Reviewing Your Spouse's Disclosure

As I mentioned, receiving your spouse's Preliminary Declaration of Disclosure gives you the first real look at the areas in which you and your spouse agree and disagree. But it may also tell you other things. Aside from noting the differences you may have in valuation, you must pay particular attention to what their disclosure does not say. If assets or debts are omitted, you must find out why. If the Disclosure claims a community asset as separate property, you must find out the basis for the opposing party's claim of separate property. As well, sometimes the opposing party may make a claim of separate property contribution towards a community asset. That means your spouse is claiming a portion of a community asset is their separate property, perhaps because they made payments from a separate source, or they used separate funds for a down payment or improvements.

Remember, community property is all assets and obligations acquired between the date of marriage and the date of separation, except for gifts or inheritance which is separate property unless it has been commingled with community property. But an asset acquired during marriage may have a separate property 'contribution'. The party claiming the separate property component has the burden of proving the separate contribution. That usually means the party claiming the separate property contribution has the burden of producing a paper trail, usually banking records, that demonstrates the funds came from a separate source and were contributed to the community asset.

When we divide assets and debts in a divorce, California law requires there be an equitable division of the marital estate. That means each party should be awarded marital property in equal values, but the court is not required to divide each asset in half. For instance, the automobile you typically drive should be awarded to you with the obligation on the vehicle, if any. If the vehicle has a fair market value of $15,000, and there is an outstanding loan balance on the vehicle of $10,000, the vehicle will be awarded to you at a net value of $5,000.

 The values of assets are determined by various methods. A house should be formally appraised if you are going to trial and the parties do not agree on a value. But you may start the process by getting comparable sales from a realtor. Try to resist obtaining property values from online real estate valuation websites. They are not accurate and judges do not rely on them. An appraisal is the best method of valuation, and comparable sales are the next best method. Vehicles can be valued by utilizing private party (not retail or wholesale) values from Kelly Blue Book or other auto valuation web site. Finally, other assets such as household furniture, furnishings and appliances are simply valued at what you could get for the item if you put an ad in the paper and sold it.

This leaves a lot of room for disagreement on items that are not formally appraised. The courts typically will not spend much time entertaining the parties' arguments regarding valuation of household items. If one spouse thinks a TV is worth $1,000, and the other thinks it is worth $400, the court may simply award the TV to the spouse who believes it is worth $1,000. In the alternative, the judge may simply order that all such property for which the parties are unable to agree on a value be sold with the net proceeds split equally. This is where you and your spouse need to each to do some compromising on values to reach an agreement.

Another difficult situation is what to do with an asset that both parties want. Does the flat screen Television with surround sound go to the husband or the wife? Husband may argue the television was a Christmas gift from wife, but wife testifies it was a gift to the family. Who is the judge to believe? Again, if husband believes the television is worth more than wife does, the court may simply award it to husband at the higher price, or the judge may order the item sold with the proceeds split so no decision has to be made as to who gets the television.

 The lesson here is to be very careful when valuing assets in a dissolution. Often the spouse who does not have the asset will value it higher than the spouse that has possession, because he or she wants the other spouse to be charged a higher value for purposes of calculating an equal division of the marital property. This tactic can backfire on the spouse with the higher value if they do not want the asset and the court awards it to them at their higher (inflated) value. On the other hand, if the other party has an asset that you want, one tactic to take at trial is that you will take it at a higher value than the party who has possession. 

There are more issues with property valuation and division in a dissolution that I will discuss later. In particular, the decline in property values has created a different dilemma with many houses now worth less than what is owed on them. It is not uncommon now for neither spouse in a divorce to want the house. Check back for how divorce can mean the loss of a house and your credit.

Evaluating Your Case for Settlement

Once you and your spouse have completed your Preliminary Declarations of Disclosure and served them on each other, you should evaluate your case for possible settlement.  This is where you learn what community assets and obligations exist, along the values for each. You will also learn your spouse's position with respect to the separate and community nature of the assets and obligations.

In reviewing your spouse's Disclosure, make certain he or she has provided all of the information requested and attached appropriate supporting documentation. For instance, disclosure of banking accounts requires providing the branch name and address, account number, and current balance of the account. This statement should be accompanied by a copy of the most recent monthly statement of account, as well as the monthly statement for the month of separation. You should make a list of anything that you think has been omitted.

