What Is a Net Worth Statement in Family Law Cases?

According to the most recent info coming from the Centers for Disease Control and Prevention in the United States, there have been about 2.4 divorces per 1,000 people every year.

A family lawyer is probably the best fit for handling the divorce process, in general. Aside from divorce, these legal professionals receive training to address other family-related issues. According to Mesa family lawyer Steven M. Ellsworth, family law and its cases can have severe impacts on the lives of families. A family lawyer's responsibilities may include handling complex divorce cases and providing assistance with adoption proceedings.

One of the aspects of family law is net worth statements. These financial documents often serve as a requirement in legal proceedings such as divorce. In particular, the statement helps properly identify marital property, expose any concealed property, and guarantee fair financial distribution.

It is important to know what kind of information should be included in a net worth statement and its influence on the proceedings of family law.

What a Net Worth Statement Contains

What is a net worth statement? A net worth statement typically has four major parts. 

The first is the assets section. This part of the statement lists all items that value the party owning or having an interest in them. This section includes real property, money deposited in banks, investments, retirement plans, motor vehicles, business interests, intellectual property, and valuable personal property.

The second section is liabilities, and this portion covers every debt an individual is required to pay. This part also includes mortgages, home equity lines of credit, car loans, student loans, credit card balances, personal loans, and tax obligations. Like the assets section, the liabilities section should also show current balances and include supporting paperwork.

The third and fourth sections deal with income and expenses. Income may be in the form of salary, bonuses, commissions, income from self-employment, investment income, and other financial sources. Expenses might be in the form of housing costs, transportation, food, medical care, insurance, daycare, and a few other daily necessities.

Why Accuracy and Completeness Matter

A net worth statement is submitted under oath. If someone falsifies or leaves out info from a sworn financial statement, the violator can be charged with perjury. Courts often treat such acts as fraud.

When courts figure out there was intentional concealment, they have wide authority to impose sanctions, which can include adverse rulings affecting property division, attorney fee awards, and even contempt findings. 

In real life, when a court concludes one spouse has hidden assets, it sometimes gives the other spouse a bigger share of the marital estate as a penalty for the misconduct.

The duty to disclose is not limited to what a party knows without prompting. In divorce matters, the discovery process often involves subpoenas to financial institutions, requests for tax returns, interrogatories about financial activities, and depositions of both spouses plus their accountants. 

Assets and other properties that the net worth statement didn't include can still come out during discovery.

An omission that discovery uncovers tends to look worse than one that the party's own statement reveals.

The American Bar Association, Family Law Section, publishes materials on financial disclosure duties in divorce proceedings, including direction on the documents that are typically required to substantiate asset and liability valuations.

Common Problems With Net Worth Statements

There are several common areas where issues with the statement of net worth come up repeatedly. One area is asset valuation. 

Real estate may be overstated at its preferred price, rather than its current market value. 

Retirement funds may be recorded at their original cost instead of their current value. Personal property, including jewelry, artwork, antiques, and other valuable possessions, tends to be undervalued. 

Normally, conducting a comparison with market value or the accounting records of the account can help reveal any underlying issue connected with the net worth statements.

Another issue relates to business holdings during divorce proceedings. Private corporations are commonly hard to value. They are often subject to manipulation through late reporting, expense padding, and low payments for the owner's salary to reduce the profitability of the business during the marriage. This issue is investigated through the examination of several years' worth of accounting records.

The final common issue is that of omissions. Cryptocurrency, trust interests, deferred compensation, stock options, and the cash value of life insurance policies are among assets that have been omitted from the statement of net worth.

How Courts Use the Net Worth Statement

Under equitable distribution state laws, the division of marital assets is done equitably, which means that the court may distribute the marital property equally. Sometimes, it may give more to one party depending upon various other considerations.

California, Texas, and Arizona fall under the category of community property states. Under the community property states, the marital property is usually divided equally among the couple. 

But the importance of a net worth statement remains, since it provides a list and valuation of all the assets and separates community property from the separate property.

For spousal support, the court uses the income and expense parts of the net worth statement pretty directly. 

They look at each side's income, then evaluate the difference between their financial position and the overall gap to decide whether support is needed and, if so, what amount makes sense.

The Statement Is Only as Reliable as What Goes Into It

A net worth statement only gives accurate outcomes if the info inside it is accurate. 

The party who fills out their statement carelessly, undervalues assets, or leaves out accounts they view as minor ends up with a statement that can hurt them in negotiations. In court, any inaccuracies in a submitted net worth statement can be scrutinized.

Getting ready for a net worth statement in a contested divorce usually means gathering account statements, getting appraisals, or requesting them for real property and major personal property, collecting tax returns and business records, and then reviewing the whole financial scene with counsel. 

The time you spend on careful preparation pays off by increasing the likelihood of better case outcomes.