The Importance of Financial Disclosures in Divorce

Divorce is often accompanied by emotional and financial challenges. These dynamics can feel overwhelming, especially if informal agreements were made between you and your spouse. Despite any pre-existing arrangements, financial disclosures during divorce are critical because they ensure transparency and protect both parties from future legal complications. 

In this post, we’ll explore why financial disclosures are required, how they safeguard both parties, and how they can prevent costly conflict down the line.

Understanding Financial Disclosures 

In the divorce process, both you and your spouse are required to provide a comprehensive list of your financial information. This includes:

• Income: Salary, bonuses, and other sources of income.
• Expenses: Current living expenses, taxes, payroll deductions.
• Assets: Real estate, personal property, savings, retirement accounts, trusts, and business interests.
• Debt: Any existing liabilities such as mortgages, credit card debts, or loans.

These disclosures provide a full financial picture and become the foundation for a fair division of assets as well as supporting information to base decisions upon. They are required for transparency and without them, one party may hide assets or income, which could lead to unequal settlement. Disclosures also serve to prevent future legal disputes, helping both you and your spouse understand the financial implications of your decisions.

It’s somewhat common for couples to make informal financial arrangements during their marriage or separation, such as, "I won’t touch your trust fund," or “You can keep the family business.” While these agreements might reduce conflict and complications at the time, they can create issues as the divorce moves forward.

Informal agreements don’t always align with legal obligations, and in some cases, may even conflict with laws governing the division of marital assets. Financial disclosures make it easier for you and your spouse to consider all relevant information, and prevent either party from being disadvantaged due to an incomplete understanding of financial circumstances.

Creating Financial Transparency

By making financial disclosures, each party can be fully aware of the assets and liabilities at stake during divorce negotiations. This financial transparency reduces the likelihood of disputes after the divorce is finalized. When both spouses fully understand the financial landscape, there’s less chance that one will attempt to reopen the case due to an oversight. If disclosures are messy, individuals can discuss with an attorney if there are grounds to revise their decisions based on new information. This could result in additional costs, time, and stress for everyone involved.

For example, one spouse may initially agree to forgo interest in a family trust but change their mind. Similarly, after consulting a financial expert, one spouse may realize they were unaware of certain property rights and the impact is has on either party’s situation moving forward.

Considering Valuations

Attorneys and financial professionals play a critical role in divorce proceedings, often recommending independent valuations of significant assets like businesses or trusts. These valuations support an accurate division of assets based on their current worth.

Valuations can also clarify the financial implications of informal agreements. For instance, if one spouse initially agrees not to claim any interest in a business, a proper valuation may reveal that the business is more valuable than they realized, leading to a reconsideration by the party who previously had no interest.

When extended family members are involved, financial disclosures can sometimes cause tension. For example, a spouse may initially express no interest in a family trust, only to change their mind after a better understanding of the situation. This can create friction, particularly if family members, such as in-laws, are reluctant to provide financial details or cooperate with the valuation process.

In the long run, families often benefit from transparency, as it prevents disputes and protects both sides from future legal complications.

In rare cases, there may be reasons not to disclose certain information immediately. For instance, if a spouse expects a large bonus or promotion, they may wish to follow their attorney’s advice on whether or when to disclose that information. Family business agreements should also be carefully reviewed with an attorney to determine what must be disclosed and what can be kept confidential.

Financial disclosures are an essential part of the divorce process. They support transparency, can protect both parties from future disputes, and contribute to fair financial agreements. While informal agreements can complicate matters, formal disclosures and the guidance of financial and legal professionals help both parties avoid costly mistakes.

Financial professionals can help with valuations and financial disclosures during divorce proceedings. They work alongside your attorney to ensure you are fully informed, educated, and protected throughout the process. Reach out to A.M. Financial or other Certified Divorce Financial Analysts to ensure you are making the best financial decisions during your divorce.