Divorces: Beating the Courts

In my earlier years I worked in audit, and was seconded onto forensic projects out of need for resource. I developed a knack for it, and have since worked on a lot of high profile cases (including some of the BB Banks and multi billionaires).

I’ve seen the evidence the forensic accountants get, how they analyse the data in front of them and how the whole process fits into a court case. Therefore I’m well placed to provide a few tips of how to defend yourself in such a case. This isn’t legal advice, your lawyers do that, it’s the accountant advice. It's also pretty long. Sorry about that.

To explain this properly, you need to understand the whole process and how it fits in under the legal system. So with a short run through of a typical process, with the reasoning behind it: You receive a letter from her legal team informing you of the legal proceedings against you, sometimes with an amount for an out of court settlement.

1. A court date is agreed, and one of 2 things happens. For the divorce, her legal team will appoint a bunch of forensic accountants to go through all your finances (yes you will have to declare “everything”) for them to go through. This court date will be requested based on her account of how complicated your finances are. If she says you just have a current account, savings account and some investments held at a bank, they will not need to ask for extra time to prepare their case.

2. Her lawyers need to build their case by the court date, but they have no evidence or facts. The forensic accountants are the ones that do that. So the forensic accountant minions need to trawl through the evidence, and collect it together into a summary of evidence, which the partner will then write in a report to either give to the lawyers, OR have to present in court himself (if he’s been hired as an expert witness).

3. The lawyers collect this report, integrate it with their own resourced information (her account), cherry picking the facts from it to best support their argument and will present it by the court date. The judge/jury will hear the case and make a decision based on this.

4. They will make a ruling which has the authority to transfer assets from one party to the other. The accountants do not.

A pretty bleak picture. But there is hope. Let’s look at the incentivisation structure of accountants, and the risk vs. Reward model of them. Bear with me, this will all make sense in the end.

a) First thing you’ll notice is bonuses are low, often lower than 10% of salary. Part of the ethical structure of accountancy firms forbids high bonuses, from their audit side. Remuneration is echoed across departments to stop mass exodus. This pay structure attracts people that are risk averse.

b) Secondly, what you won’t appreciate, is how few staff these departments have (even the massive ones). For cost reasons, they will have a low number of core staff, and when work comes in, they contract in new people for the duration, based on what they need, and tell them to go home afterwards.

c) Their value is their brand. (e.g. Arthur Andersen). If their name is no longer worth anything, then they lose everything. They will not risk their brand it for anything. They will only put their name to either certainties, or within certain parameters defined in their audit reports, hence the “from what we have seen” style lines you see in company filings.

d) Appraisal process is influenced heavily by costs and towing the line. We are encouraged to charge fewer hours, to increase the projects alleged profitability.

How can you use this to your advantage?

Ok your goal to avoid an amputation of assets is to disrupt the above sequence 1-4, by putting as many spanners in the processes that revolve around a-c, in any and every way legally possible.

Remember they’re unincentivised and paid the same regardless of the outcome of the case (they’re clever like that), so they either don’t care what their report shows or they won’t risk their brand on inconclusive evidence.

Also, any contract workers they bring in are paid by the hour, and are therefore incentivised for the job to go on for longer than it otherwise should.

Now to start being helpful...

Stop them having a full report by the court date:

Obfuscation:

It’s really the oldest trick in the book. You have to hand over all the information you have regarding your accounts/assets. I’m sure you’d love to comply. Hand over everything. EVERYTHING, at least twice, as late as possible.

On a recent case, the evidence we received from the other side, was in pdf format. It was a scan of every document this guy had relating to his accounts. 19 Pdf’s in total, each about 13-17,000 pages long The files were a few GB in size, take 2-5 minutes to open, will frequently cause programmes (Word/Excel) to crash on company laptops (they won’t buy new ones in just for a one off job), cannot be emailed, can’t be worked on from home or remotely (since they don’t let temporary staff take data offsite). No coherent order, no page numbers, not even the right way up in a lot of cases, huge amounts of duplicates and about 80% of them were in Russian. (Documents in a different alphabet are really hard to identify conclusively as duplicates, having triplicates for these can give the impression you have more Russian accounts than you actually have, leading to them over hiring soviets and be under resourced in other departments).

