Courts See Through the Financial Shell-Games of the Wealthy
In a recent blog, we talked about some of the unique issues that can arise when super-rich couples get divorced. However, some aspects of an affluent divorce are the same as for “regular” couples, but simply play themselves out on a grander scale.
For example, a recurring theme in many divorces is that one spouse may try to hide assets or put them beyond the reach of the other. The difference for the ultra-wealthy, is that they have so many more assets to hide.
An illustration of this is found in an older case called Lynch v. Segal, where the husband was an extraordinarily wealthy man who had paid little support since separating from the wife, and had stopped paying entirely soon after. The court concluded that he had shown a history of setting up a complex web of corporations, legal trusts, and transactions involving unnamed beneficial owners and his own lawyers (some of whom were in other countries), all as a means of distancing himself from his assets. From the perspective of his ex-wife and children, it appeared that he had no assets at all. The court saw through the corporate shell-game, and the husband’s extensive efforts at evading his support obligations. Among other things, it ordered him to pay more than $8 million in lump sum spousal support.
Similarly, in the more recent decision in Vo v. Voong the court concluded that the husband, who was a very successful real estate developer, was taking furtive steps to dissipate assets post-separation. During their 10-year marriage the couple had lived a lavish lifestyle, but once they split up the husband started looking into setting up secret offshore accounts in Panama and Switzerland, and had restructured his corporations behind the wife’s back. He grossly underreported his income, bought property in his name alone, and was not transparent about his business dealings or finances.
When confronted by the court about financial and other inconsistencies in the evidence, the husband tried to downplay the opulent lifestyle he and the wife led during the marriage, and offered nothing more than bald denials about his alleged fraudulent dealings. The court described an instance of this:
[The husband has since disclosed] that in October and November 2017 i.e. just before his asserted date of separation, he drew over $1.3 million on the line of credit and virtually eliminated any equity in the property. He says that he drew the money for his business. But he has not produced any documents such as corporate ledgers to show where the money went. Nor does he show a receivable from any of his businesses on his sworn financial statement. He apparently says that he just gave $1.3 million to businesses owned principally by his siblings or others and that should be enough to satisfy [the wife] that he has no funds available to meet his obligations to her and their children. He is wrong in that regard.
The court redressed the husband’s hide-and-seek approach to financial disclosure by making inferences (i.e. educated guesses) about his income for child and spousal support purposes. It also made an order that he was prevented from disposing assets prior to the divorce trial; otherwise the mother would likely be left with a “pyrrhic victory” when that time came.
These cases involve one spouse hoarding assets, or concealing them from the other. But in divorce disputes involving the very rich, another alternative strategy is not necessarily to hide assets, but rather to load up on new ones after separation. These spending sprees are deliberately designed to leave the payor spouse in a position of orchestrated impecuniosity; this in turn sets him or her up to claim they are out of funds to pay support or lump-sum equalization to the other spouse.
Either way, the courts see through this kind of strategy, and identify it as the deliberate dissipation or concealment of assets. Where warranted by the facts, the courts will then step in to make orders to preserve all assets pending the divorce.
For the full text of the decisions, see:
Lynch v. Segal, 2006 CanLII 42240 (ON CA),
Vo v. Voong, 2019 ONSC 5061 (CanLII)