The horse is clearly marital property. The horse is clearly worth more than $1000. Your publicly stated intent is to defraud your husband. So, yeah, it's illegal and your sister would be an accessory.

Why don't you take this above-board and try and negotiate that the proceeds be put in a trust for the children. That might solve some of you tax problems too.

If you do this prior to disclosing your intent to divorce, it probably will go more smoothly.