Even though every state varies, it is a good representation of how you should prepare for the financial affidavit. Do you have every item organized?
It is very easy to make mistakes. For example, did you pay with cash or a credit card? If you paid with cash, do you have a receipt to prove that the expense exists? Do you pay your bills on a monthly, bimonthly, or yearly basis?
What about one-time, annual, or seasonal expenses that slip through the cracks? For example, you should remember to include annual snow removal.
It can feel overwhelming, but you can do this.
Unfortunately, you are not done with the financial affidavit section yet. Even though just completing the income and expenses section can feel overwhelming, try not to panic. The best approach is focusing on one item at a time. This is even the tactic I use when helping clients complete their financial affidavits. Trying to complete the whole document at once is nearly impossible. Pick one expense, for instance, the mortgage, and fill out that line item.
Make sure you have the documentation to support the number you place on your document. Put it in a binder or folder, and move onto the next line item. Even though you may have to review 100+ different items, if you knock out each item one-by-one, you will complete a lot more than you realized.
If you want individual help completing the Financial Affidavit, I can help you. All you have to do is click here.
Assets: All the Stuff You Own
The financial affidavit will ask you to list all your property that has significant value, such as bank accounts, cars, houses, jewelry, businesses, and investments. You will need to know two things about your assets: when the items were acquired, and what they are worth.
The date you acquired an asset is very important for determining whether property is considered separate or marital. Depending on your state, assets obtained before your marriage can sometimes be considered separate property, so they are not subject to divisions during divorce. It may sound complex, but the time that you obtained an asset can have a big impact on how it is classified.
The value of assets is very important. Cash in a checking account is easy to calculate, but other items can get more complicated. Has your home been recently assessed by a certified appraiser? If not, you may need to get one. An online appraisal will not suffice. What value do you use for cars? Expensive jewelry or collectibles can require specialized appraisals as well.
When completing your financial affidavit, include every valuable you can think of. More information is better than less. Your attorney can always tell you to remove or modify certain assets, but failing to include something can cause you to be accused of hiding assets. And during divorce, withholding information can come with steep penalties. If you do not disclose it, that collection of Beanie Babies could come back to haunt you.
Debts: Everything You Owe
For a highly detailed, complex form, the debt section is usually one of the easiest to complete, except for the part that involves facing your outstanding bills. Debts include things like credit cards, student loan debts, mortgages, and other loans. For most people, simply looking at a recent copy of your credit report can provide a good overview of your debts. You will also need to gather the most recent account statements for each debt, so you have the most up-to-date information.
However, everything will not show up on your credit report. If you have a personal loan, an outstanding bill, or a loan on an investment account, they generally will not appear on your credit report unless they are in collection. You will need to list these debts and make sure you have the proper documentation for each one.
Putting it All Together: A Sanity Check
If you have made it this far, you have finally completed the first draft of your financial affidavit. Congrats!
Now it is time to add everything up and conduct a “sanity check.” You need to forget about individual line items for a moment. Instead, make sure the whole picture makes sense.
Is your income greater than your expenses? If your expenses are much larger than your income, you will need to explain how that is possible. Are you taking on a lot of debt? Is there unreported income somewhere? Did you miscalculate anything?
Do any numbers jump off the page as being really high? Everything depends on your location and lifestyle during your marriage. For example, a person in New York City can easily spend thousands of dollars per month eating out in restaurants. But if you live in a smaller town or suburb, you probably will not.
Did you list all your assets? Forget any debts? Did you count anything twice? Or fail to count something? If your name is on your account, you must report it. You are not necessarily going to lose the asset, and it may not even be relevant during the settlement negotiation. But trying to hide something can cause more harm than good.
Having a 3rd party like a Certified Divorce Financial Analyst review your financial affidavit can be helpful. Then you can make sure there are no major mistakes.
Give it to your attorney. In most cases, they will only give a cursory review of your financial affidavit. Barring egregious errors, they will not check it for mistakes. Rather, they will take your word for what is listed. So make sure everything is correct.
Checking Your Spouse’s Financial Affidavit
Both you and your spouse will complete your state’s financial affidavit. If you live in different states, you will complete the financial affidavit in the state where you file for divorce. You and your attorneys will swap financial affidavits with each other, so you can both review them.
When you receive your spouse’s financial affidavit, you need to make sure that everything looks correct. In my experience, there are almost always discrepancies or missing information on one spouse’s financial affidavit. And if you have been living apart for a while, there may be a lot you do not know about your spouse’s financial life.
Here are some areas to check as you review your spouse’s financial affidavit:
Is the income section of the correct? A spouse can use subtle tricks to hide or underreport income, such as masking contributions to a retirement plan or excluding the payment of a bonus. When you look at a spouse’s total income, you need to make sure that all the benefits are included, and nothing is missing. It should match your lifestyle and expectations.
If your spouse was a business owner, you may want to collect the business’ tax returns and have an accountant go over them. In a business, many expenses and deductions can be used, which may affect their income levels, including how things are reported. Anytime your spouse owns or operates a business, things could easily go missing.
Do the assets and debts make sense? The value of the assets may not be accurate. States differ on the ability to calculate the value of an asset, so be aware of your state’s laws. Make a list of questions to review with your attorney, such as for anything that looks incorrect or raises suspicion.
If your spouse makes mistakes on the financial affidavit, they may just be sloppy, rather than malicious. But either way, you should protect yourself. Take the time to review their information.
Want more help completing your Financial Affidavit?
The financial affidavit is one of the most important documents in divorce, as it serves as the basis for negotiating your settlement. Any mistakes on your form or your spouse’s form can come back to haunt you during the divorce process – or worse yet – later in life.
Unfortunately, completing a financial affidavit can feel like a mind-boggling task – a gathering all your financial records, looking at hundreds of different types of expenses, assets, and debts, then swearing that a legal form is correct.
On top of that, you may not have been directly involved in the family finances for many years. So you simply do not know where to start.
Your attorney is not a financial expert. Most lawyers will not or cannot help you complete the financial affidavit. If they do, it can end up costing you thousands of dollars in legal fees, before even getting to the negotiations in your divorce case. Therefore, you should consider hiring a Certified Divorce Financial Analyst (CDFA).
A CDFA is an expert at reviewing issues with the financial affidavit, so they can identify potential mistakes or pitfalls on the form. They can evaluate every line item on a financial affidavit and help you successfully complete the form. You can learn more about getting individual help here. You will receive greater financial expertise, and it is much more cost-effective to hire a CDFA than completing a financial affidavit alone or asking your attorney to.
The financial affidavit is the most important document in your divorce, so make sure you complete it properly.
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Shawn Leamon, MBA, CDFA is the host of the “Divorce and Your Money Show” and Managing Partner of LaGrande Global, with offices in Dallas, New York and Hanover, New Hampshire.