was the first version of the Uniform Commercial Code (UCC), and since then most of it has been widely adopted.

As a result, each state maintains an enormous store of UCC data that its financial institutions report on their transactions, such as business loans. While the information in these filings is sparse — perhaps only the name and address of the borrower — it is a strong lead that an experienced investigator can track to specific data, such as the amount of the loan and details on the collateral used to secure it.

The information in these records is in the public domain, and for a nominal fee, anyone can gain online access to it. Small wonder, then, that Elliott and many other experienced investigators consider UCC filings one of their most valuable sources of information for compiling a financial profile on the subject of an asset-related investigation.

UNCOVERING DIRTY TRICKS  


"A husband secretly planning a divorce will begin hiding assets about six months before taking any legal action," Elliott said. "Unfortunately, there is always a wife who has no idea what her husband has been doing with their community assets."

To take the pulse of a spouse's finances, Elliott sounds out sources that serve as his investigative "stethoscope." In this way, he constructs a profile of the subject — address history; properties owned; businesses associated with, owned or managed; professional licenses; bankruptcies, liens and judgments; and UCC filings. When building such profiles, he almost always encounters something that doesn't seem quite right.

"The financials of 97 percent of the people I've investigated were untruthful in some respect," he said.

Choosing the right source for each search requires care. Once, when combing through property records in what at first seemed like a comprehensive database, Elliott discovered that it contained only the current ownership information. It did not list sales and re-purchases of properties over time — a serious deficiency that left chronological gaps in the profile he was constructing. He then began using a database that contained properties' full ownership history.

Whenever Elliott finds that his target owns several properties, he searches further to determine how many loans the person took out on each property and to review its deed history.

"I look for signs of equity-stripping, where someone has repeatedly re-financed a property without the spouse's knowledge," he said. "If that's been happening, I find out where the proceeds went. Often, they'll wind up in a shell account or false business set up solely to hide that money from the spouse. It's very important to understand the structure of such ‘hidden' businesses. The assets they hold could be inaccessible to a deceived spouse."

Elliott also searches for bankruptcy judgments and liens, which can legally encumber the community property assets his clients seek.

"If my client's ex-husband has a lien against him, it's important that she understand and prepare for the fact that she won't get her share until the lien is cleared," Elliott said.

TIME FOR A CHECK-UP

Using the above search methods, Elliott soon hit pay dirt in his current case.

"I discovered that my client's husband was the subject of three UCC filings in the last five years, including one a few months ago," Elliott said. "If he really is experiencing financial hardship, how was he able to qualify for a loan?"

Although the UCC filings did not provide much detail, they did reveal the loan's existence.

"This will enable my client's attorney to appear before the judge and obtain a subpoena," Elliott said. "That will require the lender to produce the loan application, revealing the husband's bank account information, including the assets he listed as collateral for the loan. I expect the resulting asset profile will demonstrate he is able to make those alimony payments to my client. The court might even order him to provide her with additional community property monies she is entitled to."
Elliott expects the case will be resolved by the end of the year.

PERSERVERANCE PAYS

"If a search doesn't turn up what you need, think it over and look elsewhere," Elliott said. "All it takes is one nugget of information to get to the next question and answer. But you won't find it unless you're thorough and persistent."

Robert Tie is a New York business writer.

The Association of Certified Fraud Examiners assumes sole copyright of any article published on www.fraud-magazine.com or www.ACFE.com. ACFE follows a policy of exclusive publication. Permission of the publisher is required before an article can be copied or reproduced. Requests for reprinting an article in any form must be emailed to FraudMagazine@ACFE.com. 

 




Click here to Login and leave a comment...

Reviews
 
By Kit Sober
Thanks. I thought it was logical, thorough, and well written. I enjoyed reading this. Also I have a dear friend who was put into these very straits by her husband, and this article will be a blessing to her. Thanks, again.

 

 

 
©2014 Association of Certified Fraud Examiners
Privacy Policy | Advertise With Us
Association of Certified Fraud Examiners Global Headquarters
716 West Ave | Austin, TX 78701-2727 | USA | FraudMagazine@ACFE.com