Quick answer: Most often, no, But you can make a legal case for yourself if you are choosing to divorce your spouse for financial infidelity.
Financial infidelity is grounds for divorce in “at fault” states and also in a no-fault divorce. In this post I’ll walk you through the different grounds on how you can approach financial infidelity from a legal perspective, and I’ll also share the story of a couple on my podcast who are working through the consequences after discovering financial infidelity.
Can You Actually Sue?
Direct legal action against a spouse for financial infidelity is generally not possible in most legal systems. However, during divorce proceedings, there are options to address the financial harm caused by such behavior. If a spouse has hidden or wasted marital assets due to financial infidelity, the court can be asked to adjust asset division or award compensation.
This typically happens as part of the divorce process, not as a separate lawsuit. While you can’t usually sue directly for financial infidelity, divorce and marital property laws offer ways to deal with the financial consequences of such actions.
The legal system aims to provide remedies for the economic damage caused by financial infidelity within the context of ending the marriage.
In other words:
Direct lawsuits for financial infidelity:
- Limited options in most jurisdictions, as financial infidelity itself is not typically a standalone cause of action
- Some states may allow tort claims for intentional infliction of emotional distress in extreme cases
Indirect legal actions related to financial infidelity:
- Divorce proceedings: Financial misconduct can impact asset division and alimony decisions
- Criminal charges: In cases involving fraud, forgery, or theft
- Civil lawsuits: For specific actions like identity theft or unauthorized use of credit
- Breach of fiduciary duty: In some jurisdictions, spouses may have a fiduciary duty to each other
Factors affecting legal recourse
- Jurisdiction-specific laws and precedents
- Severity and nature of the financial misconduct
- Availability of evidence to support claims
Scenarios Where Legal Action May Be Possible
Here are a few scenarios where you might have legal grounds to gain:
Fraudulent activities involving marital assets
If your spouse has secretly sold jointly owned property or drained shared accounts for personal use without your consent, this could be grounds for legal action.
Hidden assets during divorce proceedings
Concealing income, investments, or property to avoid fair division during divorce is illegal. Underreporting the value of assets to gain an unfair advantage will not be looked upon favorably by the courts.
Forged signatures or unauthorized use of credit
If your spouse has opened credit accounts or taken out loans in your name without your permission, this is not only a breach of trust but could also be considered criminal behavior.
Identity theft within the relationship
Using your personal information to obtain financial benefits without your consent is a serious violation that can have significant legal consequences.
Coerced debt
If your spouse has forced you into taking on debt through manipulation or threats, this could provide strong grounds for legal recourse.
Legal Options Available
Depending on the severity of the financial infidelity, here are a few legal options you can consider:
- Divorce Process: During the divorce, you can bring up your spouse’s financial misconduct. Courts can adjust asset division and spousal support based on their actions. If they’ve been playing fast and loose with the family finances, the judge might balance the scales in your favor.
- Civil Legal Action: In some cases, you can file lawsuits for fraudulent activities or violations of financial responsibilities. For example, if your spouse secretly sold joint assets or drained accounts, this could be grounds for a civil lawsuit.
- Criminal Prosecution: If we’re talking theft, forgery, or significant fraud, law enforcement might get involved. Your spouse’s financial infidelity could cross over into criminal territory.
Factors Courts Consider in Financial Infidelity Cases
If you decide to proceed with legal action, here are some factors courts consider when handling cases of financial infidelity:
- Extent of financial damage: The judge will look at how much money was hidden, wasted, or misused. How long did the deceit last? How much financial harm did it cause?
- Intent behind the financial infidelity: Was your spouse deliberately hiding money, or were they just clueless? Malicious intent vs. an honest mistake can make a big difference.
- Impact on the family’s financial stability: The judge will consider how your spouse’s actions affected your family’s current and future financial situation. Did it compromise your children’s financial security? Are you left struggling to recover?
Impact of Financial Infidelity on Divorce Settlements
When financial infidelity leads to divorce, it can significantly affect the legal proceedings and outcomes. Understanding how courts view these actions is crucial:
How financial infidelity is viewed by divorce courts
Divorce courts take financial infidelity seriously because it undermines the trust needed for a fair divorce settlement. When one spouse conceals assets, income, or debts, it disrupts the equitable division of property. Courts view this behavior as deceitful and, depending on the jurisdiction, may impose penalties or adjust settlements to account for the dishonesty.
In many states, judges have significant discretion in these matters. They can penalize the offending spouse by awarding a larger portion of the marital assets to the innocent spouse. In some cases, the deceitful spouse might even be ordered to pay additional fines. The goal here is simple: fairness and accountability. Courts want to ensure that the innocent spouse isn’t left shortchanged because of their partner’s financial misconduct.
