Equitable Distribution of Hidden Assets

June 26, 2013 § 2 Comments

What do you do when one party hides assets she claims are separate, and refuses to divulge their whereabouts? You divide them anyway. At least that is what happened in Wilson v. Wilson, decided June 11, 2013, by the COA.

Penny and Gregory Wilson had the kind of financial arrangement that one sees from time to time in a divorce case. Penny made most of the income, apparently, and the parties maintained completely separate banking and finances. Gregory paid Penny a sum that they agreed was one-half of the household expenses, and some extra money when he worked odd jobs or when Penny wanted to go on vacation. One might say that Gregory was renting his marriage.

Penny was quite the financial wizard. She had managed to accumulate more than $200,000 in a credit union account, but she withdrew the money before trial and, according to the COA opinion, she ” … declined to reveal where she had placed the funds from that account” (¶ 4). She also managed to squirrel away some cash in several CD’s, but she cashed those in also, and when asked where the cash was, she ” … refused to reveal its location to the chancery court” (¶ 6).

Now, let’s stop right there.

What exactly is any self-respecting chancellor to do when confronted with a party who blatantly and wantonly refuses to comply with the express dictates of UCCR 8.05?

Rule 8.05(a) requires these disclosures:

A detailed written statement of actual income and expenses and assets and liabilities, such statement to be on the forms attached hereto as Exhibit “A”, copies of the preceding year’s Federal and State Income Tax returns, in full form as filed, or copies of W-2s if the return has not yet been filed; and, a general statement of the providing party describing employment history and earnings from the inception of the marriage or from the date of divorce, whichever is applicable …

There is no exception for separate property, or what one claims to be separate, or any other financial information. The rule specifically requires disclosure of actual income and expenses, as well as assets and liabilities, without exception.

The rule also states that:

The failure to observe this rule, without just cause, shall constitute contempt of Court for which the Court shall impose appropriate sanctions and penalties.

What the chancellor chose to do here was to divide the assets between Penny and Gregory, over Penny’s protestation that Gregory had not contributed to their accumulation, and that they were separate. In affirming the chancellor’s ruling, the COA pointed out that the burden was on Penny to prove the non-marital character of the assets (¶ 14), which she failed to do.

I guess that the chancellor decided that Penny had, in fact, disclosed the assets as required in UCCR 8.05, to the extent that she subjected them to adjudication, and her attempt to conceal them would not shield them from execution. Still, I find it troubling that a party could take the stand and expressly refuse to be candid and forthright about her assets, for a couple of reasons:

  • There already exists a “fudge factor” in most financial statements. It’s not uncommon for parties to overestimate their expenses, overlook overtime and bonuses, and minimize self-employment income. When a party takes the stand and professes to be hiding assets, that kicks it up to an entirely different level.
  • When one hides assets, no one knows for sure exactly how much money or value we are dealing with. Penny disclosed that there was $217,000 in the credit union account, but if she divulged the institution and account number, discovery might have found the real balance to be more like $300,000. And there is nothing in the COA opinion to show that Penny ever told the balance that had been in the CD’s.

I can’t say that I would have overlooked Penny’s intransigence.

I also don’t understand how Gregory’s lawyer did not raise cane before trial over the secretion of more than $200,000 in cash and CD’s. Gregory had a substantial stake in establishing their true value. The chancellor awarded him 40% of the credit union money. There is a big difference between 40% of 200,000 and 40% of $300,000.


October 23, 2012 § 3 Comments

There is more to proving your case for an increase in child support than simply proving that the payer’s income has increased.

