When people think about divorce, they often think about issues such as child custody, who gets to keep the family home, or whether one spouse will have to pay support to the other. While these are certainly important concerns, there is another aspect of divorce that is often just as important, and in many cases, it serves as the foundation for resolving all of those other issues. This aspect is known as financial disclosure.
Simply put, financial disclosure is the process through which both spouses provide information about their finances during a divorce. Though this may sound straightforward enough, the truth is that financial disclosure is often one of the most important stages of the entire divorce process. After all, before a court can make decisions regarding property division, child support, spousal maintenance, or other financial matters, it must first have a complete understanding of each spouse’s financial circumstances. Read on and reach out to a Rochester divorce lawyer from Lacy Katzen LLP to learn more about financial disclosure in divorce and how our firm can help protect your hard-earned assets.
Why Is Financial Disclosure Important in a New York Divorce?
Financial disclosure exists to ensure that both parties are operating with the same information throughout the divorce process. Without complete financial records, it would be very difficult for a court to determine what assets exist, what debts are owed, and how those assets and debts should be addressed moving forward. Some of the primary reasons financial disclosure is required are as follows:
- To identify marital assets and separate property
- To determine each spouse’s income
- To evaluate marital debts and financial obligations
- To calculate child support
- To determine whether spousal maintenance may be appropriate
- To assist with the equitable distribution of marital property
In many cases, spouses are required to exchange substantial amounts of documentation. Some of the records that are commonly reviewed can include:
- Tax returns
- Pay stubs
- Bank statements
- Credit card statements
- Mortgage records
- Investment account statements
- Retirement account statements
- Business financial documents
As you can imagine, these documents often paint a much clearer picture of a family’s finances than either spouse may initially realize. This is especially true in divorces involving substantial assets, business interests, investment portfolios, or multiple sources of income.
What Happens If a Spouse Hides Assets or Fails to Disclose Information?
Unfortunately, not every divorce proceeds with complete transparency. In some situations, a spouse may attempt to conceal assets, underreport income, transfer property to another person, or otherwise make it appear as though certain financial resources do not exist. For obvious reasons, courts take these matters very seriously. Some potential consequences of failing to provide accurate financial disclosure may include the following:
- Monetary penalties
- Court sanctions
- Contempt findings
- Reopening a divorce judgment
- A distribution of assets that favors the other spouse
That being said, proving that assets have been hidden is not always easy. In more complex cases, attorneys may work with forensic accountants, business valuation experts, and other financial professionals to uncover assets and determine the true value of marital property.
What Happens to a 401(k) or Pension During a Divorce?
One question that frequently arises during divorce involves retirement assets.
Many people spend years, and sometimes decades, contributing to retirement plans, which means that these accounts can become some of the most valuable assets accumulated during a marriage. Because of this, they are often a significant part of the financial disclosure process.
In New York, the portion of a 401(k), pension, or other retirement account that was accumulated during the marriage is generally considered marital property and may be subject to equitable distribution.
When determining how retirement assets should be divided, courts may consider several factors, including the following:
- The value of the account
- When contributions were made
- The duration of the marriage
- Whether contributions occurred before or during the marriage
- Any agreements that may affect ownership rights
For example, if a spouse began contributing to a retirement account before getting married, that premarital portion may be treated differently from contributions made during the marriage. However, contributions made during the marriage, as well as any associated growth, may be subject to division.
Pensions are often handled in a similar manner. In many cases, a Qualified Domestic Relations Order, commonly referred to as a QDRO, is used to divide certain retirement benefits while helping avoid unnecessary tax consequences.
Since retirement accounts frequently represent a substantial portion of a couple’s overall assets, it is important that they are properly disclosed, valued, and addressed throughout the divorce process.
If you have further questions about this or would like to speak with a knowledgeable attorney about your case, please contact Lacy Katzen LLP today.
