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PCBB Banc Investment Daily September 02, 2015
Banc Investment Daily
September 02, 2015

Trusting The Cheating Internet

We must admit to at least a little amusement regarding the data breach of the illicit matchmaker Ashley Madison. The site was created for married people looking around for extracurricular activities, and who assumed that they could do so confidentially. What these customers found out the hard way, is that like most databases, it was possible for hackers to get in. Even worse for the users, in this case the hackers have published the client list. As your mom always said "cheaters never prosper." What is surprising is how many users of the site used work email addresses or their regular personal email addresses, rather than creating a pseudonym and email address for such activities. It is estimated that Ashley Madison has 32mm accounts with about 10mm of them in the US.
Being bankers, we thought first about the economic ramifications of the data hack and came to the conclusion that it could turn out to be an economic stimulus. Just think of the flowers, expensive chocolates and evenings in restaurants that will come as a result of a spouse getting caught. On the other hand, if the data release creates a surge of divorces, lawyer fees will surge and studio apartments will be rented.
Given the possibility of a surge in divorces, maybe it's a good time to review what banks should do regarding accounts for divorcing couples, in case one spouse decides to empty an account and clean out the other. There are specific rules here, so bankers should brush up on them regardless of any data breach inspired upsurge. For instance, as soon as an institution is notified that a party who holds a joint account has filed for divorce, withdrawals from those accounts are likely to be restricted with an Automatic Temporary Restraining Order (ATRO). An ATRO creates restrictions that prevent either party from altering the financial status quo once a divorce action begins. An ATRO prohibits either spouse from selling, transferring or borrowing against property, from borrowing against or selling life insurance of the other spouse, from modifying beneficiaries on accounts (including IRAs and retirement accounts) or insurance policies, from changing bank accounts, and finally from destroying or hiding assets. The ATRO may be accompanied by a Summons of a Petition for Dissolution. Both documents remain in effect until the final judgement on the divorce is signed by the court.
Divorce laws differ between states and in some states like NJ and SC an ATRO is rarely seen. Regardless of the document though, banks should take great care when notified of a divorce. If your bank receives an ATRO but not everyone in the bank is notified and as a result, and allows one of the prohibited actions to occur, it could mean liability for the bank. Therefore it is very important that your bank looks closely at the policies and procedures in place and trains staff in what should happen in the event of a divorce.
Interesting to note, the rules are different in the case of the death of an account holder; joint accounts with rights of survivorship are the only place survivors can access money (and other accounts must be frozen). It's the opposite in the case of divorce, where the danger lies in the joint tenants account. So death and divorce have opposite effects regarding access to funds - danger for the bank in the case of divorce if there is a joint account, danger for the bank in the case of death for all accounts except those held in joint tenancy.
Regardless of the final economic outcome from the Ashley Madison data breach, people will probably consider a great deal more carefully what they share on the internet. The other element underlined here is that it seems any database is hackable. All that is necessary is sufficient motivation on the part of the hacker.