Most family court judges, especially the better judges, love a proper financial declaration and respect and appreciate the lawyer who presented it. Ironically, those same judges will neither criticize nor sanction lawyers who either prepare sloppy financial declaration or—even worse—allow their clients to prepare sloppy financial declarations with no oversight. Rule 20(d), SCRFC, provides, “Reasonable sanctions may be imposed upon an attorney or party for willful noncompliance with this rule.” If judges enforce the rules, the lawyers will comply. If judges and lawyers follow the rules, trial becomes easier, takes less time, produces better and fairer results, and costs less. It would help if South Carolina Court Administration provided a better-organized and less confusing form.
Financial declarations have four primary sections: Income, Expenses, Assets, and Debts.
- Income is critical for child support, spousal support, equitable apportionment of property and debts, and attorney’s fees, which is about everything other than grounds for divorce and custody and visitation, and it can be a consideration for custody and visitation. The key to this section is knowing and remembering no one ever had a problem from overstating his or her income, but litigants have lost their cases by understating income.
- Expenses are estimated expenses but calculations are complicated because the categories are too broad, and no one is sure what goes in each category. I advise my clients it is not as important to get it 100 percent right as having a credible explanation why the client used each figure. Judges pay less attention to expenses but they can affect spousal support and attorney’s fees.
- Marital and nonmarital properties are the most difficult sections of the financial declaration. The first question is the detail required. Lawyers’ opinions vary. Some advise clients to list real estate, financial accounts, and vehicles. Others suggest adding any item of property worth more than some arbitrary level, such as $5,000, $2,500, $1,000, or $500. My advice to clients is to list every item of property you want and every item of property for which you want credit if the court awards it to your spouse. If judges wished to resolve this issue easily, they would refuse to allow testimony or make any award of property not listed on either party’s financial declaration. They should also sanction lawyers and parties for false, misleading, or inadequate financial declarations. Litigants often neglect nonmarital property. If your client wants the assault rifle or golf clubs he owned before marriage, he must list them. If she wants her hope chest or jewelry she had before marriage, she must list it.
- Most lawyers and litigants do a good job listing the debts but a lousy job of describing for what purpose the client incurred the debt. The VISA debt is not for “credit card.” It is for clothing, household expenses, or sex toys. Litigants frequently fail to list debts to their family members or you, their lawyer.
The client must verify the financial declaration. The client must understand the significance of his or her oath because opposing counsel will most probably cross-examine and criticize him or her about the financial declaration. The judge will likely listen carefully to the responses.
If expenses exceed income, how does the litigant make up the difference, ever-increasing debt? Gifts, independent wealth, or support by a paramour? If the expenses are less than the debt, the excess should appear in savings accounts or investments.
I have had good and bad experiences with financial declarations.
- In several cases, my clients had income they did not report to the taxing authorities but honestly reported on their financial declarations. Most judges appreciate the honesty on the financial declaration; however, one judge asked if he had a duty to report to the Internal Revenue Service and the South Carolina Department of Revenue. He did not, but it caused our side a lot of concern and a bad result.
- In one case in which the husband had hundreds of thousands of dollars in unreported income, I subpoenaed his South Carolina tax return from the Department of Revenue. The agent sat through the trial, listening to the testimony about resort homes, expensive cars, boats, and lavish spending. After the ensuing audit, the husband paid far more in taxes and penalties than his wife sought. He could have saved money with an honest financial declaration.
- The wife scheduled a second temporary hearing claiming my client had taken her dog. The late Judge David N. Wilburn Jr. looked at the financial declarations of both parties. He then announced neither financial declaration listed the dog as either marital or nonmarital property. Therefore, he would make no ruling about the dog.
- My client was a good, decent, hardworking mother who accurately reported her income. Her ex-husband made a good salary but concealed part of his income. The wife listed high, but probably correct, incidental expenses but could not explain the expenses adequately. The trial judge found it detracted from her credibility and penalized her in his findings of fact.
- A friend relates this. Believing she earned $1,000 per week–$4,333 per month–I cross-examined about her stated income of $4,000 per month. She testified as I thought she would. Instead of holding their neglect against the wife and her attorney, the well-respected judge criticized me for pointing out a glaring mistake of which he had assumed.
- Judges do not always get it right. A friend also tells of a judge who criticized my friend’s client for overstating her average monthly expenses. The client was furious. She was an excellent auditor and prepared probably the best financial declaration my friend had ever seen.
Preparing for this post, I read 20 South Carolina cases mentioning financial declarations, dealing with dishonest, inaccurate, misleading, and otherwise bad financial declarations. Trial and appellate courts give little credence to parties with significant discrepancies in their earlier and later financial declarations. Parties with defective financial declarations are not likely to win at trial, but should not bother with an appeal because the appellate courts react with the same concerns as the trial courts. A deficient financial declaration is a good start toward a losing your case. Later corrections help little.
What are your good and bad experiences with financial declarations? What lessons would you add to this post?