I have seen divorcing spouses do really dumb things but this couple takes the cake and wins the award for Dumbest Divorcing Couple of the Year.

The case Shai v. Shai was tried in Palm Beach County Florida before Acting Circuit Judge Edward A. Garrison.  I thank family lawyer Jeanne M. Hannah of Traverse City Michigan for bringing this case to my attention in an ABA Family Law online forum. The Court’s Final Judgment (November, 2013) states in part:

The facts in this case are simply astounding.  During two days of trial counsel for each of the parties not only allowed, but affirmatively presented incriminating testimony that would make a rookie criminal lawyer cringe.

In what can be only described as an amazing display of chutzpah, the Wife, Husband and their business partner, HARRY GLANTZ, all testified that they are engaged in an ongoing multi-year criminal conspiracy to defraud the U.S. Treasury and evade income taxes by taking huge amounts of unreported cash from their business, AUTO CLINIC OF BOCA RATON, INC. The parties actually filed a written stipulation that they were taking cash from the business in an amount somewhere between $60,000 and $120,000 per year.

In addition, the parties candidly admitted they have placed assets in the Wife’s mother’s name, and run their household expenses through a bank account in the Husband’s brother’s name to avoid judgment creditors.  There is also a safe in the marital home containing in excess of $100,000 in cash.

Both parties come before this Court seeking equitable relief.  Neither deserve it…. Considering the legal effect of the evidence as a whole, the marriage is NOT irretrievably broken.  The Wife simply became dissatisfied with her “cut” from the illicit conspiracy.

This Court is unable to impose the appropriate remedy for the parties since this is not a criminal court, but, if the appropriate agencies do not read this transcript, or if the indictments are slow in coming, perhaps the parties may remain out of jail long enough to raise their fifteen year old daughter to the age of majority.  For now, the only appropriate remedy is for them to remain married to each other.

The Court then entered an order denying both the petition and counter-petition for divorce and ordering each to bear their own attorney fees and costs.

This case should never have gone to trial.  Some judges would have simply picked up the phone and called IRS. The divorce process should have been suspended the moment supported allegations of criminal tax violations were raised.

What should they have done?

    • Each party should have retained separate tax counsel
    • Forensic accountants, if retained earlier, should have been excluded from all conversations and evidence concerning potential tax crimes.  Why? Because the forensic accountant has no privilege and, if allowed access to the evidence, will be the star witness in the government’s case.
    • If accounting work was required, an independent accountant, called a Kovel accountant (so named for a notable case), should have been retained by that client’s tax attorney to assist him or her in rendering legal advice to the client. If properly retained, communications to a Kovel accountant are protected by the attorney-client privilege.
    • Most definitely, the retained lawyers should not have paraded their clients into court and had them make admissions under oath on the record of every element of the crimes of tax evasion under IRC Section 7201 and conspiracy to defraud the U.S. and commit tax evasion under 18 U.S.C. 371 (often called a Klein Conspiracy after the well-known case) as well as other crimes.

Some tax issues that may raise the possibility of tax crimes committed by one or both spouses include:

    • Habitual non-filing of tax returns.
    • Large omission of income or deduction of non-allowable personal expenses in previously filed returns.
    • Unreported offshore bank accounts or other financial accounts.
    • A false collection information statement (Form 433) having been submitted to an IRS Revenue Officer.
    • Habitual non-deposit of trust fund employment taxes for a business.

In any of these situations evaluating and addressing criminal exposure must take precedence to the divorce case.

© 2013 by Robert S. Steinberg, Esquire
All rights reserved

This entry was posted in DIVORCE, FBARS, JOINT RETURNS, MARRIED PERSONS, RETURNS, TAX, TAX CRIMES and tagged , , , , , , , , . Bookmark the permalink.

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