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What Happens If A Spouse Does Not Disclose All Of His Or Her Assets During A Divorce Proceeding In Michigan?

by | Sep 23, 2021 | Family Law |

 

Michigan is an “equitable distribution” state where divorce courts may distribute marital assets of spouses in a manner that they believe to be fair and equitable.  MCL 552.401.  This means that assets will be divided in a manner that is fair under the facts and circumstances of the case, but this does not necessarily mean a 50/50 split.  “To reach an equitable division of marital property, a trial court should consider the duration of the marriage, the contribution of each party to the marital estate, each party’s station in life, each party’s earning ability, each party’s age, health and needs, fault or past misconduct, and any other equitable circumstance.”  Woodington v Shokoohi, 288 Mich App 352, 363; 792 NW2d 63 (2010).  Before there can be a fair and equitable division of property, the trial court must first determine what martial assets exist.

In the vast majority of divorce cases, the marital assets are obvious and known to both spouses.  However, there are situations where one spouse is hiding assets from the other spouse with the intent of getting out of the marriage with a greater amount of assets than a judge might otherwise award.  For example, one spouse might have been diverting assets to a hidden bank account during the course of the marriage in contemplation of divorce, and then keeps this bank account secret throughout court proceedings to retain it in its entirety.  In situations where one spouse primarily controlled and handled the finances during the marriage, it may be quite easy to hide these assets from the other spouse.  This can lead to unfair results in equitable property division.  What happens if a spouse does not disclose all assets during a divorce proceeding in Michigan?

It is worth noting that divorce proceedings are civil court proceedings, so all of the rules relating to civil discovery apply to looking for marital assets.  Parties and lawyers can use any of the following under the Michigan Court Rules to uncover assets that may be unknown to them:

  • INTERROGATORIES TO SPOUSE: A party can serve on the other party a list of written interrogatories to be answered under oath and returned to the asking party within 28 days (or 42 days if the interrogatories were served with the summons and complaint) under MCR 2.309.
  • REQUEST FOR PRODUCTION OF DOCUMENTS AND OTHER THINGS: A party can serve on the other party a list of documents or other things that must be produced and provided to the asking party within 28 days (or 42 days if the requests for production were served with the summons and complaint) under MCR 2.310.
  • REQUEST FOR ADMISSION: A party can serve on the other party a written request to admit to the truth of a statement asserted within 28 days (or 42 days if the requests for admission were served with the summons and complaint) under MCR 2.312. For example, a party may be asked to admit that he or she kept bank accounts not titled with the other spouse or that cash or personal property was kept at a location other than the marital home.  Failure to respond is deemed an admission in the eyes of the court.
  • SUBPOENAS TO THIRD-PARTIES: Attorneys for a party can issue subpoenas to non-parties of a case (e.g. relatives, banks, financial institutions) to produce or make available for inspection tangible things such as physical assets, financial statements or tax returns under MCR 2.305.
  • DEPOSITIONS: A party can require a person, including a party, to appear at a specific time and place to give testimony by deposition on oral examination under MCR 2.306. This testimony is recorded by a court reporter and a transcript can be made available to all parties.

Despite these tools available to litigants, a spouse may still be resistant to comply with the request or otherwise reveal or disclose these assets to the court.  Michigan law is clear that a spouse is not entitled to hide assets during a divorce and it will be met with significant penalties.  Judges can do any of the following:

  • The court can award a greater amount of the marital estate to the spouse that had been wronged from the other spouse shielding assets.
  • The court can award the payment of attorneys’ fees and costs to the wronged spouse for the expenses associated with discovering the deception.
  • The court can hold the spouse failing to cooperate with disclosing assets in civil or criminal contempt of court. If a party tried to obtain responses to interrogatories, production of documents or request for admissions and they went unanswered, then that party can file a motion asking the court to compel the party to comply with the requests.  Likewise, a party failing to comply with a subpoena to appear at a deposition or produce certain items can also be held in contempt of court.  The party violating the court order can be fined or jailed until compliance is achieved.

