Financial transparency is a cornerstone of the divorce process. Understanding what documents you need to provide, how to uncover hidden assets, and what happens if a spouse is uncooperative is crucial. In his video blog, Ken Jewell explains the essential aspects of financial disclosure, from the types of documents required to the valuation of complex assets like stock options.
What Financial Documents Must Be Disclosed During Divorce?
During a divorce, all financial documents that show the financial viability of the marriage must be disclosed. This includes bank statements, investment statements, retirement account statements, paychecks, and tax returns.
The importance of these documents is threefold. First, they help determine whether spousal support is warranted and, if so, the appropriate amount. Second, if there are children from the marriage, these documents are used to calculate the child support obligation. Third, and perhaps most importantly, they are essential for asset division. This process determines how much each spouse is entitled to from each account and whether offsetting one account against another would be financially favorable for one of the spouses.
There are consequences for failing to disclose financial statements. The person refusing to disclose could be precluded from producing those documents at trial or having them considered during the litigation. Alternatively, a subpoena could be issued to a financial institution to obtain the documents. Ultimately, the documents will be produced one way or another, either directly from the person who controls them or from the non-party financial institution.
How Do You Uncover Hidden Assets or Income?
We can uncover hidden assets by studying the financial statements of the party producing them. Most people deposit money into one or two main bank accounts, and these statements are generally disclosed. It’s difficult to claim you don’t have a bank account when your lifestyle is clearly being funded by some financial resource.
By studying these financial statements, we can determine if money has been wired or moved to another account, whether offshore or domestic. This allows us to tally how much is being transferred out. If the funds can’t be recovered directly through a court order, a credit can be issued to the spouse who would otherwise be deprived of that money from an existing account in New York or elsewhere in the United States.
Examples of hidden assets include cash moved from one account to another, stocks, bonds, and insurance policies. All of these can be identified because they are paid for from one of the financial accounts that are generally disclosed.
In some cases, it is important to hire a forensic accountant. This is because the volume of transactions, receipts, and documentation can be overwhelming. It pays to have an accountant trace the funds to determine whether an expense is legitimate or disguised. While a worthwhile forensic investigation can cost into the high five figures, the accountant can produce a report and testify under oath at a trial to discuss their findings.
What Happens if Your Spouse Refuses to Provide Financial Information?
A couple of things can happen if your spouse refuses to provide financial information. First, they can be precluded from using it in the litigation at trial. Everyone must have a fair opportunity to receive disclosure of what the other party is doing, so we can determine who gets what when the assets are divided. Second, if someone refuses to disclose financial information, we can send subpoenas to non-parties to obtain the necessary records.
Can You Send Subpoena Records from Third Parties Like Banks or Employers?
Yes, we can send subpoenas to multiple sources of information. These sources can include financial institutions such as banks, investment houses, or retirement funds. We can also go directly to the accountant who may hold that information. While accountants can sometimes be resistant due to their relationship with their client, a motion to compel will generally secure the information.
We can also send subpoenas to employers, but we must be careful about how we do so to ensure we don’t do anything disruptive to the employee’s position at their firm.
What’s beneficial about getting information directly from a financial institution is that they have no interest in altering the documents. You receive the documents as they are. Sometimes this is even better because the spouse who is the custodian of the account may not have copies of checks, receipts, or other items that would answer questions about what happened with the money in the account.
A party going through a divorce should be represented by competent counsel. An experienced attorney has seen many of the antics another spouse might employ to hide something. We know how to get documents, review them, identify what is missing, and send deficiency letters to the other side. If they still refuse to produce records, we know when and how to subpoena those records and what the turnaround time is. We can then go through those records to understand what is happening in the accounts and ensure our client doesn’t lose out on something they are entitled to.
How Are Complex Assets Like Stock Options or Deferred Compensation Valued?
Stock options and deferred compensation are valued similarly but also differently. A stock option’s value is understood by looking at the stock grant, which is typically four years in duration, especially at a financial institution. Generally, the employee receives 25% of the promised stock options each year of the four-year payout.
For valuation in a divorce, we look at the number of days the parties were married up to the date the divorce action was filed. For example, if a stock option was granted in year one and the divorce is filed 200 days into that year, only the value of those stock options for the first 200 days is subject to equitable distribution. We create a fraction consisting of the number of days from the grant date to the divorce filing date, divided by the number of days in the year (365 or 366). We apply that fraction to the value of the stock options, and the non-titled spouse’s share is 50% of that amount.
Deferred compensation works a little differently. We look at what was contributed to the deferred compensation fund during the marriage. Anything deposited after the divorce action was started is considered separate property. We typically look at the value of the account at the time it’s going to be divided to include any appreciation or depreciation. We then back out any post-commencement contributions. This way, what was contributed during the marriage, along with its appreciation or depreciation, is considered and divided equally, 50-50, between the parties.
If you are navigating financial disclosure during your divorce, contact us to see how we can assist you.