So, what is a financial statement, and why do you need one?
A financial statement reflects all of your assets, income, expenses, and debt.
Your financial statement is a snapshot of your income, expenses, assets and liabilities as of the date you sign the document. As your divorce proceeds, your financial statement must be updated. A “snapshot” of your financial picture can be helpful to a judge in assessing the lifestyle you and your spouse enjoyed during your marriage, as well as the lifestyle you and your spouse provided for your children during the marriage. This is important, because it provides insight into whether you will need financial support from your spouse, or will need to pay your spouse financial support, after the divorce in order to maintain the lifestyle to which you and your children have become accustomed. In addition, the Financial Statement shows the judge what assets and liabilities were acquired during your marriage, so that they can be divided equitably.
The financial statement, whether the long form or short form, includes four basic sections. The courts prefer that these court financial forms be printed on pink paper.
This is the section that sets forth all of your income, from all sources. You must report you income for the prior year as well, and attach supporting tax forms.
The weekly expenses section of your financial statement shows all of your living expenses and deductions. It is very important that you carefully review all of your expenses to include a realistic picture of your expenditures, even if they exceed the income you earn without your spouse’s contribution.
In the assets section of the financial statement, you should make sure that you include all assets of any kind in which you have an interest, as well as assets which are held in your name for the benefit of another. Failure to disclose an interest in an asset could irreparably damage your credibility in court.
All liabilities must be disclosed on your financial statement. Liabilities include all outstanding debts you owe, such as credit cards, student loans, medical bills, and loans from friends and/or family members. You must list all liabilities, whether or not you are currently making payments to pay down the debt. Specifically, you must list the creditor, the kind of debt, when you first borrowed the money and the current amount due. If your credit card amount due represents multiple purchases made at different times, then the date said debt was incurred would be labeled as “ongoing”. Additionally, if you have credit cards with zero balances, it is always helpful to disclose said accounts in order to fully understand your financial status. As with all matters that may need clarification, it is always better to include an explanatory footnote, rather than risk a misrepresentation of the number you have included in any section of the financial statement.
The Short Form vs. Long Form
There are two forms of financial statements, the long form and the short form.
Short Form: You will submit a short form financial statement if you make less than $75,000 in income annually.
Long Form: You will submit a long form financial statement if your annual income is $75,000 or more.
The Income and Expenses section is where you will be disclosing your weekly expenses, living and transportation, uninsured/unreimbursed medicals, and child support expenses.
The weekly expenses section is the first page of the financial statement. It is critical to be as accurate as possible in disclosing these figures. You must remember to include all income from all sources including regular pay from employment, bonuses, capital gains, and any other income. It is helpful to review your most recent tax returns to determine if you receive income from other sources, such as dividends or interest.
If you are a salary employee, you obtain several weeks’ worth of pay stubs from your employer in order to calculate with precision your weekly income and tax deductions. You will also need the most recent tax returns to determine your gross income from the prior year, including your W-2 statements, to attach to the last page of your financial statement.
If you are self-employed, then you must fill out a “Schedule A” to the financial statement to reflect your income from self-employment. Schedule A closely tracks Schedule C for self-employment/sole proprietorships on your federal income tax returns. It is important that you remember not to include any expenses in Schedule A that you already included in the weekly expenses section of your financial statement. That would be “double dipping.” Similarly, if you earn rental property income, then you must fill out a “Schedule B” for your financial statement to determine your weekly rental property income. Schedule B closely tracks Schedule E on your federal income tax returns. Remember, if you derive income from more than one rental property, then you must fill out a Schedule B for each of those properties.
In preparing the expense section of the financial statement, you should use annual figures where possible in order to calculate the weekly figure most consistent with your historical expenditures. If you are using only one or two accounts to make purchases, you might consider reviewing the past years’ worth of bank statements to determine your average expenditures for food, utilities and other living expenses. There are Apps, which track your finances, set monthly budgets based on your usual bank activity and can be useful in assembling the expense section of your financial statement. However, you should always have confirmatory documentation, when possible, for each and every disclosure made in your financial statement.
In some cases, your spouse may be paying some of your living expenses, but he or she may no longer be living at the same residence. Generally, the expenses included in your weekly expense section should only be those that you are currently, personally paying, rather than those paid on your behalf. However, in cases where your spouse is still paying some or all of the household expenses, you should still include household expenses in your financial statement, with a footnote explaining who actually is paying that particular expense. This will help you analyze many factors, such as whether it is financially realistic for you to remain in your current residence, the amount of support you will require to enable you to stay in your current residence or the realistic living situation you are able to afford with your existing income. If you are in the reverse situation, and are paying living expenses for your spouse in addition to your own, you should make sure you include everything that is currently being paid by you. To ensure clarity of presentation of your financial picture, it may be prudent to complete two separate expense sections in order to reflect the costs associate with each residence.
