10 Red Flags That Could Signal Financial Deception in Divorce

10 Red Flags That Could Signal Financial Deception in Divorce

By Michele M. Laws, CDFA®, CVA, MAFF On 09/04/2025

Divorce requires honesty and transparency, especially when it comes to money. Unfortunately, not every spouse plays fair. Hidden accounts manipulated business records, or undisclosed debts can all skew the financial picture and leave one party at a disadvantage.

The good news? There are warning signs. By recognizing the red flags of financial deception early, you can take steps to uncover the truth and protect your client’s share of the marital estate.

When divorce is on the table, money often becomes a weapon. A spouse may try to hide assets to keep more for themselves, lower their reported income to reduce support obligations, or create fake debts to diminish the marital estate. For some, it’s about financial control; for others, it’s simply greed.

Whatever the reason, the impact can be devastating, especially if these tactics go unnoticed. They may end up with less than a fair share or find themselves forced to pay debts that were never truly theirs.

10 Common Red Flags to Watch For

1. Sudden changes in spending habits
If a spouse suddenly begins spending recklessly on luxury items—or, conversely, becomes unusually frugal—it can be a red flag. Both patterns may indicate attempts to manipulate financial records. A sudden splurge might be a way to convert cash into assets like jewelry or artwork, while a sudden belt-tightening may be an effort to quietly stockpile funds elsewhere.

2. Missing or incomplete financial documents
When bank statements, tax returns, or pay stubs conveniently “disappear,” it is rarely an accident. A missing year of tax returns or a conveniently misplaced retirement account statement can make it harder to trace income or value assets. Even small gaps in documentation can conceal significant sums of money.

3. New or previously unknown debts
If new bills or statements for loans and credit cards which were not previously known, that’s cause for concern. Sometimes, spouses use debt as camouflage—running up balances and planning to pay them off later with hidden resources. In other cases, they may funnel marital money into accounts tied to these debts.

4. Overpayment of taxes
It may sound counterintuitive, but deliberately overpaying taxes is a strategy some people use to stash money. By doing so, they essentially “deposit” cash with the IRS and later claim a refund—often after the divorce is finalized.

5. Lifestyle inconsistent with reported income
This is one of the most telling signs. If a spouse claims to make $50,000 a year but somehow affords private school tuition, luxury vacations, or high-end vehicles, something isn’t lining up. Lifestyle analysis—comparing spending habits against reported income—is a powerful tool for uncovering discrepancies.

6. Business revenue suddenly drops
If one spouse owns a business, watch for sudden, unexplained declines in revenue or profits. Owners sometimes manipulate their own financials by delaying invoices, prepaying expenses, or funneling sales into side accounts. This not only lowers the apparent value of the business but can also reduce the reported income available for support.

7. Unexplained loans to friends or family
A common tactic involves claiming that money was “lent” to relatives or friends. On paper, it looks like an obligation, but in reality, it may be a temporary hiding place. Once the divorce is settled, the “borrower” quietly returns the funds.

8. Frequent cash withdrawals
Cash is hard to trace. If regular ATM withdrawals are seen—even in small amounts—it could be a way to build a secret stash. Over months or years, those withdrawals can add up to thousands of dollars siphoned out of the marital estate.

9. Multiple small transfers between accounts
Instead of one large transfer that might raise suspicion, deceptive spouses often move money in small, frequent amounts between multiple accounts. This technique muddies the paper trail and makes it more difficult to identify where the money ultimately ends up.

10. Resistance to financial disclosure
Transparency should be automatic in divorce. If a spouse delays, avoids, or outright refuses to provide requested documents, it’s a sign they may be hiding something. Even excessive stalling can indicate that records are being altered or withheld.

Seeing one red flag doesn’t always mean there’s fraud. But when several of these signs appear together, it’s worth taking action. Here’s how:

• Stay organized. Obtain all the financial records you can access—tax returns, pay stubs, account statements, even receipts. Seemingly routine paperwork can become critical evidence later.

• Track spending patterns. Compare them to reported income. If expenses consistently exceed earnings, you may have uncovered hidden income sources.

• Communicate with the attorney. Share any concerns immediately so they can request additional documentation through the legal discovery process.

Numbers rarely lie for long, and financial deception almost always leaves a trail. Spot the red flags, ask the tough questions, and don’t be afraid to dig deeper. This assists your client in making sure ehe marital estate reflects the truth—not a manipulated version of it.

 

Tagged with: divorce finance, cdfa, hidden assets, financial deception, divorce financial analysis, forensic accounting, divorce support, divorce strategy, marital assets, red flags

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