Fraud can lurk in every divorce case. After the divorce ends, lawyers, professionals, experts, and judges have all moved on to other cases. That is the time many clients and their divorce settlements can be exposed to catastrophic fraud – as one Tennessee woman is reported to have discovered.
Beale Street Blues
Lawyers act as fiduciaries to their clients during a family law case. Accountants, financial planners, and others can become fiduciaries after the divorce. In a fiduciary relationship, the duties involved need not be strictly legal; they can also be moral, social, domestic or personal.
In 2003, Ms. Loveland received approximately $1.3 million dollars in connection with her divorce. Knowing that these funds would be vital to her future retirement, she sought out an investment advisor who could manage her assets as she claims she had no knowledge or experience with investments, securities, or financial markets.
Ms. Loveland met with her long-time accountant, who referred her to his friend, Mr. Lentz. She then agreed to allow Lentz to manage her assets. She alleges she informed him that she knew nothing about finance or securities, and that she was relying entirely on his discretion and judgment to manage her investments for her.
Mr. Lentz reassured her that he would take good care of her and would manage her assets in a reasonable and responsible manner, ensuring that she would enjoy some return on her investments while protecting her principal asset base.
However, Ms. Loveland discovered to her shock that Mr. Lentz filled out an Options Account Request Form, purportedly on her behalf, in which he allegedly indicated that her investment objective was “Growth” and that her trading experience was “Extensive.”
According to the lawsuit, Lentz allegedly used “DocuSign” to forge Ms. Loveland’s signature to the Options Account Request, and is also alleged to have cut and pasted customer’s signatures onto forms without their authorization, and arranged to receive Loveland’s financial statements on her behalf.
Last summer, after discussing employment prospects for roughly an hour, Lentz told her:
“now for the bad news . . . you have no money left, it’s all gone.”
Loveland’s divorce settlement of around $1.3 million is now worth around $7,000 and she has filed a lawsuit in a Tennessee federal court against Lentz and his companies.
Florida Divorce Fraud
I’ve written about various aspects of divorce fraud before. Interestingly, Ms. Loveland’s case is not about fraud against her ex-husband, but misconduct which occurred after her divorce, involving the loss of her $1.3 million divorce settlement.
What happens if the fraud is caused by a spouse? In Florida, courts distribute the marital assets, such as bank accounts, between parties under the premise that the distribution should be equal, unless there is a justification for an unequal distribution.
Some of the factors to justify an unequal distribution of the property include things like the financial situation the parties, the length of the marriage, whether someone has interrupted their career or an educational opportunity, or how much one spouse contributed to the other’s career or education.
Another important factor is whether one of the parties intentionally dissipated, wasted, depleted, or destroyed any of the marital assets after the filing of the petition or within 2 years prior to the filing of the petition.
Dissipation of marital assets, such as taking money from a joint bank account, happens a lot. Less common are scams like forging names and diverting financial statements. The misconduct may serve as a basis for assigning the dissipated asset to the spending spouse when calculating equitable distribution.
Misconduct, for purposes of dissipation, does not mean mismanagement or simple squandering of marital assets in a manner of which the other spouse disapproves, such as day trading stocks. There has to be evidence of intentional dissipation or destruction.
However, if the fraud is not from a spouse during divorce, but mismanagement of your divorce settlement by anyone who is not your spouse, you are limited to civil causes of action in civil court, as opposed to family court.
Going to Graceland
Ms. Loveland’s lawsuit alleges a lot of damages. She was forced to surrender a Long-Term Care policy that she paid premiums on since 2004 and surrender a $250,000 Life Insurance Policy in which she had invested over $18,000.00 because she can’t pay the nearly $5,000 premiums.
Loveland alleges that as a result of Lentz’ actions:
“now, at the age of sixty-four, forced to work long hours for Uber and DoorDash merely to make ends meet.”
Ms. Loveland has sued in civil court for violation of the Tennessee Securities Act, breach of fiduciary duty, negligence, among other causes of action, and is seeking punitive damages.
The Wealth Professional article is here.