Actual Fraud vs. Constructive Fraud

In divorce matters, a spouse may be exposed to constructive fraud through the waste of community assets by the other spouse. In community property states, spouses have a fiduciary duty to each other and place trust in each other to be responsible for the community estate. Waste of community property assets occurs when a spouse does not know or consent to an action by the other spouse that depletes the marital assets. These actions include hiding assets or cheating.

During the period leading up to the court action, it will be necessary to follow the money. Under Section 7.009 of the Family Code, reconstitute the estate to be divided in a just and right manner by tracing the items acquired and hidden and the actions to show what transactions took place that depleted the marital assets. The evidence discovered will generally shift the burden of proof to the spending spouse to show that the spending was fair.

If, based on the evidence obtained through tracing of expenditures, a court finds that a spouse spends too much money without consent or knowledge of the other spouse, the burden of proof transfers to the spending spouse to show the spending was fair.

If the court finds that the marital estate was affected, the court will employ the remedy of monetary judgment or distribution of a more significant portion of the marital estate to the wronged spouse.

As a former IRS Special Agent, based on our training and expertise, we can aid your clients in proving actual fraud and constructive fraud, and we can develop evidence of waste of the community from bank and brokerage records and other documentary evidence. We are not attorneys and do not practice law. We only review the law and the court’s findings for understanding.

If you are a Law firm that needs a forensic accountant to help in a fraud matter, call Edmond J. Martin, Chief Investigator, at Sage Investigations, LLC or email or call 512-659-3179. Visit our website at Sageinvestigations.ComClick to read about the Sage Team and their CVs.