In the case of Adams v. Adams, 467 So. 2d 211, 215 (Miss. 1985), the MSSC laid out 10 factors that the trial court must consider in determining whether an increase is warranted. You have to put proof into the record to support as many factors as apply in your case. The factors are:

  1. Increased needs caused by advanced age and maturity of the children;
  2. Increase in expenses;
  3. Inflation factor;
  4. The relative financial condition and earning capacity of the parties;
  5. The physical and psychological health and special medical needs of the child;
  6. The health and special medical needs of the parents, both physical and psychological;
  7. The necessary living expenses of the paying party;
  8. The estimated amount of income taxes that the respective parties must pay on their incomes;
  9. The free use of residence, furnishings, and automobiles; and
  10. Any other factors and circumstances that bear on the support as shown by the evidence. (citing Brabham v. Brabham, 226 Miss. 165, 176, 84 So. 2d 147, 153 (1955).

Expenses of private school are a legitimate factor to consider in modification proceedings, although the expenses are inadequate standing alone. Southerland v. Southerland, 816 So. 2d 1004, 1007 (¶13) (Miss. 2002).

Educational expenses may be properly considered with the increased needs of older children and their increased extracurricular activities in order to justify an increase in child support. Havens v. Brooks, 728 So. 2d 580, 583 (¶9) (Miss. Ct. App. 1998).

Remember that the keystone consideration for modification is a change in expenses of the child.  You must put on proof that establishes what the expenses were at the time of the judgment you are seeking to modify, as well as proof of the expenses at the time of trial.  Most importantly:  It is not adequate to prove only that the income of the paying parent has increased.

So here are a few tactics that may help:

  • Alter your 8.05 to add a column on both the income page and on the expenses pages for the date of the divorce or judgment you are seeking to modify. For example, if you are seeking to modify a judgment entered May 5, 2001, add a column headed “MAY 5, 2001.” Then get your client to itemize her income from back then, as well as the expenses. The expenses should show an increase; if they don’t, you have a probably fatal flaw in your case. It is not necessary that your client have documentation to support her figures, although that would help bolster her credibility. Your client can base her figures on her recollection, or, if she has an 8.05 from 2001, use that document. By juxtaposing the figures for the earlier date with current figures, you are making it easy for the judge to view how the expenses have increased. Also, you are providing proof in specifics, and not generally.
  • See if you can get the other side to admit the consumer price indexes for the relevant periods. You can use RFA’s or get the attorney on the other side to stipulate, thus establishing “the inflation factor” of Adams.
  • If you can’t prove the inflation factor any other way, ask your client based on her experience whether prices in general for goods and services for the children have gone up or down during the relevant period. At least you will give the judge something to sink her teeth into on the inflation point.
  • Do enough discovery to obtain copies of tax returns for the payer both at the time of the prior judgment and currently.
  • Be sure to discount expenses your client agreed to share. For instance, if your client agreed to pay one-half of the private school tuition, include only her one-half in the children’s expenses.
  • Expenses have to be reasonable. Don’t expect the judge to find a substantial increase in expenses based on activities that are out of proportion to the parties’ accustomed standard of living or are not necessary. A middle-income case in which the child has taken up a hobby of raising show ponies that cost thousand of dollars and involve expensive travel to shows around the country and abroad will likely receive negative attention, while a case in which the child has struggled in school and needs the added expense of tutoring and ADD medication would likely receive positive attention. 

Plan your modification case for success. Remember that you can use summaries and compilations to present your evidence. And the clearer and better your 8.05’s are, the greater you chances of success.


August 1, 2012 § 2 Comments

You’ve read here before about the case of Trim v. Trim and its ramifications for family law practitioners. Trim is the MSSC case holding that intentional filing of a substantially false UCCR 8.05 financial statement constitutes a fraud on the court, so that any judgment based on it is vulnerable to being set aside any time.

In the case of Rogers v. Rogers, decided July 24, 2012, the COA confronted the question of intentionality and exactly how substantial the falsehood needs to be to warrant setting aside the prior judgment.

At trial in 2009, Charles Rogers submitted a financial statement that showed his monthly adjusted gross income as $4,651.71. The court awarded child support and alimony based on that figure.

Later, in a 2010 contempt proceeding brought by his ex-wife Julianne, Charles disclosed in discovery that his gross income was in excess of $88,000 a year, which would produce considerably greater adjusted gross income.

