In Minnesota, property division in divorce cases follows an “equitable distribution” model, aiming for a fair (though not always equal) allocation of marital assets. However, some spouses may attempt to conceal or dissipate assets to reduce the amount available for division. Minnesota courts have consistently demonstrated strong responses to such actions. Below, we examine how courts handle concealed or dissipated assets, the legal repercussions, and protective measures spouses can take.

1. Common Tactics for Concealing or Dissipating Assets. Many strategies are used to hide or reduce assets in divorce proceedings. Here are some of the most common:

1. Transferring Assets to Third Parties: Some individuals transfer money or property to family members, friends, or business associates to place assets out of reach. In Peterson v. Peterson (274 Minn. 568, 144 N.W.2d 597 (1966)), the husband created a trust for his assets just before the divorce to keep them from his wife. The court ruled this as fraudulent and restored the assets to the marital estate, prioritizing the wife’s right to an equitable division of property.

• Claiming Fake or Exaggerated Debts: Some spouses inflate or fabricate debts to diminish the marital estate. In Frownfelter v. Frownfelter, the husband’s explanations for a drastic reduction in assets were vague and unsupported by records, leading the court to award a personal judgment in favor of the wife. Courts interpret a lack of documentation as suspicious and will protect the spouse who might be unfairly deprived of assets

• Manipulating Business Finances: Business owners might manipulate financial records by inflating expenses or delaying invoicing to make the business appear less profitable. In Letsch v. Letsch, the husband refused court-ordered appraisals, sold business assets, and unilaterally spent marital funds. The court favored the wife in property division, emphasizing the importance of honest disclosure.

• Underreporting Income or Hiding Funds in Complex Investments: Many divorcees attempt to understate income or invest in hard-to-value assets. To account for this, Minnesota courts carefully examine discrepancies between reported earnings and lifestyle, where a party’s substantial net worth might be scrutinized if there are opaque financial dealings, and specific assets divided equally to account for the concealment risk.

• Delaying Raises or Bonuses: A common tactic involves asking an employer to delay pay raises, bonuses, or commissions until after the divorce is final. This reduces income on record, lowering obligations for spousal support or shared property distribution.

• Stashing Physical Cash or Valuables: Assets like cash, jewelry, or collectibles are sometimes hidden in safety deposit boxes, with friends or family, or in obscure locations to avoid being accounted for. Courts often rely on lifestyle analysis and forensic accounting to reveal discrepancies between reported finances and actual lifestyle.

2. How Courts Respond to Asset Concealment. Minnesota courts take a proactive stance against hidden assets, often using the following measures to ensure equitable division:

1. Redistributing Assets and Imposing Legal Sanctions: If concealment is proven, courts can shift the division of assets in favor of the spouse who was deceived. For example, in Peterson v. Peterson, the husband’s concealed assets were returned to the marital estate, and the court imposed restrictions to prevent future concealment attempts.

• Making Adverse Inferences and Issuing Personal Judgments: When a spouse’s explanations are vague or unsupported, courts may assume they are hiding assets. In Frownfelter v. Frownfelter, the court awarded the wife a personal judgment after the husband’s unclear explanations for asset reductions, concluding that his behavior likely concealed marital property.

• Penalizing with Attorney’s Fees and Loss of Credibility: If one party’s actions interfere with the fair division of property, courts may impose penalties, including attorney’s fees, to the spouse affected by the concealment. In Johnson v. Johnson, the court awarded attorney’s fees due to one party’s financial concealment and subversion of the legal process, which prolonged litigation unnecessarily. Further, if a party engages in dishonest behavior during the litigation, a court may determine that the party is not credible, and resolve disputed evidence in favor of the other party.

• Awards of Attorney’s Fees: Interfering with the disclosure of assets or otherwise attempting to subvert the equitable division of marital property may result in an award to the other spouse. In Johnson v. Johnson, an award of attorney’s fees was upheld because of one party’s exacerbation of the cost of litigation by secreting and diverting marital funds which necessitated a longer trial.

• Forced Sale or Liquidation: If the concealment tactics involve high-value items or significant debts, courts may order the sale of assets or impose liens. In Bollenbach v. Bollenbach, the court enforced an equal division despite the husband’s objections, although it gave the husband a chance to propose an alternate method of an equal division of the marital property to the district court to avoid liquidation.

3. Practical Steps to Protect Against Concealed Assets. If you suspect your spouse might be hiding assets, there are protective steps you can take:

1. Hire a Forensic Accountant. Forensic accountants specialize in identifying inconsistencies in financial records. They can help track hidden funds, analyze unusual transactions, and bring unexplained liabilities to light. Minnesota courts frequently rely on their findings to detect concealed assets.

• Subpoena Financial Records. Through your attorney, you can request comprehensive financial documentation, including tax returns, bank statements, and business records, to identify discrepancies. Courts favor transparency, and subpoenaed records often highlight concealment attempts.

• File Motions for Protective Orders. If you believe your spouse is hiding or moving assets, consider filing a protective order to freeze accounts or restrict asset transfers. This can prevent further concealment and safeguard assets until the court can accurately assess them.

• Document Financial History. Keep detailed records of your income, expenses, and major financial transactions. These can be compared against your spouse’s declared assets and lifestyle. Consistent documentation serves as evidence in court and makes it harder for a spouse to distort the financial picture.

• Engage an Expert Valuation of Complex Assets. For assets like businesses, trusts, or unique investments, hiring an expert to assess their value can clarify their worth and make it harder for a spouse to underreport their value.

4. Conclusion: Minnesota courts have set a strong precedent against asset concealment in divorce cases. As seen in the above cases, attempts to evade fair asset division result in penalties, adverse judgments, and even forced liquidation of assets. Protecting yourself involves knowing the warning signs of asset concealment and taking proactive measures to ensure a fair distribution. If you suspect hidden assets, consult a family law attorney to help protect your rights and guarantee an equitable division of marital property.

If you have questions regarding this topic, then seek the advice of a family law attorney. Contact the SW&L family law team at 701-297-2890 or email us at: info@swlattorneys.com.

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