Monthly Archives: August 2013

Is Formal Discovery Required in a Divorce?

by Larry Goldsmith, C.P.A., J.D., M.A.F.F.

In a recent case (which happens to be someone I know) the Appellate Court of Illinois ruled:

“That if you fail to engage in formal discovery to ascertain the respondents’ net worth or assets that were or were not disclosed, then you did not act diligently and therefore lose the right to reopen the judgment.”
In Re Goldsmith 962.N.E. 2d 517 (2011)

356 III.Dec.832

As a forensic Certified Public Accountant, I receive many telephone calls and emails every month from women in the process of divorce requesting my help with what they believe to be dissipation of income prior to their divorce. Unfortunately, many of these women were not informed by their attorney that an expert witness was required to qualify financial facts and the financial expertÂ’s opinions were required to be disclosed before trial.

Again, In Re Goldsmith,

… each party acknowledged in the M.D.A. that there was limited discovery, warranted full and complete disclosures and if property was not disclosed, then a court may distribute the property as delineated in 750 ILCS 5/503.”

In this case, the respondent was a CBOE trader and prior to the marriage the parties entered into a prenuptial agreement. At issue for the Appellate Court to consider were three assets that the petitioner labeled as undisclosed:

  1. Litigation income from a settlement of a premarital asset: $1.3 million.
  2. Jointly held Bank stock ownership listed as bank assets on the unsigned financial affidavit: $300,000.
  3. Income tax refunds from amended tax returns filed after the divorce was finalized, on jointly file tax return years.

In the Courts analysis the Court stated that, “the petitioner bears the burden of establishing her right to relief”, Smith v Airoom Inc.  114 ILL2d209,221.  102 111 Dec.368, 499 N.E.2d 1381 (1986). The petitioner must show the evidence was not known to her at the time of the proceeding and could not have been discovered by the petitioner with the exercise of reasonable diligence.

“Due diligence is a reasonableness standard of a petitioners conduct, under the circumstances.”

Paul V Gerald Adelman & Associates Ltd. 223 ILL.2d 85.99-101, 305 Ill.Dec.556.858 N.E. 221 (2006)

Here the Court ruled that the petitioner failed to exercise due diligence when she elected to accept the “respondent’s representations and warranty” over the opportunity to engage in formal discovery.

Conclusion:

The Court has placed a burden upon the divorcing parties and their attorneys to verify disclosures of assets and initiate meaningful discovery. Sometimes this is not a simple matter and may require bringing in an experienced forensic accounting team to ensure that all financial assets have been brought to light. Just remember that after the trial is too late – an investigation must be initiated and concluded in a timely manner.

 

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of individuals and mid-size companies. E-mail me at larry@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.