Potential impacts on asset division and alimony
Courts don’t take kindly to deceit, and this can directly affect both asset division and alimony decisions. Here’s what you need to know:
- Asset Division: Usually, when it comes to dividing marital assets, courts aim for an equitable split. However, if financial infidelity is the triggering factor leading to divorce, the scales might tip in favor of the innocent spouse. For instance, if one spouse has hidden a significant amount of money or assets, the court might award a larger portion of the discovered assets to the other spouse. This adjustment helps balance out the financial dishonesty and ensures a fairer outcome.
- Alimony: Financial infidelity doesn’t just affect how assets are divided—it can also impact alimony decisions. Judges may increase the alimony payments to compensate the innocent spouse for the financial deceit. Alternatively, the guilty spouse might be required to pay a lump sum alimony to make up for the hidden assets or the financial harm caused. The idea is to ensure that the innocent spouse is not financially disadvantaged because of their partner’s underhanded actions.
Challenges in Suing for Financial Infidelity
Before diving into legal action, it’s crucial to understand the hurdles you might face. The first challenge is the burden of proof. In the legal world, suspicion isn’t enough—you need solid evidence to back up your claims. Proving financial misconduct can be tough, especially if your spouse has been careful to cover their tracks. This means gathering bank statements, account records, and any other documentation that can support your case.
Then, there’s the statute of limitations. Legal action comes with a time limit. Once you discover financial infidelity, the clock starts ticking, and you don’t have forever to decide what to do. Waiting too long can limit your options, so it’s important to act quickly.
Another challenge is the cost of legal proceedings. Hiring attorneys, consulting financial experts, and potentially engaging in prolonged litigation can quickly add up. You’ll need to weigh whether the financial recovery you’re hoping for is worth the investment of time and money. Sometimes, the process can be just as draining as the financial betrayal itself.
Alternatives to Lawsuits
For many, the emotional toll of a lawsuit, combined with the financial strain, makes it a daunting prospect. Fortunately, there are alternatives that can help you resolve financial disputes without the stress of going to court.
Mediation and arbitration offer a less formal, often more cost-effective way to find a resolution. In mediation, a neutral third party helps you and your spouse reach an agreement that works for both of you. Arbitration, on the other hand, involves a third party making a decision on your behalf. Both methods can help you avoid the courtroom.
Another approach is collaborative law, where both parties and their attorneys commit to resolving the issues without going to court. This method focuses on problem-solving and open communication, often bringing in financial experts or therapists to assist. It’s about finding a way forward.
Finally, sometimes the issues run deeper than just money. Financial therapy or counseling can be an invaluable tool, whether you’re trying to reconcile or move forward with a divorce. It helps address the underlying emotional issues related to financial infidelity, providing a space to heal and, if possible, rebuild.
A Real Example of a Couple Working Through Financial Infidelity
Let’s bring this to life with a real story. Meet Jan and Emily, a couple in their mid-thirties. They recently bought a house. But during the process, Emily found out Jan had taken out a $100k loan without telling her.
Jan’s reasoning? He thought the loan would help him redirect his career and eventually benefit their lives. But the truth is, he didn’t have a solid plan, and it all spiraled out of control. Emily, who’s the higher earner between them, felt completely blindsided.
Jan: [00:05:21] Well, so we were applying for the house and I had initially gotten a small loan during COVID.
Emily: [00:05:36] We did together.
Jan: [00:05:39] Together we got the loan, and then at some point, I received an extension to increase that loan. Initially, I just applied for a small amount, just thinking this would be a good backup or an emergency fund scenario. And then when I got approved, I got approved for the entire loan amount, which was way more than I was honestly looking for. And then I sat with a couple of days and then I was just thinking that this would help me redirect my career. I was just hoping that that would be able to get me back on track.
Ramit Sethi: [00:06:23] How would the extra loan money help you get on track?
Jan: [00:06:27] Well, I was thinking, “Okay, cool. I can use this to start some kind of a small business or use it to generate some income for the lifestyle that both Emily and I want.”
Ramit Sethi: [00:06:43] How much was the loan for?
Jan: [00:06:45] The initial loan was for $36,000 and then got another $100,000 on top of that, which is the 100 she didn’t know about.
Ramit Sethi: [00:06:56] Aha. And if I were to give you $100,000 in cash right now, would you know what to do with it?
Jan: [00:07:05] Given what I know right now, not right now, but two years ago I did because the market looked a lot different. I would be a lot more cautious now.
Ramit Sethi: [00:07:17] Wait a second. You can’t say, “Two years ago, I know where the market would have gone, so I would have put it in this stock.” Okay, that’s not how it works, but okay. How were you thinking you would make money from that 100k?
Jan: [00:07:32] I was thinking that I could use it to maybe buy some rental investment properties or start some kind of a small business on my own. Both of us work in the real estate field. So now, thinking back, it was totally a bad idea, but at the time it seemed like my solution out. And then I took it and then I didn’t tell Emily about it, and then it just became this snowball that I became ashamed of. And that’s how we ended up her not knowing about it.
