A required step in the divorce process is preparing and exchanging preliminary financial disclosures. A judge will not grant a divorce without the completion of this step. Not filling out the forms or filling financial disclosures out incorrectly can cause problems for both parties.

California is a community property state, which means that with few exceptions everything acquired during marriage is community property. Community property includes asset, liabilities and pensions. Whenever a person wants to get divorced in California, the court requires that all issues that were created during the marital period also be resolved at time of divorce. This includes dividing the assets and the debts, resolving custody and support issues. California Family Code section 2104 requires the preparation of financial disclosures known as Preliminary Declarations of Disclosure detailing all assets comprising the marital estate, both separate property assets and community property assets.

Both parties in a California divorce are required to disclose detailed, accurate information to the other about their respective incomes, expenses, property (both marital and separate property) and all debts and obligations. There mutual disclosures are called the parties’ “Preliminary Declaration of Disclosure”. The formal disclosures are signed under penalty of perjury. A Final Declaration of Disclosure can be completed at approximately the time of trial or settlement in the case unless the parties mutually agree in writing to waive such final disclosure.

These Declarations of Disclosure consist of special forms required by the court, and except for proof that the parties served each other with such forms, these forms are otherwise not filed with the court. The 4 forms that generally comprise the Declaration of Disclosure are:

1. Declaration of Disclosure (Form FL-140)

2. Income and Expense Declaration (Form FL-150)

3. Schedule of Assets and Debts (Form FL-142)

4. Declaration of Service of Declaration of Disclosure (Form FL-141)

The purpose of such financial disclosures is to make settlement negotiations easier to proceed because of the generally clear picture of the parties’ financial situation given by such formal disclosure. Moreover, it protects the parties in the event that either spouse failed to disclose all assets (scscourt.org).

It is very important to fill out the preliminary financial disclosures because it helps the parties and, if necessary, the court to identify the entire community estate. While it may, at first glance, appear easy to identify the entire community estate, the problem is that many people who fill out these forms on their own do not understand the definition of community property.

Filling out the forms incorrectly can cause serious consequences to one or both parties. It is imperative to know the difference between community and separate property as it can greatly affect the settlement. One of the primary issues in a divorce is how to split up community property assets. There is a basic presumption that all assets acquired during marriage are community in nature. This means both the husband and wife equally own all money earned by either one of them from the beginning of the marriage until the date of separation. In addition, all property acquired during the marriage with "community" money is owned equally by both the wife and husband, regardless of who purchased it. Like community assets, all debts contracted from the beginning of the marriage until the date of separation are community debts. Therefore, each spouse is equally liable for debts. In most cases, this includes unpaid balances on credit cards, home mortgages and car loan balances. It is important to close out all credit cards, bank accounts, and joint accounts as soon as possible after a divorce has been decided. It is not enough to remove names from the account (findlaw.com).

Separate property assets are those acquired by either spouse prior to marriage, during marriage by inheritance gift or devise or after separation. (Family Code section 770). Separate property is generally awarded to the party who owns the asset although its value may be considered for issues such as support or attorney’s fees.

Separate property can also include anything that one spouse gives up to the other spouse in writing. In certain cases, separate property can become mixed with community property. When this occurs, it is important be able to trace the payments and show where the separate and community money came from. For example, a husband may have contributed the down payment for a house either prior to marriage or with his separate property after the date of the marriage, and then paid off the mortgage with community property. In this case, the husband would have a claim either to be reimbursed for his down payment or to a pro rata interest in the house depending on whether the house was purchased before or after marriage and how title was held.

Similar to separate property, separate debts belong to one spouse. All debts incurred before marriage are separate debts. For example, educational loans or job training loans incurred before marriage would be separate debts.

Another consequence of not disclosing all assets debts and liabilities is possible court punishment to the guilty party. The Court has a variety of remedies to punish a party from omitting an asset on their disclosures, including sanctions and the award of the entire asset to the other spouse. Also, committing perjury can result in jail time (scscourt.org).

                Although these forms seem straightforward and easy to fill out, it is always best to have a Family Law Attorney review the documents. For a free 1-hour consultation, please contact The Law Office of Matthew J. Rudy.