Next review your spouse's Declaration and check the claimed values of the assets and balances due on debt. Make a note not just of those values and balances that differ significantly from your own, but also note where you substantially agree on values and balances. The more you agree, the closer you are to settlement.

Then make a note of any assets and debts listed that are not supported by documentation. Such as a credit card obligation in a disclosure for which a corresponding statement has not been attached, or a bank account without a supporting monthly statement. If you do not have your own copy of the missing documents and are unable to obtain them yourself, you should insist your spouse provide them. The purpose here is to learn the basis of the other party's claims with regard to the values of property, the balances due on debts, and the basis for community or separate characterization of the asset and debts.

Remember, if you are represented by counsel, he or she is doing this for you. But you should be involved in the process and aware of all of the details. This stage of the dissolution process is often the most difficult and where most of the time is spent. It's where you learn how close or how far you and your spouse are from settlement.

It's also much too complicated to cover in one posting. I will discuss it in more detail later. My point here is that this is the first real opportunity you have to learn the other party's position on the property and debts, and on what issues you are likely to agree or disagree. You also should acquire sufficient documentation on the various assets and debts for which you did not previously have documentation with which you can verify values and gauge whether your own figures are accurate.

Check back in a few days to read more about evaluating your case for settlement, how assets and debts are divided, and making a settlement offer.

Declaration of Disclosure

At the time of filing the Petition (or Response for the Respondent), or soon after, each party should serve their Preliminary Declaration of Disclosure on the other party and file a Declaration Regarding Service of Declaration of Disclosure with the court. The Disclosure itself is not filed with court. In every dissolution of marriage or legal separation, each party is required to serve the other with a Preliminary Declaration of Disclosure and a Final Declaration of Disclosure before the Court will enter a Marital Settlement Agreement or set a contested matter for Settlement Conference and Trial. In an uncontested dissolution or legal separation, the parties can agree to waive a Final Declaration of Disclosure, but a Preliminary Declaration of Disclosure is mandatory.

The disclosures must identify all assets and debts of each party, as well as their monthly income and expenses. For each asset and debt, the parties must also state whether it is community or separate property, when it was acquired, the value, and any loans. It is also necessary to attach copies of relevant supporting documentation, which is set forth on the forms.

Declarations of Disclosure consist at a minimum of a form Income and Expense Declaration, and a Schedule of Assets and Debts. The Income and Expense Declaration must be accompanied by copies of the party's last three pay stubs or, if self employed, a complete copy of last year's tax return and profit and loss statement as supporting documentation. In other words, your claimed income must be supported by proof. The Schedule of Assets and Debts lists all:

• real estate, 
• household furniture, furnishings and appliances,
• jewelry and personal items,
• motor vehicles, boats, motorcycles, RVs, travel trailers,
• checking and savings accounts,
• investment accounts,
• retirement accounts,
• tax refunds and liabilities,
• debts, and
• miscellaneous assets or obligations.

For each category the form specifies the supporting documentation that should be attached. The purpose of Disclosures is to make settlement negotiations easier, and to ensure neither party is concealing assets or obligations from the other. The California Family Code provides sometimes severe penalties for a spouse who willfully fails to disclose assets or obligations. If you are considering not disclosing an asset or debt, even because you think it is not significant or believe the other party clearly recognizes it as your separate property, the other party can probably have a judgment of dissolution set aside after it is entered on the basis that you failed to disclose a significant asset or debt. It's just not worth the risk. you may end up re-litigating or renegotiating your divorce and you will look like you have something to hide. For a community asset that is willfully concealed, the court even has authority to award the entire asset to your spouse as a penalty.

Let me tell you it is not uncommon for someone to come into my office saying their divorce is complete and judgment has been entered, but for one reason or another they are very dissatisfied with the Court's judgment after trial or a settlement agreement they entered into. The first thing I look at is the other party's Disclosures to see if they omitted something. If I find something significant, especially if it leaves an arguable issue as to whether the settlement was a fair and equitable distribution of the marital estate, I may have an opportunity to have the judgment set aside. Your divorce was probably bad enough the first time. Don't be sloppy with your disclosures and have to do it again.