Those preparing for divorce often have many difficult conversations ahead of them. It is common for everyone from parents to coworkers to offer advice or a bit of criticism when learning about someone’s divorce.
Some of that advice is more useful than other commonly-shared wisdom. One particular suggestion that many people make to individuals in the early stages of divorce can actually lead to complications or allegations of financial misconduct later in divorce proceedings.
How can well-intentioned friends and family members sometimes contribute to a future divorce conflict?
The risks of funding a secret account
The early days of divorce are often fraught with intense stress. It is very difficult for people to confront their spouses and to begin to separate their lives. Especially when someone has lived with their spouse for years or reduced their focus on their career to prioritize their family, financial concerns are common.
People advising others about the early stages of divorce often recommend that a filer start a secret bank account before taking any other actions. The idea is that they have funds their spouse cannot access which they can then use to pay their rent and other basic cost-of-living expenses until they reestablish themselves separately.
The common practice of freezing shared accounts and closing joint lines of credit can leave people without the financial resources they need for daily life after filing. There is nothing wrong with establishing a small nest egg for immediate needs after filing for divorce.
However, the issue arises from people thinking they can treat those funds as their separate property. Any marital income set aside before divorce or separation requires disclosure as part of the property division process. Even if someone has already spent those funds, they may need to address them as part of the broader property division process.
The failure to account for the income diverted to a private account or to disclose the establishment of that account to a spouse could lead to allegations of misconduct. Divorce proceedings involving hidden assets sometimes lead to penalties for the spouse who made inaccurate disclosures.
Someone planning to start a separate bank account can do so. They must properly disclose the balance of the account and the value of any other property accrued to set them up separately during the discovery process in the divorce.
Making appropriate financial disclosures can protect people from controversy and allegations as the property division process unfolds. Those who suggest creating a separate bank account often have someone’s best intentions at heart, even though they may not understand the implications of their advice.
