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Division of Community Assets & Debts

Disclosure in Divorce

By | Child Support, Division of Community Assets & Debts, Divorce, Legal Separation, Spousal Support | No Comments

Spouses often wonder whether they have to disclose their separate financial accounts a divorce proceeding.  How about accounts held only in their name? The answer to both questions is yes.

California Has Mandatory Disclosure Requirements in Divorce

California law requires the spouse initiating the divorce case (referred to as “Petitioner”) to complete a Preliminary Declaration of Disclosure packet and serve the packet on the other spouse. (Family Code § 2104)

The exception to this disclosure requirement is when the Petitioner serves the Summons and Petition on their spouse via publication.  If service of the Summons and Petition was completed through publication (versus personal service or through the notice and acknowledgment of receipt process) and the recipient spouse has not filed a formal Response and is in default, the Petitioner does not have to complete the otherwise necessary disclosure paperwork.  (Family Code § 2110)

If the responding spouse (referred to as “Respondent”) filed a formal Response with the court, he or she must also complete and serve a Preliminary Declaration of Disclosure packet of their own.

The 3 components of a Preliminary Declaration of Disclosure are the following:

  1. Declaration of Disclosure (FL-140)
  2. Income and Expense Declaration (FL-150)
  3. Schedule of Assets and Debts (FL-142)

You Must Exchange Copies of Your Tax Returns

The Declaration of Disclosure form is not filed with the court but must be served with the disclosure packet.  Under Family Code § 2104, the “preliminary declaration of disclosure shall include all tax returns filed by the declarant within the two years prior to the date that the party served the declaration.”  In some marriages, the taxes filed the two years prior to the date of the disclosure declaration are joint tax returns.  Do you still need to attach the joint returns?  The answer to this question is yes.  You must include copies of the two tax returns, whether individually or jointly filed.

Your Income and Monthly Expenses are Included in the Disclosure Process

An Income and Expense Declaration can be filed with the court.  This form discloses to the other party your income, both monthly and for the past 12-month period, and your monthly expenses.  If you are someone who has been in the dark about your spouse’s income during your marriage, the disclosure process may be quite eye opening.  The Income and Expense Declaration form also includes line items for investment income, self-employment income, certain monthly deductions, work related expenses, the sum of money held in deposit accounts and household members, among many other items.

Your Schedule of Assets and Debts is Not Just About You

On your Schedule of Assets and Debts form you must list all assets you have an interest in, including assets held jointly with any third parties.  There is a place on the form to indicate if something is your separate property or your spouse’s.  You should also list any assets of your spouse’s that you know of, even if you do not have complete information about the asset(s). As to debts, those must be listed too.  Debts include loans, credit card debt, student loans and taxes owing.  This form is the most cumbersome of the three disclosure components.  There are specific documents that must be attached for each category of assets/debts listed.

The Schedule of Assets and Debts form, along with its requirements, can seem daunting to some and a bit unsettling as you may, for the first time, be disclosing an asset or debt your spouse did not have any knowledge of.  Nonetheless, you must disclose it.  The court wants to ensure that each spouse has a full and accurate picture of all assets and debts before a judgment is processed and approved.

Failure to disclose a community asset can have severe consequences. It can expose you to a motion to set aside a judgment or a claim for breach of fiduciary duty. As a penalty for failing to disclose a community asset, the court may award at least one-half of the value of the undisclosed asset and attorney’s fees. In cases where the party has been found guilty of “oppression, fraud or malice” in concealing a community asset, the court may award 100% of the value of the undisclosed asset and attorney’s fees. (Family Code § 1101 et seq.Civil Code § 3294.) Moreover, failing to disclose separate property assets is sanctionable conduct. (Family Code §§ 2107(c) and 271.)

Thus, although the forms seem simple and straightforward, there can be legal consequences if not completed properly.

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