If a spouse is suspected of hiding assets, it is important that the other spouse uses all of the tools available to uncover the truth to ensure a fair and equitable division of the property.  This should include putting the judge on notice that there is an issue and asking the court to order the full disclosure of all assets from all parties.

What happens if, after the divorce is finalized, an asset hidden by a spouse is discovered?  In Sands v Sands, 192 Mich App 698; 482 NW2d 203 (1992), a husband in a divorce matter concealed from the trial court and his former spouse the fact that he received $120,000.00 from the sale of a bowling alley.  The husband went to great lengths to hide this transaction even during the trial and was held in contempt four times.  Ultimately, the $120,000.00 was not discovered until after verdict was entered.  The Michigan Court of Appeals determined that an appropriate remedy for this egregious behavior is to award 100% of the concealed assets to the innocent spouse.  Specifically, they reasoned the following:

  • “This is in accord with the maxim that one who seeks the aid of equity must come in with clean hands. The doctrine of “clean hands” rests on the proposition that the court will not be the abettor of inequity.  Thus, we find it inappropriate for the court to award Mr. Sands any share of assets that he attempted to conceal. Once a spouse intentionally has misled the court or the opposing spouse regarding the existence of an asset, that spouse should be estopped from receiving any part of that property.  Accordingly, we remand for the court to make a determination of which assets Mr. Sands had attempted to conceal.   We direct the court to award full ownership of these particular assets or their equivalent value to Mrs. Sands before making an equal split of the remaining assets. This course of action should have the salutary effect not only of adjusting the equities in this case but also of serving as a warning to all divorcing parties.  We are reluctant to impose such a burden on the trial court, whose exemplary patience and efficiency deserves a better reward, but we feel it is necessary in this case.”  192 Mich App at 704-705.

The Michigan Supreme Court affirmed this decision on appeal in Sands v Sands, 442 Mich 30; 497 NW2d 493 (1993).  While they did affirm the decision of the Michigan Court of Appeals to forfeit the asset, they made it clear that that it is not the exclusive remedy:

  • “On the record before us, we see no error in the Court of Appeals determination that the circuit court abused its discretion in making an even division of marital assets. While the circuit court did require the defendant to pay a significant portion of the plaintiff’s legal expenses, the defendant’s conduct throughout these proceedings was such that an even division of marital assets could not be equitable. Thus the Court of Appeals correctly decided the present case. However, we must also address the apparent decision of the Court of Appeals to adopt an automatic rule of forfeiture for future cases involving the concealment of marital assets.  As we explained…, marital assets are not to be divided in accordance with any rigid formula. Rather, the circuit court must make an equitable division on the basis of the facts proven in each individual case. A party’s attempt to conceal assets is a relevant consideration, but it is only one of many facts that the court must weigh. Further, a judge’s role is to achieve equity, not to “punish” one of the parties. An attempt to conceal assets does not give rise to an automatic forfeiture.”  442 Mich at 36-37.

If it is discovered that, after the divorce was finalized, a spouse had concealed assets from the other spouse during court proceedings, a judge can order a retrial on the property settlement and do any of the following:

  • Redistribute the property in a fair and equitable manner that assigns fault to the party concealing assets.
  • Award attorneys’ fees and costs to the innocent spouse for having to relitigate this matter due to the bad behavior of the other spouse.
  • Completely forfeit all of the concealed assets to the innocent spouse on equity grounds.

A party who lies to the court under oath about the hidden assets could even be prosecuted in criminal court for committing perjury.  Prosecutors and judges take a dim view towards any person who disregards their obligation to tell the truth to a tribunal.  This crime can very well lead to fines, probation and even incarceration.

If you are in a divorce proceeding and you suspect that your spouse is hiding assets, then you need a skilled family law lawyer in your corner that will enforce all of your rights and fight for the best possible outcome.  The consequences of a divorce are simply too great to leave anything to chance.  When you need expert legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.

 

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