Divorce often brings emotional and financial challenges that can feel overwhelming, especially when informal agreements exist between spouses. Regardless of any pre-existing arrangements, financial disclosures during divorce are vital for ensuring transparency and protecting both parties from future legal complications.
The Importance of Financial Disclosures
During divorce proceedings, both parties must provide a comprehensive overview of their financial situation, including:
- Income: Salaries, bonuses, and other income sources.
- Expenses: Living costs, taxes, and payroll deductions.
- Assets: Real estate, personal belongings, savings, retirement accounts, trusts, and business interests.
- Debts: Liabilities such as mortgages and credit card debts.
These disclosures create a complete financial picture, serving as the basis for fair asset division. Without them, one party may hide income or assets, leading to an unequal settlement. Additionally, disclosures help prevent future disputes by clarifying the financial implications of decisions made during the divorce process.
While some couples make informal agreements during their marriage, such as, “I won’t touch your trust fund,” these can conflict with legal considerations. Financial disclosures ensure that both parties have a clear understanding of their finances, preventing one side from being disadvantaged due to incomplete information.
Promoting Financial Transparency
By providing financial disclosures, each party gains a full understanding of the assets and liabilities involved, which reduces the likelihood of disputes post-divorce. When both spouses comprehend the financial landscape, there’s less chance of reopening the case post-divorce, due to oversights or new information obtained. If the disclosures are unclear, individuals can consult an attorney about potential grounds for revising decisions based on new information, which can lead to additional costs and stress.
For example, one spouse may agree to relinquish interest in a family trust but later reconsider after gaining a better understanding of the implications. Similarly, after consulting a financial expert, one spouse may realize they were unaware of liquidity issues that needed to be addressed moving forward.
The Role of Valuations
Attorneys and financial professionals often recommend independent valuations of significant assets, such as businesses or trusts, to ensure an accurate asset division based on current worth. These valuations can also clarify the financial implications of informal agreements. For instance, if one spouse initially declines interest in a business, a valuation might reveal a more appropriate value, prompting a reevaluation of their decision.
Involving extended family members can sometimes cause tension. A spouse may express no interest in a family trust but change their mind once they grasp the full financial picture, potentially creating friction if in-laws are resistant to sharing details or cooperating with the valuation.
In the long run, families often benefit from transparency, as it prevents disputes and protects both sides from future legal complications.
In rare cases, certain information may not need to be disclosed immediately, such as an anticipated bonus or promotion. Family business agreements should also be reviewed with an attorney to determine what needs to be disclosed and what can remain confidential.
Conclusion
Ultimately, financial disclosures are essential to the divorce process. They enhance transparency, protect against future disputes, and contribute to fair financial agreements. While informal agreements can complicate matters, formal disclosures, coupled with professional guidance, help avoid costly mistakes.
Financial professionals, such as Certified Divorce Financial Analysts, can assist with valuations and disclosures throughout the divorce process, ensuring you make informed and protected financial decisions.
Amy Mahlen Melander
Amy Mahlen Melander, CFP®, CDFA®
A.M. Financial
Divorce Financial Services
Phone: (303) 875-8730
7887 E. Belleview Ave., Suite 1100
Denver, CO 80111
www.amf-divorce.com
amahlen@mahlenfinancial.com