Sworn Financial Statement: An Explanation of How to Complete - Mahlen Financial

While divorce is undoubtedly a highly emotional event with ups and downs to sort through for years, it is also, more logistically, a paperwork-intensive process. After filing, the paper trail of your divorce begins with a sworn financial statement, which is a mandatory financial disclosure required by the state that details your income, expenses, assets, debts, and some of your financial history. This multi-page document, submitted with evidence of the details, is provided not only to the court but also to your former spouse. In Colorado, it is also referred to as your 16.2 mandatory disclosures.

Many clients find this document extremely confusing. In this post, we hope to provide an overview of the purpose of the Sworn Financial Statement and tips to make it easier for you to complete it accurately.

Understand the Goal

The goal of the Sworn Financial Statement is honesty and transparency, both for your current and projected future situation, whereas after completion, settlement proposals can begin. The forms should not be completed with any motive in mind, including showing that you can balance your finances without a negative cash flow. You also should not inflate your expenses to an unreasonable level, hide income, or manipulate any of the figures. Do not feel the need to showcase that you are a financially responsible person through this statement either as if it is not true, it could end up hurting you more post-divorce. Focus on disclosing everything in the most honest way possible, despite financial changes that are unfolding. At any time, you can amend your Sworn Financial statement or correct details. This is particularly important if you expect changes to your career or living expenses as your divorce unfolds. In the event of a long divorce process, changes will inevitably occur.

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From the court and attorney’s perspective, this document will provide the basis to determine 1.) any financial needs from either spouse as well as 2.) the ability to provide a spousal support obligation.  In Colorado, the case for spousal support starts with a calculation; however, the case can be continued to be argued based on the Sworn Financial Statement.  Adhering to honesty and transparency and following these suggestions regarding your current and future situation will increase your credibility, not to mention possibly decrease your legal fees (less billable hours when attorneys don’t have to request items left out or argue over reasonableness).  Sworn Financial Statements that are thorough and well documented will decrease the risk of post-decree litigation where one spouse argues something wasn’t addressed properly or missed altogether.

Begin by Organizing

Complete the Sworn Financial Statement

Here is what to consider as you complete each section.

Report Monthly Amount (sections 1-3)  

In these sections, income and expenses should be reported as monthly amounts. If the item occurs more or less than monthly, it is worth noting the frequency of the income and expenses. Here are some other important details:

• Income (Section 1): If you have unsteady or contractor income, average your income monthly by taking your total income for the year and dividing by 12. Include a note stating that the figure you provided is an average during the specific time period.
• Payroll frequency (section 1and 2): Pay special attention to reporting income, monthly deductions, tax deductions, and other payroll deductions properly. For example, there is a significant difference between income reported from bi-monthly payroll (where you multiply your paychecks by two) or bi-weekly payroll (where you multiply your paychecks by 26 and divide by 12). 
• Social Security withholding (section 2): There is a maximum social security withholding amount each year. The timing of the payroll stubs being used to calculate this withholding may be misleading and lead to a significant difference in what is actually being withheld for the full year.  For instance, there could be a large portion of the year that this withholding is not being taken out at all. A Certified Divorce Financial Analyst (CDFA) can help you determine if it is being reported correctly on you and/or your spouse’s Sworn Financial Statement.
• Expenses (section 3): Complete this section based on your current situation. Sometimes, this is difficult for individuals to accurately complete depending on their living situation and because they anticipate so many possible future changes. For future anticipated changes, small notes can be added under each expense headline with an asterisk where you can report how much the expense will be in the future and when. For instance, if you anticipate that you’ll be moving out of your marital home and renting a house for $2500 a month post-divorce, you can add that projected expense with an asterisk and site when it will occur. Common expenses that change are mortgage or rent, health insurance, car insurance, cell phone expenses, food, therapy, and car expenses. If you have not worked outside the home or in a full-time role in several years, it may be reasonable to add an expense for saving for retirement. Other items that will change are your tax withholdings that are listed in Section 2 – a CDFA will help you estimate how they will change in your future budget.  This is another reason why the Sworn Financial Statement is not a reliable source to build a future budget as taxes can make a big difference.

Lastly, many individuals struggle how to document an expense that is paid by both parties If this is the case, make a note with an asterisk detailing whether you are listing the full amount that is shared or only the amount you currently pay for. Disclosing this level of detail creates transparency, which will be favorable to the courts.

Debts and Assets (sections 4-5)  

Regardless of whose name is on the property (debt or asset), it is prudent to document the item on your Sworn Financial Statement.  

• Debts (section 4): Even if an account has a zero balance, disclose the account. All accounts need to be tracked throughout the process in case of future transactions, and for your protection. Running a credit report for you and your spouse to make sure this section is thoroughly addressed is prudent and recommended.  Again, transparency is key when it comes to debts. As noted on the form, the court wants to see the minimum payment on the debt, not the actual payment made. This reinforces the need to complete a separate financial cash flow worksheet with a financial advisor as the Sworn Financial Statement is not reliable for actual and future cash flow and budget planning.
• Assets (Section 5): If you are having a hard time finding documentation of your assets, list the item and note that documentation is pending. Sometimes you aren’t aware of all the details of your assets. If you have heard your spouse talk about an asset but have not seen documentation, list it and request the required documentation. Household items (including jewelry, art, firearms, tools, furniture, etc) can be listed out separately or lumped together as a large sum. If there are items in particular that you want to be addressed in the division, list the item separately. This may apply to items of high value or sentimental value. When detailing the value, use “undetermined” or the expected sale price you would expect in a second-hand transaction (not the value of the item new).
• Miscellaneous Assets (section 5H): To complete this section, go through the list of potential miscellaneous items and check the box if you think you have any that fall into this category. If you are unsure of the value of these assets, your attorney or other advisors can help you or you can list the value as unknown or TBD. These items can be substantial, so do not skip over these or take this section lightly.
• Separate Property (Section 5I): This section includes assets brought into the marriage, gifted or inherited to an individual and kept as separate property. Some of these items may need to be reported in other asset sections like retirement accounts (inherited IRAs), investment accounts, real estate sections, childrens’ assets, and more. When you report these assets in Section 5, provide the total value (including separate value and marital value) and in the note section, report the separate value (which is the value at the time the item was brought into marriage or received), if known. If separate value is not know yet, update to unknown or TBD and your professional team will help determine the appropriate value..

If you have been married for a long time or have been hands-off with the finances in your marriage, you may not have all the information you need to complete this statement or even have access to all your accounts. Do your best to estimate based on what you do know and make a note that some line items are estimates and you are awaiting documentation. Include items such as account names if you know an account exists and leave the value blank adding a note that documentation is pending. If you are on account titles, you can request statements from the institution. Otherwise, your spouse will be required by the court to provide the documentation you need to complete the information. All information must be disclosed before moving into property division discussions.

Plan Your Budget

Because there is so much change involved with the Sworn Financial Statement, we do not recommend using this document for future cash flow planning or budgeting – this fact creates tremendous turmoil with many clients who are attempting to complete it and use it as such. Create a new budget exclusively for this purpose or create a few options with different scenarios, such as what your financial situation would look like if you keep the house versus rent an apartment. At A.M Financial, we can help you project different financial situations based on different living arrangements, incomes, settlement strategies, and more. We also support clients when completing sworn financial statements and answer your top financial questions throughout the divorce process. Contact us for a free consultation and get started with the financial planning you need to meet your obligations of today and goals of tomorrow.