The Course of Divorce Isn’t That Much Different Than Major Financial Fraud Allegations

by Annette Burns on February 26, 2011

Financial frauds Nasty divorce actions tend to follow predictable paths after they are uncovered filed. At first, there is outrage and a determination to find and punish the villains wrongdoing spouse. But passions fade and investigations run into ambiguities.

Those with the most money to protect — typically accountants or banks the higher-earning spouse whose knowledge of the fraud actual wrongdoing is at best debatable — fights to avoid legal liability. Government investigators eventually move on to other cases, and victims spouses seeking revenge and compensation conclude that there is little point to spending more money to pursue uncertain suits. Settlements are reached on terms defendants both spouses can live with.

The statements above—before my edits and cross-outs—were originally the beginning of a story about financial fraud cases, such as the Madoff, Countrywide, AIG and other recent scandals. (Floyd Norris, A Blank Check for Cleaning up Madoff's Mess, New York Times, 2-25-2011) When reading the article, it struck me that with a few word changes, the same description applies to angry, contentious, high-conflict divorce actions. With some exceptions, those cases follow predictable paths too.

At the first client meeting, a client who feels s/he is the wronged spouse is angry, furious, and insistent that no stone will be left unturned. That spouse is convinced that the other has lied, cheated, stolen, hidden and wasted funds. No expense will be spared for investigations, discovery, depositions and subpoenas. The outrage and determination that "justice will prevail" and the wrongdoing spouse will be punished (and hopefully humiliated) is unwavering at that point.

As with financial fraud investigations (and aren't many divorces just another form of financial fraud?), the passion for revenge often fades after the first few months of bills arrive. A good attorney is constantly pointing out to her client that for a waste investigation to be successful, substantially more money must be uncovered than is spent on the investigation itself. The stakes get higher and higher as the bills for investigations and forensic analysis mount.

The documents uncovered in discovery and through subpoenas may be ambiguous. Documents may show that substantial monies were spent or lost, but proof that the losses are the result of wrongful motive is far more difficult. The US Justice Department recently concluded that despite massive losses, the heads of AIG and Countrywide will not face criminal charges. Similarly, while forensic analysis may show that large amounts of money were spent by the other spouse or lost during the marriage, that finding alone does not entitle a spouse to recovery or reimbursement.

Claims of waste in divorce actions are, at best, difficult to prove and at worst, throwing good money after bad. Some of the most expensive and heavily litigated divorces eventually limp to a settlement that both spouses have to live with, and this happens at least partially out of the exhaustion and expense with the divorce process. As with any other type of financial fraud, actual waste of community assets should result in compensation to the wronged party. The cost of the investigation necessary to get to that point can be insurmountable.

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