Overview of the Financial Affidavit

A financial affidavit is a legal document which details the financial “life” of the marriage. In a marriage, just like in every business, no matter how large or small, there are assets, expenses, and debts.

One section of the financial affidavit requires each party (“the Affiant”) to list the household expenses, such as rent, mortgage, utilities, homeowner’s fees, routine repairs, insurance, landscaping, etc. In addition to the section on household expenses, it is common to have a section for individual expenses, such as clothing, personal grooming, medical, contact lenses, therapy, etc. Most states require that the expenses be averaged over a period of twelve months, so that a large electric bill in the summer will not be considered as a baseline expense.

Also, similar to any business, there is usually some debt. During most marriage, couples acquire liabilities, such as mortgages, home equity loans, car loans, credit cards, IRS , etc. All debts must be listed in a designated space.

The third section in the financial affidavit or DRFA is the space to list all the assets acquired during the marriage. Assets include retirement, investments, real estate, jewelry, automobiles, antiques, art, etc.

Most states will require each party to complete a financial affidavit in contested cases. However, as long as the required information is provided, the format may vary among attorneys. In divorces with minor children, there is generally a separate section for children’s expenses, such as extra-curricular activities, summer camp, day care, medical and dental expenses, etc. At the end of the Financial Affidavit the Affiant must swear that all information contained in the document is true and correct.

Why is a Financial Affidavit So Important?

If your divorce is contested, a judge will hear the case. The judge will determine both temporary and permanent alimony and child support, and the division of property and debt. Therefore it is critical that all data in your Affidavit be as accurate as possible on the date it is signed. Keep in mind that if you complete a financial affidavit at the beginning of your case and your financial situation changes, you should prepare an updated Financial Affidavit. If you and your spouse are negotiating a settlement or participate in mediation with the expectation of resolving your divorce, your Financial Affidavit is crucial. The data in your financial affidavit becomes the “baseline” for settlement.

Your financial affidavit is the “snapshot” of your marital financial life, and it is essential that it be a true reflection of your finances as they exist and not as you would like them to be.

Do you have legal questions? We’re here to help your family. Call us at 770-333-1620.

The First Steps to Preparing Your Financial Affidavit

It is very common for individuals going through the process of divorce to be intimidated by the task of gathering their financial documents, and the concept of putting together a “budget” is almost a paralyzing thought. The first step is to take a deep breath and focus on one piece of the financial affidavit at a time. Hopefully, you will have a few days to work on your DRFA before you need it for court or mediation.

Financial documents can be broken down into 4 general categories:

  • Income
  • Expenses
  • Insurance
  • Debt

Income

If you are employed, locate your last paycheck. If you are able to download your paychecks from the first of the year, that will be very helpful. In addition, you will need W-2 wage and tax statements for the last filed return. If you are not currently employed, it is essential that you obtain a copy of your Social Security earnings statement. It is available on-line at www.socialsecurity.com

In many households it is common for one party, usually the husband, to take care of filing taxes and the other spouse is totally “in the dark” about the filing of taxes. If you are the spouse “in the dark”, do not panic. As long as you filed joint tax returns, you are entitled to receive a copy of all returns. It is also possible for you to obtain abbreviated tax returns in less than an hour. Most likely your accountant is able to get your tax return while you are in his/her office. Your W-2 should be readily available from your employer.

You will need to obtain your Federal and state income tax returns for the last three (3) years, which include personal returns, and returns filed by any partnerships, or closely held corporations in which you have are any ownership. If you did not file a return you will need all W-2s, 1099s, and K-1s for the last three

If you are self-employed, your first step is to get a copy of your profit and loss statements since your last tax return was filed. If you are not currently working, your first step is to start with your retirement, including Individual Retirement Accounts, pensions, profit-sharing plans, Keogh plans, 401 (k) plans and any other retirement investment accounts. It is preferable that you have the most current statement. However, it is most important that you identify all of your individual accounts, and joint accounts. Once you have the accounts listed on your DRFA, then you can contact the financial institutions for any statements you are missing. In the best of all worlds, gather at least the last twelve months of statements. It will be very helpful, if you can get thirty-six months of statements. If either you or your spouse has life insurance with a cash or dividend surrender value, do your best to obtain the most current statement.

Expenses

The next step is gather your last twelve months of bank statements, credit card statements, and any notes that you may have which would assist you in recalling your cash expenses. If you maintain your monthly expenses in a financial software program like Quicken, this part of your financial affidavit will be “a piece of cake.” But if you are like most people, and do not have all your finances on the computer, you will need to do a little searching. With some clients, it a more like a “treasure hunt.” American Express and other credit card companies will provide an annual summary of your charges. If you do not routinely receive summaries, call each credit card company and ask for them. Many credit card companies will send duplicate credit card statements without a charge. Others may provide the most recent statements for free, and then a charge per month. If you pay some of your bills with cash or money orders, you will need to contact each provider to get copies of your previous bills or a summary statement.