The above is a stroke of genius on many levels. Firstly, the way that this information is entered into a computer system is, you guessed it, manually (because accountancy firms are technophobes, I was ordered not to use macros to generate over 200 pivot tables). While it isn’t typed up word for word, these documents are given a unique identifier by the lawyers, and then a spreadsheet or similar is drawn up to give a keyword summary search if you want to look for bank account numbers etc. Now if parts of this are in Russian, and some are in English, to understand them (and I mean to enable the English speaking lawyers to understand them), you need bilinguals. They will need to be hired in, by the accountancy firm. To keep costs down this will be done sparingly and cheaply, very unincentivised staff and quality control will be next to nonexistent. Additionally, anyone that has worked with a Russian translator, will know that if you give the same document to 3 different translators, you get 3 different translations back. This slows the whole process down, creating inaccuracies in their data set and gives them fewer days between then and the court date to work with.

If I were to improve on the above steps, I would use more banks, in more languages, in different date format zones. Liechtenstein, Cyprus, Switzerland all mix things up. You’d be amazed at the havoc dd/mm/yy can cause in a mm/dd/yy spreadsheet, especially when a trained unincentivised chimpanzee is doing the typing. Again, polluting the data set. One date wrong in a series of transactions and they have to start over again on the tracing process, with extra low morale and one angry manager.

Create Doubt:

So you have your set of holding companies across the globe. Of course they need funding. So you need to borrow money. From yourself. How do you do that? Well the best trick, that creates amazing amounts of paperwork is this:
You own entity A and C, that bank with D and F banks respectively.
Entity A wants to borrow $100 dollars. He agrees with the bank to borrow that money. But how does it get this 0% interest loan? Entity C will guarantee it, 100% and set aside the funds for it do to this in another account.

The agreements get drawn up, A borrows the money from D, while C transfer the money from its account in F to D. This $100 is now in D’s account. The bank does not have to disclose this to any court order, and never will. Therefore the link to this is now lost. ‘A’ instantly defaults on its’ loan repayments, and D claims the $100 from A. Money is transferred successfully, but there is no paper trail for the forensics to PROVE this (since to complete the transaction it will need access to Bank F’s statements, which the court order will not permit).

Additionally, they will need to dig up the following documents relating to this transaction: The loan agreement, the guarantee agreement AND the bank statements for both companies. Quite a bit longer than finding 1 bank statement from either company. It goes without saying the contract reference numbers for each of these should be very typoable. Imagine sifting through a dataset of the following reference styles using ctrl F to find it: 101110110101, 1Il (thats one “i and L”) 1o0 (ten zero, and 101 one hundred and one). This works best when crossing currencies, so bank F receives in it’s GBP account, and sends out in its $ account, registering different account numbers on the statements, extra fun confusion.

So if I create a new account for my amazing new holding company, entity B, transfer $100 into it from entity A, use that $100 to buy 1 share of a real company that actually does something, at $100, the accountants can easily conclude that I bought $100 worth of shares for entity A. What about if the account already had $1000 in it? What if that $1000 came from a loan from entity C which was an account funded by entity Z? Didn’t even know what entity Z is? Oh it’s in an Icelandic Bank (paper statements, obviously)? Time to call up the recruitment agency and find an Icelandic translator. They all add up to another few days killed off before the court deadline.

Teamwork: So you have a friend, Mr X. You transfer $100 to a join account you operate, and that account buys the $100 of the same shares above. The account was funded 80:20 by Mr X. Did you pay for that share or did he? Obviously his requires a friend you can trust that way.

Ultimately, the accountancy firm will need to sign a report, with their name on it, that states what they believe is the financial position at a specified date. The only person that knows the actual position is you, and you’ll only prove them wrong if they go too high. They get paid the same regardless of what they conclude, so will opt for the one that incurs the least cost and risk. Therefore they will be conservative, and only conclude on items they can trace completely within the time frame. Keep that as low as possible.

Beating Me:

I’m probably your biggest nightmare on this, the smart ass who’s solid with numbers and technology. Number patterns, and account numbers, amounts, dates etc. will stick around in my head for a while. How best to render me useless? Language barriers, date formats, decimals and commas, cross currency transactions.

If I’m looking for a transaction that went out in dollars and came back in Turkish Lira, I have to go and check the exchange rate traded at, and the numbers don’t spring out as fast. Interrupt my work flow and add effort to the mental load, slow me down. It all adds to the stress in the environment, and just saying insufficient data to conclude is really tempting with no overtime or bonus even if it isn’t quite true. Noone checks for lack of evidence, they only check your evidence shows what you say it shows.

If we had infinite resource and time and cooperation, we’d get there in the end, however we don’t. Don’t even contemplate not handing everything over. The court will react badly to you being uncooperative and possibly land you with contempt of court.. The accountants won’t say “we saw a systematic trail of transactions deliberately designed to hide assets”, since that’s something they can’t back up with evidence, even though it’s obvious.

