Completing Your Financial Statement in Probate & Family Court

Posted by: Teresa Reade

massachusetts attorneyThe financial statement is the cornerstone of every divorce or paternity action. Judges use the information to calculate support payments and divide the marital estate. A divorce is often compared to the dissolution of a corporation or a business partnership, because both involve a careful and detailed division of the economic assets that have been acquired. The law sees both partners as a single economic entity during a marriage, and must then distribute the property of the marriage between the spouses in such a way that one is not unjustly enriched at the expense of the other. The court must also determine how much, if any, one party should support the other, and their children, during and after the matter is completed. It is critical that attention to detail be given its due, otherwise one, or even both, of the parties will be economically harmed.

THE FINANCIAL STATEMENT

The first step in this process is the completion of a financial statement by each party. The parties' financial statement is the first, and sometimes only, document the court relies on when making an order of support, property division and/or fees award. The information provided is under oath, meaning that you are swearing to the accuracy of the information you provide as being complete and correct. You should notice on the last page of the financial statement that there is an acknowledgement under the penalty of perjury that the information provided is accurate and complete as of the date of signature. Not only would providing the wrong information possibly be perjury and could result in sanctions, but it would destroy your credibility in the eyes of the court.

The completion and submission of the form is required by both parties at the outset of the case, and updated statements are required for every court hearing. Allow plenty of time before any hearing to make sure the information is complete and accurate, especially regarding the current value of not only stocks, bonds, or other investments, retirement accounts, and real estate, but also bank accounts and debts. Any inaccuracies in the information can held against that party, as the other side may argue that they are untrustworthy or are hiding assets or income, and the court may punish the party. It is much better to avoid this situation by undergoing thorough information-gathering at the outset, so that there is very little, if any, change in information presented in your updated statements later on in the case.

There are two versions in Massachusetts: the Short Form for those earning less than $75,000.00, and the Long Form for those earning $75,000.00 or more. All income, expenses, assets and liabilities must be disclosed whether there is a specific line item or not. Links to user-fillable forms are provided for each at the end of this Guide, as the court prefers the forms to be typed, and additional pages can be added, if necessary.

WHAT IS "INCOME" FOR PURPOSES OF THE FINANCIAL STATEMENT?

Determining what is "income" for purposes of determining one's tax liability can be a complicated process; this is not so for the financial statement. The form requires that the disclosure of income FROM ALL SOURCES. Do not exclude income on the financial statement because it may not be used to calculate support, or you do not want the other party to know about it. Footnotes and explanations may be useful in these situations. Many people make the mistake of relying on their tax returns to disclose or determine their income, but some of the exclusions in the Tax Code are not applicable to the Financial Statement. It pays to be careful in this area. If in doubt, consult a Massachusetts family law attorney.

WEEKLY INCOME

One area of the form parties will most frequently encounter problems is providing your weekly income. This is difficult for those who are paid bi-weekly or have monthly expenses, and the temptation is to just list the bi-weekly or monthly amount. The court will not accept this information, or you will end up with incorrect orders. Here is a computation table to assist in the determination of your weekly income:

For bi-weekly income, multiply the pay stub by 26, then divide by 52; or
For bi-monthly income, multiply the pay stub by 24, then divide by 52.

In the case of recurring overtime, tips, or bonuses, try to find the average over a period of time. The longer the period from which the average is taken the better and more accurate it will be as a prediction of the future. Be sure to provide a note to explain how you arrived at your calculated amount.

If a person's income varies through the course of the year and is seasonal, the gross weekly income at the time of your completion of the financial statement may be deceptively high or low. If this is the case, provide a gross weekly income based upon the prior year or the prior 12 months, and make a footnote disclosing to the court why this was done. This is a common and acceptable way of providing a weekly gross income amount for earners whose income fluctuates during the course of the year.

WEEKLY EXPENSES

As with income, the expenses are required to be provided on a weekly basis. This is true even though some expenses are incurred and paid monthly (such as utilities or rent). As with income, determine the weekly amounts by performing a simple calculation: multiply the monthly payment by 12, the divide by 52 to determine the weekly expense amount. If you have an expense that is not identified in the list on the form, provide an attachment to the form providing that information. A notation or footnote is then needed referring the court and other party to the attachment so it is not lost in the calculations. You may also provide estimates for expenses that are less frequent or seasonal, so long as you make a notation that those figures are estimates.

COMMON PITFALLS TO AVOID

Make sure your income and expenses are balanced. The financial statement should be an accurate reflection of your financial affairs. Many people, intentionally or inadvertently, inflate their expenses to exaggerate their financial troubles or to attempt to get sympathy from the court. The practical reality is that we cannot spend more money then we have, and if expenses are more then income, then there needs to be an explanation. Some people need to rely on credit cards during stages of their life, or to borrow money from friends and family. But, inflated expenses, without explanation, are highly questionable.

If you are self employed, be careful not to "double dip." This occurs when you might list an expense on a schedule as a tax deduction, and then also list it as a weekly expense. This appears to be an attempt to exaggerate expenses, which is something the court and family law attorneys will look for. If you claim an expense as a business deduction, do not list it as a weekly expense on your financial statement.

Attach the appropriate schedules or additional pages. If you are self-employed, your income information will be provided in the Schedule A attachment and you should use the Schedule C from your tax return as a guide. If you have property you rent out as a source of income, use Schedule B of the financial statement and you can use the information from Schedule E of your tax return as a guide. Additionally, attached pages if necessary to disclose all of you income, expenses, assets and liabilities. Just because there is not enough room on the form does not mean that you do not disclose the information.

CONCLUSION

This is merely an overview of some of the issues parties face when completing the Financial Statement. If you are feeling overwhelmed or have questions about the Financial Statement or any other aspect of your domestic relations case, you should contact the Reade Law Firm, PC, or contact another Massachusetts family law attorney in your area.

HELPFUL LINKS

Financial Statement - Short Form (Income less than $75,000.00)

Short Form Instructions

Financial Statement - Long Form (Income $75,000.00 or greater)

Long Form Instructions

Schedule A - Self Employment Income

Schedule B - Rental Income