The chancellor found that the discrepancy was “proof of a gross misrepresentation and fraud” upon the court, and revised the final judgment of divorce to increase both the child support and alimony.

On appeal, the COA noted that in his 2009 trial testimony Charles had expressly testified that his yearly gross income was $88,000, that the $4,400 figure represented two weeks’ pay, and he had been asked about it in detail both on direct and under cross examination. At the contempt trial, Charles steadfastly stood by his position that he had not intentionally failed to disclose or falsified the financial information.

Judge Carlton recited the well-known Mississippi rule on establishing the elements of fraud:

¶18. The general rule is well settled that fraud will not be presumed but must be affirmatively proven. Taft v. Taft, 252 Miss. 204, 213, 172 So. 2d 403, 407 (Miss. 1965). The Mississippi Supreme Court has held that in order to establish fraud, the burden is on the proponent to prove the following elements:

(1) a representation, (2) its falsity, (3) its materiality, (4) the speaker’s knowledge of its falsity or ignorance of its truth, (5) his intent that it should be acted on by the hearer and in the manner reasonably contemplated, (6) the hearer’s ignorance of its falsity, (7) his reliance on its truth, (8) his right to rely thereon, and (9) his consequent and proximate injury.

Koury v. Ready, 911 So. 2d 441, 445 (¶13) (Miss. 2005) (citing Mabus v. St. James Episcopal Church, 884 So. 2d 747, 762 (¶32) (Miss. 2004)). Additionally, “fraud . . . must be proved with clear and convincing evidence.” Hamilton v. McGill, 352 So. 2d 825, 831 (Miss. 1977). We have recognized that “[c]lear and convincing evidence is such a high standard that even the overwhelming weight of the evidence does not rise to the same level.” Moran v. Fairley, 919 So. 2d 969, 975 (¶24) (Miss. Ct. App. 2005) (citation omitted).

¶19. To vacate a decree due to fraud, the supreme court, in Manning v. Tanner, 594 So. 2d 1164, 1167 (Miss. 1992), listed the four necessary requirements that must be met:

(1) that the facts constituting the fraud, accident, mistake[,] or surprise must have been the controlling factors in the effectuation of the original decree, without which the decree would not have been made as it was made; (2) the facts justifying the relief must be clearly and positively alleged as facts and must be clearly and convincingly proved; (3) the facts must not have been known to the injured party at the time of the original decree, and (4) the ignorance thereof at the time must not have been the result of the want of reasonable care and diligence.

Applying the law of fraud to the case at hand, Judge Carlton concluded that the elements of fraud had not been proven, and that the chancellor’s judgment essentially setting aside the original judgment was, therefore, in error. Her opinion distinguished Trim in this way:

¶24. Julianne cites Trim v. Trim, 33 So. 3d 471 (Miss. 2010), in support of her argument that Charles’s inaccurate Rule 8.05 statement perpetrated a fraud upon the court. In Trim, George Trim submitted his Rule 8.05 statement listing the value of his company’s stock at $100,000. Id. at 473 (¶4). George and his ex-wife, Lisa, entered into a property-settlement agreement, which the chancellor later ratified, based on their assets and liabilities disclosed in their Rule 8.05 statements. Id. Lisa later discovered that George had misrepresented his stock value in his Rule 8.05 statement, and filed suit against him for fraudulent misrepresentation. Lisa’s expert valued George’s stock at $694,000 at the time of George and Lisa’s divorce. Id. at 474 (¶4). On appeal, the Trim court held that George’s intentional filing of a substantially false Rule 8.05 statement constitutes a fraud on the court, noting the chancellor’s finding that George’s Rule 8.05 statement drastically undervalued a major marital asset. Id. at 478 (¶17).

