Financial issues are some of the most polarizing in divorce lawsuits. Like issues of custody and children, most individuals want to protect their incomes, assets and standards of living at all costs. This means spouses must have an accurate understanding of each other’s budgets and monthly expenses, as well as the income with which they service these costs. This is especially important if they’ve been living separately for a while. Judges are also very interested in this information, as they need it to make fair rulings regarding spousal support, child support and property division.
Required Financial Statements
Early in every divorce case, state laws require that both spouses file financial statements with the court. They must also exchange copies with each other. In most jurisdictions, this statement has four components: income, assets, debts and liabilities, and a monthly budget. These forms are usually very detailed. For example, in New Jersey, the monthly expense portion of the required financial statement includes an entry for newspaper subscriptions. Spouses prepare and sign these statements under penalty of perjury.
Few divorce lawyers take a spouse’s financial statement at face value. Shortly after the exchange of financial statements, attorneys will begin using the information contained in the statements to dig deeper. A spouse or her attorney can confirm the expense list or budget portion of her spouse's statement through discovery processes. These include subpoenas, requests for documents, interrogatories and depositions. Interrogatories and depositions are a set of questions a spouse must answer under oath; interrogatories are written and depositions are oral. Subpoenas and requests for documents are often more useful for confirming monthly expenses. A subpoena can demand documentation from third parties, such as a record of a spouse’s utility bills from his electric company. A request for documents demands the same sort of information, but directly from the spouse.
Importance of Expenses and Budget
Sometimes spouses are so clever at concealing their true budgets that common discovery methods don't uncover the full scope of their finances. Some spouses or attorneys will additionally hire forensic accountants if they suspect this is the case. These professionals can compare a spouse’s alleged expenses to his income to help uncover proof that he must earn more than what he's admitting. For example, if his regularly monthly expenses are $15,000 a month, but his income documents show that he only earns $10,000 a month, this is evidence that he might be hiding income sources. If he consistently manages to pay that extra $5,000 each month, he must be drawing the funds from somewhere. If a spouse or her attorney hires a forensic accountant, the laws in most states require the other spouse to cooperate with the investigation.
Effect on Child or Spousal Support
Courts and judges base spousal support or child support calculations on net income after taxes, not on how much income a spouse might have left over after paying his monthly expenses. However, the less a spouse earns, the lower his support obligation will be. It may also be advantageous for a spouse receiving child support or alimony to minimize her income. The less she earns, the more support she is likely to receive. Mandatory financial statements, subpoenas, requests for documents and the use of a forensic accountant can all safeguard against this occurring by proving that more income is available than a spouse might admit.