This is the second post in a four-part series about preparing for the financial strain of the California divorce process.
Untangling Your Marital Estate During Divorce: Saving Time and Attorney’s Fees During the Disclosure Process
As our first post discussed in greater detail, California Family Code Section 2104 requires spouses going through a divorce to provide to one another a list of their assets and debts, including supporting information and documentation. This document is called a Schedule of Assets and Debts. While the Schedule of Assets and Debts is a crucial document, it is but one of a number of disclosures required under California Family Code Section 2104. Yes, after you did all that legwork gathering account information, tracking down title documents, sending bank statement after bank statement to your attorney…you are only part way through the preliminary declaration of disclosure process.
California Family Code Section 2104 also requires spouses to exchange copies of all tax returns filed over the previous two years. Often both partners filed joint tax returns. For some, disclosing tax returns and business/investment opportunities may be a quick box they can check off. However, here in the heart of Silicon Valley, many clients often have a web of on-going and prospective investments, the non-disclosure of which can result in a serious and costly breach of the fiduciary duty owed to one’s spouse. Fortunately, our firm has a wealth of experience helping clients sort through a variety of equity-investment and -compensation related issues.
Now that you have compiled all of your assets and debts, tax returns, investments, etc., you are probably thinking this headache is over and done with. Not so fast. One of, if not the most crucial disclosure mandated under California Family Code Section 2104 remains – the Income and Expense Declaration. On its face, filling out an Income and Expense Declaration sounds straightforward – it is a document wherein you disclose all of your income and expenses.
‘Income’ is not limited to your salary. You must disclose all sources of income – salary, bonus, overtime, investment income, income from self-employment, and so on. You must also provide your last two months of pay stubs along with documentary proof of any other source of income. Next you must spell out all of your recurring monthly expenses – mortgage or rent payments, child care costs, health care costs, groceries, insurance, entertainment…even your laundry and cleaning related expenses!
Given everything stated above, it probably goes without saying that gathering all of the information and documents required as part of the disclosure process can be a laborious process. This is particularly true if you have a large and complex marital/community estate. The good news? Any disclosure-related legwork a client can do on their own behalf, means less time an attorney has to devote towards preparing the disclosures. This does not mean your attorney should not or will not play an active role in preparing your disclosures. But, more often than not, the more thorough you are in preparing and providing your disclosure information, the less follow-up emails and phone calls will be necessary from your attorney. Not only does that save you time, it can also result in substantial cost savings when it comes to attorney’s fees. Gathering this information in advance can also alleviate the stress of feeling under a time crunch as production deadlines approach. The sooner this disclosure is exchanged, the sooner attorneys are able to shift from the ‘information gathering’ phase towards the ‘reaching a resolution’ phase.
The Income and Expense Declaration is also used by judges and family law attorneys when determining and/or negotiating short- and long-term child and/or spousal support. This includes support one spouse may pay to the other while the dissolution proceeding is pending. It is common for each spouse to prepare multiple Income and Expense Declarations throughout the divorce process. By preparing a thorough Income and Expense Declaration from the outset, you will not only cut down on the time and costs necessary to prepare future iterations, you can also paint a credible picture of how your divorce will affect your overall financial situation which can play a huge role in permanent support determinations.
When going through a divorce often everything seems daunting, and we are not trying to exacerbate that stress with this post, in fact, our next post will discuss tangible finance-related steps one can take during the divorce process to mitigate stress. At the end of the day, it is unlikely you will be able to do all of this by yourself. Fortunately, we are here to help guide you through it. We encourage you to contact our California family law attorneys at Johnston, Kinney & Zulaica LLP to learn more about how we can help you during this process.
Stay tuned for the third part of our series on Financial Preparedness Before Navigating Divorce.
By: Matt Jennings
Attorney at Johnston, Kinney & Zulaica LLP