August 11, 2009
By: Barry Armata
What Financial information do you need in your divorce?
Obtaining and understanding a couple's financial information is critical in either a divorce or uncoupling situation. It is important to have knowledge of and an appreciation for parties' incomes, expenses, assets and debts. As a matter of fact, in a divorce proceeding or child support hearing, the court is obligated by law to review the financial affidavits of the parties as to their current economic situation. It is incumbent on the parties to present accurate, truthful and complete financial affidavits that contain this information and are sworn to under the pain and penalties of perjury.
Sometimes, the gathering, organizing and presentation of this information can be daunting and overwhelming, especially at a time when emotions rule the day and all are fearful of the future. At Armata & Davis, LLC. , we pride ourselves on making this process less stressful. Our trained, experienced staff and attorneys work with you to educate you as to how to gather this information so that you can verify its integrity, understand its meaning and know where to go if you have questions in the future. We empower our clients so that they are in partnership with us, keeping their legal costs down and gaining an understanding of their finances and future. As with many situations in life, the more information you have and the more you understand the importance of that information, the easier it is to make decisions.
Among the information and documentation you may be asked to obtain are the following, although they do not necessarily apply in every case:
- Tax returns: This is a good start to understanding a family's income and how it is derived. Tax returns show not only wages earned, but income received from self-run businesses, rental properties, dividends and investments, liquidation of certain assets including sales of stocks, cashing out of retirement accounts such as 401K and IRAs, etc. Tax returns also show deductions taken including other taxes paid, assets depreciated and other useful information. By looking at tax returns over a series of years, we can gain insight into historically how a family's finances have gone and whether streams of income are consistent or an anomaly.
- Social Security statements: These statements show what a person has earned for social security purposes over their lifetime. They also show benefits that are projected for both recipients and their spouses. These statements also can tell you when you are eligible for social security benefits and what those benefits will be. They are also a record of what your spouse has earned over time.
- Personal Financial Statements: These are statements that are required when taking out a mortgage or loan, including those for cars, home equity loans, financial aid, etc. These statements often require a complete disclosure of assets, debt, income and expenses. Sometimes they appear in the form of an application for loan such as when you apply for a car loan or lease, a personal loan or mortgage.
- Credit reports: Credit reports are easier to obtain than ever. They a good record of your credit, including your credit score, the balances of loans and debts, debts listed in your name for which you are legally liable and other useful information. These reports can also help you understand your ability to borrow.
- Statements from financial institutions: These statements help show spending patterns, balances of accounts, history of accounts including deposits and withdrawals and how accounts are titled. These statements can come from banks, credit unions or other financial holding companies. Many of these statements come monthly, but they can also come quarterly: 3/31, 6/30, 9/30 and 12/31.
- Documentation of income and deductions: pay stubs are a great way to show what a person earns and the deductions that are coming from that income. These deductions can show useful information including the taxes paid, costs of insurance, monies being paid to retirement savings, loan payments, garnishments, etc. Aside from pay stubs, the income can also be documented by 1099's received, check stubs, deposit slips, and the like.
- Retirement statements: Many retirement plans (IRAs, 401-ks, 403-bs, etc.) will send statements on a regular basis, often quarterly. These statements show contributions, withdrawals and gains, including investment returns. Retirements statements for defined benefit accounts such as pensions and annuities will show anticipated pay-outs and dates. This information is important for pulling together a financial plan during a divorce.
- life/disability insurance statements: These statements are needed to piece together the amount of insurance covering a person, the type of policy (whole, universal, term) the costs of the policy, what the policy covers, and if there is any cash build-up available. It is also useful to show who owns the policy, the beneficiary and whose life it insures. For disability polices, the statements show the amount to be received if the insured is disabled, the cost of the policy and the terms and offsets that may apply if a person is disabled.
- Certificates of Deposit: When a certificate of deposit is opened with a financial institution certain documentation is given showing the amount of the certificate, the interest rate to be paid, the maturity date of the certificate and the penalty for early withdrawal. This information can be helpful in determining financial issues in a divorce.
- Appraisals and independent valuations for assets: Often when people purchase a valuable asset there is some third party determination of its value. This can come in the form of an appraisal or bill of sale or other documentation. If the asset is insured, the insurer will require some evidence as to its value. This information can prove helpful in determining the value of certain assets. Most commonly, we will look at real estate, pension and, in the case of self-employed individuals, business evaluations.
- Debt Statements: These are the monthly statements received from various creditors, including credit cards companies, mortgage lenders, student, car or personal loan services, etc. These statements show much information including: in whose name is the debt, current balances, required payments, interest rates, history of late charges, etc. They statements may, as in the case of credit cards, show purchases, credit availability, fees, and other information that can be helpful.
- Wills/Trust: Sometimes there are financial resources available outside what the couple is earning or has received. These resources can come in the form of inheritances, trust income and the like. While these assets and income streams can sometimes be considered as non-marital and not part of the marital estate, it is important to document and disclose these income sources to insure the exclusion of the asset from the marital asset as well as to determine its contribution toward in creating financial solutions that meet a person's goals. Many inheritances are speculative and the courts are only interested in those that have actually become certain, even if the funds have not yet been received. As to a trust, the trust will dictate the terms of distribution and it is important to understand what those terms are, the amounts to be tendered, and the timing of any distribution.
- Self employed- business records: If a person is self-employed it is important to understand that person's cash flow and business, including it value. In order to determine that, records should be reviewed to understand what the business receives for income, the amounts of expenses paid, its inventory including assets and tools, accounts receivable, etc. From that information, a sense of what the individual earns from that business can be determined, including any "perks". Also, a sense of the financial health of the business can be made for long-range planning.
- Other documents that define you or your spouse financially: This list is not meant to be exhaustive and there can be other documentation that defines your financial status. This can include documentation about personal injury or other lawsuits, workers compensation claims, bankruptcies, etc. It is important to bring that information to the table so that financial plans that meet your goals can be designed.