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Why Must we Disclose in Divorce?

by | Jun 27, 2023 | Divorce, Family Court, Family Law, Mediation

Perhaps one of the most challenging and time consuming tasks required in a California divorce is disclosure.  Before a Judge will grant a divorce or legal separation both parties must certify that they have fully disclosed all of their assets and liabilities, have exchanged their income and expense information, and have provided supporting documents to verify values, balances and income sources.  I will often hear from couples that they just want to be divorced and don’t want to require one another to comply with the arduous task of completing the required forms and gathering the required documents.  There are a variety of reasons why the State requires disclosure and despite the pain, the exchanging of this information is a very valuable and important part of the divorce process.  In today’s blog we look at some of the very important functions of disclosure.


So What is Disclosure? There are primarily two forms that address disclosure in California.  The first form is called an Income and Expense Declaration.  On this form each spouse provides information about where they work, their education, a listing of all income sources and current income as well as income over the past 12 months.  The form also lists the expenses of each household.  For each source of income each spouse is also required to provide verifying documents including paystubs, tax returns, profit and loss statements, retirement statements, and any other documents that confirm amounts and sources of income.  The second form is called a Schedule of Assets and Debts.  On this form each spouse is required to list all of their assets and all of their debts.  This includes items accumulated before marriage, during marriage and after separation.  Any asset or debt that has a document supporting value or balance is also required to be provided.  


Consequences of Failure to Disclose.  The Court takes disclosure very seriously and there are consequences for failure to disclose.  Years back there was a Los Angeles case where shortly before separation the one spouse had won the lottery and failed to disclose the winnings on their disclosure documents.  The divorce proceeded and subsequently their spouse found out about the lottery winnings and returned to the Court to point out the other party’s failure to disclose.  The Court was not impressed, found that it had been an intentional omission, and punished the lottery winner by granting the winnings to the other spouse.  Failure to disclose can result in the Court throwing out negotiated settlements and punishing the non-compliant spouse.  It is important to err on the side of over-disclosure rather than leaving yourself open to being accused of failing to adequately disclose.


So why do we make everyone complete a full disclosure when they divorce?


Placing Spouses on Equal Footing.  Quite frequently in a marriage one of the spouses is designated to manage the finances of the couple.  This spouse may have more time to handle the management of the finances or may have a better understanding of finance and the other spouse is comfortable leaving them to handle paying bills, managing investments, planning budgets, etc.  When the couple decides to divorce one of the spouses has all the information and the other spouse might be in the dark.  Without a requirement to exchange information, the knowledgeable spouse would have a huge advantage in negotiations.  How could the out spouse be expected to assure they were treated fairly without having an understanding of the extent of the assets and debts and an understanding of all the finances.  If you don’t know what you’ve got then you can’t know what a fair division looks like.  If you don’t know what income there is you can’t know what a fair amount of support might look like.  Disclosure is all about going into decision making with eyes wide open on both sides of the ledger.  


Creating Further Trust with Supporting Documents.  When a marriage breaks down couples find themselves with varying degrees of trust for their spouse.  The range can be from continued complete trust to no trust at all.  By having a requirement to provide documents that support the stated value of assets as well as supporting the stated amount of incomes, each spouse can confirm that the information provided is accurate, whatever the level of trust may be.  In divorce mediation some semblance of trust is required because the couple counts on each other to identify all of the assets and to list all the income sources.  We can identify the documents needed to provide assurances but if a spouse chooses to try and hide an asset there is the chance they can get away with it.  If the out spouse in the lottery case had not caught wind of the lottery winnings, the other spouse could have absconded with all the winnings.  In litigation, spouses can spend time, energy and money trying to track down hidden assets.  There is much contention in litigation with lack of trust and suspicions that one or both spouses are trying to hide things.  It is important to choose a process that delivers each spouse with a degree of comfort that all the assets have been identified and all the income sources have been considered.


Kids, Money and Property.  When couples divorce, the issues that need addressing are the sharing of children, if applicable, support, and the division of assets and debts.  Disclosure is essential to address the money and the property.  We need to know what there is so it can be divided.  California’s community property law allows for an equal division of assets accumulated during the marriage.  Once we have a complete Schedule of Assets and Debts we can walk through item by item to determine who should receive what.  By knowing the values we can sort out a way to equally divide them.  With our Income and Expense Declarations we can assess what the financial situation will look like for both spouses so that we can set a reasonable amount of child support and/or spousal support so that each spouse is in a position to manage their own budgets.  Without a requirement for disclosure we would not be in a position to make informed and practical decisions to allow life to reasonably move on after divorce.


Oh Yeah, It’s the Law.   To have a lasting resolution of your divorce, you must complete a full and accurate disclosure.  As mentioned above, if there is failure to disclose, that can be grounds for having everything thrown out and having to start all over.  It is also grounds, especially when there is intentional failure to disclose, for the offending party to be punished with an unequal division of the estate.  We do it for all the reasons set forth above, but we also do it to assure that we accomplish a lasting resolution of the issues of the divorce and so we don’t have to come back later and clean up messes.  


The disclosure requirement can be annoying and can make us want to grumble and complain.  I have seen that a lot and I understand.  The forms and requirements can be cumbersome and sometimes a bit unclear.  At the end of the day the disclosure requirement is serving a very valuable function.  It is helping to place each spouse in a place where they can make the important decisions in their divorce in a fully informed and transparent way.  From my perspective that justifies all the pain and suffering involved in meeting the disclosure requirements.