Disclaimer:
For those with ethical concerns of a guide on how to deceive the financial world, the bad guys know the above, and more. This is purely for the cynically minded of you who despise your nation’s divorce settlements, and can’t/won’t get a prenup that the courts take seriously. Plus, when she gets feedback from her accountants that they haven’t found anything, and the fees are nearing a few hundred thousand, that out of court settlement looks really tempting, just on your terms, not hers.

Mod Note (Andy): Throwback Thursday, this originally was posted 7/4/12

 

Interesting thoughts. However, my impression is that most of the time the guy has to pay the costs on both sides of the table because the woman doesn't have any money. By making your ex's accounting and legal bills sky high, aren't you essentially screwing yourself because you ultimately have to pay for it?

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CompBanker:
Interesting thoughts. However, my impression is that most of the time the guy has to pay the costs on both sides of the table because the woman doesn't have any money. By making your ex's accounting and legal bills sky high, aren't you essentially screwing yourself because you ultimately have to pay for it?

Citing from a legal forum in the UK for this one:

The wife's solicitor's and barrister's bills will be paid for the wife by the Legal Services Commission out of taxpayers' money in the first instance. However, when a legally aided litigant recovers any money or property with the help of Legal Aid the Legal Services Commission can and will recover the money it has spent from the property recovered.

It does then go on to list numerous discriminatory laws in the UK, but ultimately she does pay her own legal bills. The only time you are likely to pay them completely is in a settlement agreement, where you agree to take the costs and both go your separate ways.

This is also likely to only affect those with a significant net worth. A few hundred K in fees isn't likely to upset you, and if i'd said you'll lose half a million in costs to get this out the way, you'd probably take it.

T

 

You forget the ultimate barrier to anything to protect the husband has... the Judge. He's the only thing that can stop you from getting anything done and seeing through your plan. Just sayin' is all...

 
West Coast rainmaker:
kmess024:
Why don't they get a prenup to protect their assets?

They get overturned, invalidated, etc. They also cannot specify child support payments, which can be substantial.

That is ridiculous.
The Four E's of investment "The greatest Enemies of the Equity investor are Expenses and Emotions."- Warren Buffet
 
West Coast rainmaker:
kmess024:
Why don't they get a prenup to protect their assets?

They get overturned, invalidated, etc. They also cannot specify child support payments, which can be substantial.

So what the hell is the point of a prenup if it's likely to get thrown out?

"You stop being an asshole when it sucks to be you." - IlliniProgrammer
 

Pre-nuptial agreement supplemented by an international trust held by an irrevocable trust owned by a C-corporation based in the Bahamas. Everyone needs this and a good lawyer to make sure everything is copacetic.

Bene qui latuit, bene vixit- Ovid
 
CEOHankScorpio:
How many of these uber-wealthy divorces do you see on average? Are these the only cases that you deal with?

For a company of our size to be called in, it really has to be seriously wealthy people involved, of which there just arent that many. Most of the dynastic billionaires are not actually billionaires, just beneficiaries of a family trust, which no thieving bitch will get her hands on.

I also deal a heck of a lot with some very dodgy business practices typically involving ex Soviet bloc nationalities/privatisation in the collapse of the Soviet Union, and the chickens come home to roost. I have kept those tricks off this forum, as I can't see a benefit to those here, plus the post was already long enough.

The divorces are relatively infrequent, I've been through the accounts of a few that would have made the Rich lists in G8 countries if their wealth was stated more accurately in those lists. I'd say we are called in to perhaps 1 or 2 a year, but I did contract work at a smaller company and we saw them at a rate of 4-6 a year (running max 2 cases concurrently).

The bread and butter of the work we go on are Big Institutions calling us in, in the wake of a scandal. Put bluntly, a seriously dodgy crook won't call us in, because we have the resources to investigate, so they aim for accountancy firms that are known, but don't quite have the resource or talent to do the work, but won't turn away money. We are certainly going to be involved in this LIBOR rigging that's gone on, which I'm hoping to get involved with directly, and will be called in by respective regulatory authorities, being the only firm with the reach, expertise and resources to investigate this.

 

If it's all about running out the clock on the accountants before the court date, the wife's estimation of "how complex your finances are" seems critical. As someone that is not married, I'd be interested to know how some of you guys would/do handle finances in a marriage. Put another way, if you are the primary source of income for the relationship, how open are you about bank accounts and investments? Do you just give her a credit card and a joint bank account that you maintain at a certain balance, or do you open the books for her to see all?

 
NoTimeForSpace:
If it's all about running out the clock on the accountants before the court date, the wife's estimation of "how complex your finances are" seems critical. As someone that is not married, I'd be interested to know how some of you guys would/do handle finances in a marriage. Put another way, if you are the primary source of income for the relationship, how open are you about bank accounts and investments? Do you just give her a credit card and a joint bank account that you maintain at a certain balance, or do you open the books for her to see all?