If you have children that have not completed high school, you will also need to obtain statements from any provider of services for them. It is easy to forget all the monies that you have paid for school lunches, school trips, school pictures, overdue library fines, etc. for your children.

One “low-tech” technique to isolating your expenses is to use different colored highlighters to designate different items on your credit card statements and bank statements. This may include the household expenses (routine and occasional), automobile expenses, children’s expenses, your personal expenses (grooming, medical, meals out with friends, clothing, etc.), your children’s expenses, your pet expenses, bank and credit card fees.

Insurance

The next category to locate statements for is insurance. You will need to have a copy of homeowner’s, automobile, life, disability, medical, dental and any other insurance policies you have. If you have separately scheduled personal items, such as jewelry or art work, it will be very helpful if you have a copy of the appraisal and/or bill of sale. If you do not have copies of these documents, most insurance companies will provide copies at no charge. But it may take ten days for you to receive the copies. You may want to ask your attorney to request the statements. It is not unusual for insurance companies to respond more quickly when a lawyer’s office calls.

If you or your spouse either jointly or individually own (or co-own with third parties) any rental and/or investment properties, you will need to collect all bank statements, tax bills, and any documents related to the asset(s).

Debt

The last – but certainly not the least important category is debt, either joint debt acquired during the marriage or individual debts acquired either before the marriage or other non-marital debt. In many marriages the marital debt accumulated may surpass the assets acquired during the marriage. This is particularly true in the current real estate market. Locate all mortgage statements for the past twelve months. If you do not have the statements, as long as you are on the mortgage you will be able to request statements directly from the mortgage company.

If there is a home equity loan attached to the marital house, you will need those statements also. It is very common for parties to have a first mortgage and a second mortgage with different financial institutions.

If the marital home has been refinanced, it will be very helpful to have the closing statement and any other documents for the new loan. Many people do not have this information, and are unaware as to the terms of the refinance. (It is also not uncommon for the financially “savvy” spouse – but somewhat dishonest to forge the financial naïve party’s signature on refinance documents.)

Fortunately, real estate documents are filed in each county, and you can go to the real estate tax office to do your own search. Your attorney can hire a real estate professional to perform a title search to view all legal documents related to your marital home and any other property. The records are public, and many counties have the documents online.

Do you have legal questions? We’re here to help your family. Call us at 770-333-1620.

Frequently Asked Questions About the Financial Affidavit

I have been practicing for a long time, and I have encountered certain situations many times. This is a way for me to address some questions that may be worrying you, and to explain that there are always ways to handle any situation that may exist or arise.

What Should I do if my spouse controls all of the family finances and just gives me an “allowance” to pay household expenses?

It is not unusual for one party, often spouse who stays at home, to be pretty much “in the dark” about the financial aspects of the marriage. Unfortunately, the same individual may be “in the dark” about other aspects of their spouse’s life. The good news is that in most cases it is not all that difficult to reconstruct this information. If your case is not settled prior to reaching an agreement, all financial documents can be subpoenaed, if your spouse does not willingly provide the statements. However, you will need to retain an attorney to properly subpoena documents. Experienced family law attorneys routinely closely work with forensic accountants to obtain, analyze and present this information to the court, mediator and/or arbitrator.

If you do not routinely keep copies of your receipts for groceries, and do not know how much money you spend on food and other household expenses, it is possible to get a fairly accurate “guesstimate.”

First, print a calendar for the week and write down your “menus” for breakfast, lunch, dinner and snack foods for one week.

Second, make a list of all household cleaning products, paper goods and other supplies that you have in your home.

Third, take your menus and your list of food and non-food items to the stores you usually shop. Next to each item on your menu put in the price of the item. If you have a smartphone you can scan the bar codes. Then make your best “guesstimate” of how often you need to replace each item. It may be easier to break up the items into the stores that you purchase the item. For instance, if you visit a warehouse type store, like Costco and you generally purchase your paper products, cleaning products there; you can make an informed estimate how often those products need to be replaced. Your credit card statements will also give you important information to help jog your mind. If you are still at a loss for estimating, there is always “Google”.

If my name is on my mother’s (or any relative’s) property deed as a co-owner, but I do not have any financial obligations involving the property, do I need to include that property on my financial affidavit?

Footnotes are very important on a financial affidavit, and can be used to explain complex situations. Remember, you are swearing that everything written in your financial affidavit is true to the best of your knowledge on the date that you signed your affidavit. It is not unusual for family members to be co-owners with an elderly parent for estate planning purposes or for a sibling that may not have a high enough credit score to qualify for a loan, but is able to pay the monthly loan payment. An effective way of explaining your co-ownership is to explain your unique situation in a footnote, and offer to provide backup documentation, such as bank statements or copies of cancelled checks to show that you have not contributed to this asset.