¶25. The case before us differs from Trim in that the record shows that Charles testified during trial and explained that his Rule 8.05 submission reflected a two-week pay period. In applying the standard for proving fraud to the facts and record before us, we cannot agree that Julianne met her burden of proving fraud by clear and convincing evidence. See Hamilton, 352 So. 2d at 831. Although Charles’s Rule 8.05 statement incorrectly reflected his monthly salary, the record shows that he explained the discrepancy several times in his trial testimony. As a result, we find that the chancellor erred in considering Charles’s Rule 8.05 statement only, and not also his trial testimony, in determining that Charles’s misrepresentation of his income rose to the level of fraud. In her July 6, 2010 judgment, the chancellor erroneously found that Julianne proved by clear and convincing evidence that Charles perpetrated a fraud upon the court. Therefore, the chancellor erred in vacating the prior decree and revising the final divorce decree by increasing the alimony award. Accordingly, we reverse and set aside the revised final judgment and reinstate the original divorce decree. We also reverse and render the increased award of $1,000 in rehabilitative alimony for thirty-six months, which was based upon the erroneous finding of fraud on the court. Since the record does not support a finding of fraud by clear and convincing evidence, we reinstate the chancellor’s original divorce decree. See Manning, 594 So. 2d at 1167; Shaeffer v. Shaeffer, 370 So. 2d 240, 242 (Miss. 1979).

So, unless and until the MSSC chooses to clarify the matter further, you will have to prove all of the elements of fraud by clear and convincing evidence in order to invoke Trim relief. Proof of discrepancies and oversights in 8.05 statements will not be enough to do the job.


December 5, 2011 § Leave a comment

The Mississippi Supreme Court approved an amendment to the financial reporting form requirement on December 1, 2011. You can read the entire, amended rule here.

The amendment adds the following language:

The disclosures shall include any and all assets and liabilities, whether marital or non-marital. A party is under a duty to supplement prior disclosures if that party knows that the disclosure, though correct when made, no longer accurately reflects any and all actual income and expenses and assets and liabilities, as required by this Rule.

The amendment adds two significant provisions: (1) The duty to disclose both marital and non-marital financial matters; and (2) the duty to supplement.

Both of the added requirements clarify the duty of disclosure and give the courts clearcut authority when called upon to address less than candid financial reporting.

If I were practicing nowadays, I would create a handout for my clients detailing the duty of disclosure and the duty to supplement, and I would have my client sign a receipt for the handout to keep in my file. It could come in handy when the client gets burned to a charred ember for false or inadequate disclosure, and the client tries to point the finger of blame at the attorney.

I would also take great care with my 8.05’s. I would go over them with my clients to make sure they are complete and accurate.

If you still aren’t convinced of the importance of adequate, timely, up-to-date and supplemented 8.05 statements, I invite you to read yet again about the disastrous (for the non-disclosing party) case of Trim v. Trim. Fair warning, however: don’t read Trim right before bed time; it might keep you awake.

I’ve tried to stress on this blog just how crucial it is to your case to present a well-prepared financial statement. Here are some links:


August 10, 2011 § Leave a comment

The Supreme Court’s Rules Committee is soliciting your comments on proposed changes to UCCR 8.05. The change would add this language:

The disclosures shall include any and all assets and liabilities, whether marital or non-marital. A party is under a duty to supplement prior disclosures if that party knows that the disclosure, though correct when made, no longer accurately reflects any and all actual income and expenses and assets and liabilities, as required by this Rule.

The change addresses both the Trim case non-disclosure of assets problem and the duty to supplement.

As I’ve said before, many cases are plagued by incomplete and woefully inadequate 8.05 statements. Often, the statement offered is months old. Maybe this rule change will be a cure. But then again, I am an eternal optimist, even when reality does not justify it.

If you’re looking for ideas about how to improve your own 8.05’s and financial testimony, you can find some here, here and here.

You can find the proposed new rule here. Deadline for comments is September 6.


March 14, 2011 § 9 Comments

I posted here ten tips for more effective financial statements.