Best advice I can give here, is get defensive about your earnings so she never mentions it. Set up the bank accounts and transactions yourself, but put correspondence address and phone number as your accountant.

Have a joint account that you pay a % of your salary into, large enough to be credible and respectable, bonus goes elsewhere. As long as it's taxed (and NEVER dodge taxes), it's legal. She'll never see the paperwork involved with the other stuff and couldnt begin to imagine it's there. She might suspect you have a secondary account where other money goes

As a matter of principle, I never reveal to anyone my earnings (in a relationship), since it helps them appreciate the gifts/nights out, rather than scale up expectations with your earnings, and get very upset if they ask (most don't in the UK). That way they don't ask again. If they flat out ask, I'll ask them what's the minimum number for them to consider me a good bet for a relationship and confirm whether its above that or not.

Money should only enter into a relationship regarding the minimum standard of living. The last thing you want is someone dreaming of the planes and yachts, telling their friends and spending it. oh and considering how much money these people have, they sure are miserable. Maybe it's not worth it.. :)

 
Beretta:
If I ever get divorced, I would transfer all my assets to my parents (right before the divorce) and then have them move the money overseas. Good post.

Doesn't work like that... Then your parents would be brought in under a collusion to commit fraud and your soon to be ex can nail you and your parents in civil court for damages. Jeez...

 

Trazer, I'm late to this thread, but I just wanted to say that you are a genius and this is one of the best things I've ever seen on the internet.

"A modest man, with much to be modest about"
 

YOU ARE GOD. If anything I've learned, sometimes its a good idea to play the innocent weak boyfriend/husband because women are incredibly smarter, smarter then men if I'm to be honest. Shit like this happens many of the times is because of the guy's ego. I learned the hard way. I play the innocent, stupid yet funny guy. If I lose a chance with a girl I really like, you know what, there's 7 billion people in this world, half of them are women, I have time. Other than and also this is scary shit, thank you for your post man. You are deity among deities. Keep up the good work in helping us peasants.

 

and if ppl asked why not be the alpha male? the only times when you should be alpha male is when you go balls deep in her or when you are protecting her from danger or when someone curses her out (try to avoid the fight of course but sometimes you can't). But other than that, gotta play that humble game otherwise you are toast.

 
Best Response

Btw, there was some discussion on here about whether prenups are valid. I just finished the first year of lawschool and here is what I learned. For America, if you make her take the document to an attorney for review, then it will be enforceable. Doesn't matter if the attorney tells her it's a fucking awful deal and there's no way she should sign it, but you insist that there will be no marriage without it, and so she feels compelled to sign it. Still enforceable. She just has to have the opportunity to be told the legal ramifications of signing it. Also, this would of course work the same way for any girls reading. Just swap the parts. There was also some discussion about child support. To be clear, we didn't study this. But again contracts are generally read as to the intent of the parties. So, if you have her agree to pay your share of any child support that you might owe, then that might be valid if she actually has the income to do that. Obviously, the other party is going to fight over something like that even more than the other terms because child support is up to 18 years. What might be a reasonable compromise is having the document say something along the lines of each party agrees to pay child support in correspondence to the amount of time that they are allotted with the child. Or maybe 50% for each. The judge would set a child support amount and then these numbers would come into play. You might also have the money put into a trust or some other vehicle with a third party administrator who pays the money for the child's expenses as needed. This might be WAY too expensive, idk haven't gotten there yet. But my thought is that it would force both parties to actually pay out child support, and so neither side is going to push for too high of an amount. Anyways, the real point here is don't let this forum talk you out of a prenup. Take it to a lawyer who will explain exactly what you can do.

 
idrankmalk:
wouldn't your wife think its a little weird that you giving money to your parents for the house?

You can always disguise it as a "parent appreciation" payment. e.g. I love you mom for all you've done for me. Here's some monthly cash for you to spend.

 
idrankmalk:
what's the point of even getting married if you have to pull all this sneaky shit

exactly. anyone who has the foresight to do this shouldnt be getting married.

"Dont compromise yourself; you're all you've got" - Janis Joplin
 

I love that you think that's how easy it is. It's not as easy as you think to do it and all depends on how the deed is signed and recorded to begin with. Plus, there is the nature of transfer of deed, the recording requirements, the type of jurisdiction, and a number of other things. What your friend did could have potentially been illegal. There's something you're not telling us because this won't always work like you think it does. Even a 1L can tell you that one.

 

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Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
 

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