If I lost my job in the previous twelve months and my income has changed dramatically, how do I compute my income?

This is another situation that can be effectively explained in a footnote. For example, if you were employed for the first half of the year, and then unemployed for the remainder of the year, state those facts in a footnote. Your attorney will be able to develop the best litigation strategy.

If I or my spouse is a “stay at home “ parent and has not worked since my children were born, how should I answer the income section?

Many couples make the decision that one party will leave the workforce to take care of children. When the divorce proceedings begin, the parties may have major disagreements as to whether there was an “understanding” that one parent should not be employed. Sometimes, each person has a completely different recollection of the facts. If you find yourself in this situation, it is essential to have an experienced attorney to present your unique situation in the light that is most favorable to your position. Likewise, if you are the employed spouse and your partner is making the argument that you agreed that he/she would not earn income, you will also need an attorney to present your arguments.

What if my spouse owns a small business and takes cash from the business for our household expenses, and does not report the entire income to the IRS, and the result looks as if we are living beyond our income?

It is not uncommon for small business owners to “help themselves” to cash and not report it to the taxing authorities. This can be a very serious situation for the spouse not involved in the business. Even though you were not taking the cash yourself, if those monies were used for your household expenses, you may be held responsible. You should advise your attorney as soon as possible, so that he/she can take whatever measures are necessary to protect you.

What if I have applied for a bank loan and “exaggerated” my self-employment income and I am concerned that I will be Ordered to pay a higher amount of alimony and/or child support?

Often individuals will overstate their income when they are anxious to appear to be a better candidate to the lender. You need to immediately bring this issue to your attorney’s attention so that he/she can do their best to explain your behavior to the court/mediator/ arbitrator. The sooner you inform your lawyer, the greater the chances that there may be a less onerous way to deal with these facts. The most foolhardy approach is to hope that your lawyer will not be confronted with this information at trial. In that situation, you can be punished severely by the Court.

What if I want to start a business and my spouse filed for divorce and my business will not support my lifestyle?

Unfortunately for many people, going through a divorce and having the parties establish their own households is a lot more expensive monetarily than supporting two households. In many families there is simply not enough money to go around. Although your future plan was to be an entrepreneur, unless you have another source of funds, in most cases your former spouse will not be ordered to give you funds to support your “dream.” The harsh reality is that most courts expect parties who are mentally and physically healthy to be employed. This is a situation which should be discussed thoroughly with your attorney who will be able to advise you how to proceed. If your divorce is litigated, in many states even if someone is unemployed (or under-employed) and has been for many years, the court can impute an income to you.

Do you have legal questions? We’re here to help your family. Call us at 770-333-1620.

FAQs About Live-In Relationships and the Financial Affidavit

Relationships which involve sharing a home but not being married can be a bit tricky to explain on a Financial Affidavit, but they are not impossible to resolve.

Here are some questions I’ve encountered.

What is the best approach to completing my Financial Affidavit I am considering living with a romantic partner?

Although ex’s are often very upset when the former spouse moves on to another partner, most courts will not be very concerned. However, it is essential that your household expenses be transparent. A good practice is to open a separate bank account for household expenses, and each of you contribute funds into the account to pay utilities. Ideally, if you are renting, each party should be paying a set portion of the rent and utilities. Each party should also contribute to a grocery and other household expenses account. If your partner is not contributing to these expenses, then your former spouse will likely argue that some of the monies that you are contributing to your new household could be better spent on their alimony and/or your children’s child support.

What if I am living with my romantic relationship partner and she/he is unemployed and I am paying for the house and all of her/his expenses?

While your situation may be typical in today’s world, for the purposes of your Financial Affidavit it is far from ideal. If your partner is planning on re-entering the workforce and has the intention to reimburse you for his/her expenses during their period of unemployment, it is possible to include the “loan” with a footnote in your expenses section. If it is possible to have your partner sign a promissory note acknowledging his/her intention to pay you back, that may help persuade the judge/mediator/arbitrator that you are not making a gift to your current romantic interest.

If I am living with my romantic partner and her child, how should I present this on my Financial Affidavit?

If your partner’s child is living in your household, he/she needs to maintain very careful records for her/his child. The partner’s share of the household expenses should be increased, since there is another individual living in the home. The amount of the increase would depend on a variety of factors, including the age of the child and the amount of time the child spends in the home. It is very important that you have a formula for their contribution, and it does not change due to factors that are subjective. If your partner is financially unable at this time to contribute the entire amount of money that is reasonable, then if he/she was willing to sign a promissory note for the additional monies owed, it could be footnoted on your DRFA.

Do you have legal questions? We’re here to help your family. Call us at 770-333-1620.