Vehicle(s): If you own a vehicle registered in Massachusetts, you will have licensing, registration, and inspection fees in addition to annual excise tax. You will also have weekly gasoline costs, regular maintenance expenses, expenses for tire changes, and occasional repairs depending on the age of your vehicle.
Tax Returns: A review of your most recent tax returns and supporting materials will help ensure you include all expenses, even those that are less regular and easily forgotten. For example, uninsured, unreimbursed medical expenses, including annual deductibles, are very important in determining the accuracy of this figure.
Medical Expenses: You may have prepared a spreadsheet of your uninsured, unreimbursed medical expenses for your tax returns. If you have already done this, then you can simply take the final amount from the prior year, divide it by 52 for a weekly figure, and this will generate the most accurate average weekly amount. If you have not gathered this information, you can still make sure you include all expenditures, including those for general practitioners, specialists and other medical professionals for which you incur out-of-pocket expenses. It is best to go directly to the medical provider and ask for your invoices during that time period. Additionally, if you obtain your prescription medications through a pharmacy such as CVS, you should be able to obtain detailed records of prescription history through the pharmacy. If you had extraordinary medical expenses in prior years, you may average the expenses for the past 2 years.
Child Support: Additionally, if child support is an issue in your case, accurate disclosure of child care and child-related expenses can also be very important. The child care expenses are considered as part of the child support calculation under the Child Support Guidelines. You should consult with your child’s day care, regular babysitters and other caretakers to determine the average cost, and obtain documentation to confirm the same. Health insurance, dental insurance and vision insurance are also included in the Child Support Guidelines in determining child support obligations. When you are preparing your financial statement, you should make sure you have obtained documentation showing the exact cost of your insurance premiums (whether deducted from pay or self-paid).
Health Insurance: If you are paying the cost for health related insurances, obtain from your employer the breakdown of the expense for single plan, family plan and employee plus dependent plan. This information is important to determine whether there should be contribution paid for coverage of a spouse or domestic partner.
When filling out the assets portion of your financial statement, you should remember to include current balances on all assets, and associated debts, if any. For example, if you and your spouse own a home, the fair market value listed in your financial statement should be based on a professional appraisal conducted in the recent past. If a professional appraisal is not an option, then you can use online popular real estate sites to determine an estimate of fair market value, such as Zillow.com. However, it is important to keep in mind that internet site or real estate agent estimates are only approximations. Therefore, unless you hire the services of a certified appraiser, you should be sure to include an explanation of how you arrived at the approximate fair market value by including a footnote of explanation in your financial statement. Debt associated with the properties should be included with current balances in order to determine the approximate equity in each asset. Equity is the difference in the fair market value and any mortgages or liens on the property. Similarly, if you own a vehicle, you can use the Kelley Blue Book value for fair market value and should state current loan balances in order to determine any equity in the vehicle.
Bank accounts, retirement accounts, stocks, and other types of financial assets should be reported fully with current balances. Occasionally, there will be instances where it is impossible to determine the value of an asset without the assistance of a professional. For example, interests in pensions often require an actuary determine the whole asset value or to determine the monthly stream of income a pensioner will receive.
If you are the beneficiary of a trust, the trust may be an asset or a source for a stream of income; perhaps both. This is a complex area that should be left to professionals to determine how best to proceed.
Additionally, if you are an owner of a business or have an interest in a business, you may need a professional business valuation to determine the fair market value of your interest. An experienced attorney will guide you through this complex area of asset division. You should gather business documents, such as profit and loss statements, spread sheets and tax returns to assist in the valuation of the business and stream of income.
Finally, only those liabilities, such as charge cards, which have current balances, should be reflected on the liabilities section. For example, if you have a credit card in your name that currently has a zero balance, then the credit card would not be added to the current liabilities. Since you will have already recorded the weekly payments for your mortgages, lines of credit, and other loans in the weekly expenses section, you don’t have to repeat it in the liability section.
Current balances of certain debt that is held against certain assets, such as a house with a real estate mortgage/equity line of credit or a motor vehicle with an auto loan, should not be included a second time in this “liabilities” section. In general this liabilities section is for debt that is not reflected in the previous pages of the financial statement. Therefore, the liabilities listed in this section should include the name of the creditor, the date the debt was first incurred, and the weekly payment plan/amount due and paid by you to be current on the debt. As with all matters that may need clarification, it is always better to include an explanatory footnote, rather than risk a misrepresentation of the number you have included in any section of the financial statement.
If you have few assets, fairly straightforward income and expenses, then you should be able to complete a financial statement on your own. However, if you have any questions or are not sure of whether a particular item should be disclosed in your financial statement, then you should consult with your attorney.