Here are a handful more to use in your quest for financial statement perfection:

  1. Number the pages.  It saves the fumbling around as the witness and the court are trying to orient themselves to your questioning.  And use the page numbers in questioning the witness:  “Ms. Smith, look with me at page 3, line 6.”  That’s a lot clearer and easier for a witness to follow than asking “Now you say you spend $200 a month on clothes for yourself; how did you come up with that?” 
  2. Add or delete categories to meet your needs.  Your client spends $65 a month buying yarn and other materials to feed her knitting habit.  Why not replace an unused catergory like “Transportation (other than automobile)” with “Hobby Expenses.”  It would be a whole lot clearer than lumping it in with household expenses or something else, and will make it easier for your nervous client to understand while testifying.
  3. Don’t list a deduction as “mandatory” when it is not.  Deductions required by law, such as taxes and social security are excluded from adjusted gross income for calculation of child support.  Voluntary contributions, such as 401(k) deductions, health insurance premiums, and the like are not excluded from income.  When you list voluntary deductions as “mandatory,” you are at worst planting false information in the record, and at best confusing the record.  Your client does not know the distinction.  This is part of practicing law: advising your client how to properly fill out his or her 8.05.
  4. Attach a current pay stub.  Pay stubs are a marvelous source of information.  Quite often clients (and attorneys, I am sad to report) miscalculate income.  A current pay stub, preferably with year-to-date (YTD) info is a great tool to check the income figures.  Pay stubs also show the true amounts of overtime, bonuses, deductions for insurance and other items, andd retirement contributions. 
  5. Tailor your 8.05 to the case you are trying.  In a divorce case, you can have one column of figures showing your client’s current expenses, one showing the household expenses before the separation (to show standard of living), and a third column showing her anticipated expenses following the divorce.  In a modification case, add a column on both the income and expense side showing what your client’s income and expenses were at the time of the judgment you are seeking to modify. 

Of all the documents you admit into evidence at trial, the 8.05 is the one that the judge will study the closest and spend the most time poring over.  Make it a workhorse for your case.


October 14, 2010 § 4 Comments

In the case of Trim v. Trim, 33 So.3d 471 (Miss. 2010), the Mississippi Supreme Court held that “the intentional filing of a substantially false Rule 8.05 statement is misconduct that rises above mere nondisclosure of material facts to an adverse party,” and constitutes fraud upon the court.

So what is the significance of the Trim case for everyday practitioners?

Let’s say that your client isn’t deliriously happy with the outcome of her equitable distribution case, but she accepts it without an appeal.  Ten months later she comes in to your office mad as a hornet with sheaves of paperwork that prove conclusively that her ex substantially understated on his 8.05 the value of financial assets that he controlled, and the gain to your client could be in the hundreds of thousands of dollars.  Aha!  You think, we have the sorry so-and-so right by the [indelicate word deleted]!

But wait.  How are you going to get this before the court?  MRCP Rule 59 relief expired 10 days after the judgment was entered, and the appeal time ran 30 days after entry.  MRCP Rule 60 actions to set aside a judgment for fraud have to be brought within six months of the date of the judgment.   

That’s where Trim comes in.  By finding substantial misrepresentation on the 8.05 to be a fraud on the court, as opposed to fraud on the opposing party, the Supreme Court essentially ruled that there is no time limit to bringing an action to aside an action based on 8.05 fraud.  That’s because MRCP Rule 60 expressly states:  “This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, or to set aside a judgment for fraud upon the court.”

Trim has ramifications for lawyers in Chancery.  If you are in the habit of accepting your client’s 8.05 at face value without going over it with him or her, and without questioning behind it, you may be leaving your client open to an action to set aside that divorce judgment you thought you had laid to rest long ago.  The client may well question why you never went over the statement with him and counseled him about what to include and what not to include.  “My lawyer never told me that I had to list those three securities accounts; in fact, he never talked with me at all about what to include on the form.” 

In case you think this is the kind of thing that happens to somebody else somewhere else, think again.  Only this year, I set aside a divorce that was nearly two years old for substantial misrepresentation of financial assets that amounted to a fraud on the court.  It can happen to you.

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