Financial Discovery in Divorces and Failure to Disclose

What happens in a divorce when someone fails to make financial disclosure or financial disclosure in

Lawyer speaking with the judge in the court room

divorces?

Parties to a divorce in New York are entitled to complete financial disclosure by the other side. There are a number of ways for a divorce lawyer to obtain this disclosure. Usually one of the first documents exchanged in a divorce is called a Net Worth Statement. In most instances both the Husband and Wife each fill out their own respective Statement of Net Worth. A Net Worth Statement is essentially an affidavit, sworn to before a notary public that is a disclosure by both the Husband and Wife of their respective financial situations.

The Net Worth Statement consists of: the caption of the case; biological or statistical facts such as date of marriage, children names and ages, addresses, occupations, employers, etc.; monthly or weekly expenses like for housing expenses, food, utilities, insurance, car payments, medical payments, taxes to name a few; income from all sources including employment, investments, social security, disability and other areas; assets including cash, checking accounts, securities (notes, bonds, stocks, options), loans and account receivables, cash surrender value of life insurance, business interests, vehicles, real estate, trusts, retirement assets (pensions, IRAS, 401Ks etc.), contingent interests, household furnishings and jewelry among other items; liabilities like accounts payable, notes payable, installment accounts payable, brokers’ margin accounts, mortgages, taxes, loans on life insurance policies and other liabilities; assets transferred in the past three years; support requirements; counsel fee requirements; accountant and appraisal fee requirements, and other financial data that a court or anyone involved with the case might be interested in. Net Worth Statements are sometimes voluntarily exchanged by the parties through their lawyers (I also like to have both the Husband and Wife exchange them in my mediations) before the necessity of court appearances but are required to be produced at the Preliminary Conference.

When a preliminary conference is scheduled, usually either because one of the divorce lawyers has requested it or a motion was filed (in most instances it would be what is called a Pendente Lite motion – Latin for while the case is pending) the court will issue a scheduling order which often requires each party to bring and exchange: Net Worth Statements; attorney retainer statements; state and federal tax returns for the past three years, including both personal and business returns, supporting tax return documents for the past three years (w-2 and wage statements, 1099s, K-1 forms); all statements of accounts for securities for the past three years; all retirement account statements immediately preceding commencement of the divorce case and sometimes other initial ordered disclosure. Despite this being a court order, sometimes people do not bring these items to the Preliminary Conference (although anyone is risking the wrath of the judge if they choose not to bring the ordered documents). Often the lawyers position on that topic, when their client does not bring these items initially, is that everything will be produced pursuant to the discovery schedule.  In the Preliminary Conference a discovery schedule is made and sometimes evaluations and experts are immediately ordered to illuminate the value of businesses, degrees, houses, jewelry, retirement benefits among other things.

The discovery schedule in most cases will require the attorneys for each side to serve their demands within a specified time period such as a couple of weeks or thirty days. Responses are then due within twenty or thirty days is sometimes agreed upon. The discovery demands most commonly are: a Notice for Discovery and Inspection; Demand for Interrogatories; and Notice for Examinations Before Trial (depositions). Subpoenas can be served as well. The Discovery and Inspection requires the production of year’s worth of financial documents, beyond that which was required to be produced at the Preliminary Conference. Usually the time frame is three to five years. Discovery beyond that time frame will usually require some type of showing as to why it is relevant. Interrogatories are long lists of questions that each side is required to answer. Examinations Before trial are meetings in which the lawyers for a party ask the other questions before a court reporter that transcribes the questions.

All these aforementioned are different discovery vehicles. Objections can be made to discovery requests such as the information is privileged, unduly burdensome, irrelevant, in the possession of the other party or certain other limited reasons. If a discovery demand in not complied with or improperly objected to, the other party is not without remedies. The Civil Practice Law and Rules (CPLR), which also detail these different discovery mechanisms, contain remedies for non-compliance.

One remedy is for a lawyer to subpoena the required information from other sources like banks that might have the statements. Another step is a motion to compel disclosure. CPLR Rule 3124 states that if someone does not response with a discovery request the motion is permitted. The other side may or may not oppose the motion. The court may then issue an order compelling compliance with the discovery demand.  CPLR 3126 lists the penalties for failure to comply with a request or order to disclose. The law states that if anyone refuses to comply with a request or order to disclose that the court may: issue an order that says the issue that the information would be relevant about is resolved in favor of the person requesting the disclosure; make an order stating that the non-compliant party can not introduce into evidence or use witnesses of their side of the story on the issue at a hearing or trial; strike pleadings of the non-compliant side or dismiss the action or part of it or issue a judgment by default against the disobedient side.

The case law supports a preclusion order. All financial evidence, other than that which was disclosed could be prohibited from being introduced and all financial issues resolved in favor of the other side. Cases do recognize that preclusion is a drastic remedy and that the court needs to find that the lack of disclosure was essentially deliberate or purposeful without a reasonable excuse. Cases have held that the court has wide discretion to decide the nature and degree of the penalty.

As with most of my blogs, the foregoing is intended to be a brief overview of the topic. There is no substitute for the advice and representation of competent counsel. Feel free to click around my website and blog for more information or call about your free half hour consultation. It would be our pleasure to talk to you about it.