Jan owned up to his mistake, and they’ve started working through it together.
Jan: [00:13:56] It sucks to know that I was the one that made her feel that way. And I wish I didn’t. There was a certain part of me that was probably ashamed of me needing this help in the first place. And then, the shame turns into, like, “Okay, I never going to tell you.”
Ramit Sethi: [00:14:19] Yeah. One of the things I noticed is that you mentioned you didn’t think about anything that could go wrong. It was all about all the things that could go right. Classic lack of risk management. And this is the thing that’s not sexy. People go, “Oh, my God, I saw somebody on TikTok telling me I can buy 10 houses with 50k down,” and they go, “I’m going to be rich.” But they never want to take time, even 25 minutes to think about what could go wrong.
Jan: [00:14:53] Sure.
Ramit Sethi: [00:14:54] Emily, you’re nodding. Does this resonate with you at all in terms of Jan’s decision?
Emily: [00:15:00] Plus, I was more nodding along with just the not weighing the risks. It was just so out of character. And that’s how I know that emotionally, the weight of just wanting to see a bigger number in his bank account caused him to do something that is truly so out of left field for him.
Ramit Sethi: [00:15:23] That must worry you because if he could do that, then what else is he capable of doing so that he can have more money?
Emily: [00:15:34] I think I don’t feel scared that he’s going to do it again. I think I look at the way that he kind of opened up emotionally about things and some of the stuff that I said would need to happen in order for me to feel like he was doing the work. Because I felt like the last couple of years there was a lot of emotional assistance that I couldn’t provide, that I wanted him to see a therapist.
I felt that was really important. And he did start doing those things because I think that’s a script that I can’t break down that I need someone else to do because I didn’t come from that. So I don’t know how to talk– I don’t have a lot of, I think it’s silly to a certain extent, so I just don’t have the tools to talk with him about it.
Long story short, I don’t feel scared that he’s going to do it again. I think it was really out of character and I think it came from a place of severe insecurity. And it was so long ago. That was still in 2020.
Ramit Sethi: [00:16:48] Mh-hmm.
Emily: [00:16:49] Yeah, that was still in 2020, and I only found out about it in the middle of 2022. And I think that we as a couple have come a long way, and he sees what I’m capable of doing in my career, and I think that that gives him a little bit more security where maybe he knows that those things are not necessary to do when they have that much risk.
Ramit Sethi: [00:17:15] Okay. A lot of good things there. The fact that you encouraged him to see a therapist, Jan, the fact that you are doing that, the fact that you’ve had a lot of healthier conversations, all this sounds very positive. Mistakes happen, bad decisions happen. Jan, you’ve said it multiple times today you apologized. Emily, you’ve accepted, it seems like and it seems like you’re both moving forward. So I’m really pleased to hear you talking so openly.
Despite the betrayal, Emily understands that Jan’s actions stemmed from a desire to improve their lives, even if his approach was flawed. She has encouraged him to seek therapy, and Jan has committed to making positive changes.
Together, they’re navigating this challenge with open communication and a shared goal of building a stronger, more trusting relationship.
Listen to the episode to learn more about how this infidelity has affected their lives and the steps they will take going forward.
Steps to Take If Considering Legal Action
Facing financial infidelity is tough, but there are actionable steps you can take to protect yourself:
Monitor and Stay Calm:
- Pay attention to unusual financial behavior, like unexpected withdrawals, hidden accounts, or changes in spending. Document anything suspicious.
- Keep your emotions in check. Confronting your partner without solid evidence can make things worse.
Gather Evidence Before Confronting:
- Log all suspicious activities, including dates and amounts. This will strengthen your case if needed.
- Get copies of bank statements, credit card bills, and tax returns. Look for any inconsistencies or unfamiliar accounts.
- Keep any emails, texts, or other communications that suggest financial dishonesty.
Consult Professionals:
- If financial infidelity has caused serious harm, a divorce attorney can advise you on legal options and protect your interests.
- If you suspect hidden assets, a forensic accountant can find discrepancies and provide the analysis needed for your case.
By following these steps, you can approach the situation with a clear plan, ensuring both your financial and emotional well-being are protected.
Having a Better Money Relationship with Your Partner
Resorting to legal action against your partner can be emotionally and financially draining, but it’s important to remember that financial infidelity often points to deeper issues in the relationship that may have been brewing for a long time beforeWhether you decide to reconcile or go your separate ways, working on your own relationship with money is essential for both of you, and your partner
If you’re ready to improve how you and your partner handle money together, check out my book, Money for Couples, where you’ll learn:
- Exactly what to say when talking about money, even if your partner resists talking about money.
- Steps to create a joint vision of your Rich Life—one that fits you as an individual and as a couple.
- How your past affects the way you feel about money, and how to change your story to one that feels positive and future oriented.
- And much, much more.
