Part I of a II part article
As Neil Sedaka said, breaking up is hard to do. When planning for a divorce, a careful and calculated approach is required to protect your interests. This article will highlight 5 things to consider based on our firm’s decades of handling these cases, both in court and in private resolutions. These tips focus primarily on New Jersey’s divorce laws and procedures. Divorce laws vary from state-to-state, but these tips are generally helpful to a wide range of divorce situations.
- Keep Good Records
Maintaining good records is incredibly important when facing a divorce. You should anticipate that your pay history, assets, and liabilities will be thoroughly analyzed. Be prepared to exchange hundreds of pages of documents during the divorce process. If you have a financial advisor, accountant, or investment broker, let them know you’re getting divorced and ask for their assistance in putting together an outline of your assets and liabilities. A caution, however: check first to determine whether your professional, due to company policies, will feel or be obligated to advise your spouse of the contact, especially if they are a joint professional. You should also determine if your professional will be required to place a freeze on the liquidation of your assets once they are informed of a pending divorce. If your divorce is litigated in the courts, you will need to prove, usually through documentation, your assets and debts. The more organized you are, the more credible you will look at a trial. It is also a cost-saving benefit to you if you can provide the information to your counsel rather than expending attorney or paralegal fees to obtain the information.
- Don’t Hide Things
This is the flip side of item 1, but it’s a concept that needs to be reiterated because it surfaces time and again in these disputes, usually to the detriment of the “hider.” In divorces, the other side is entitled to complete transparency and full disclosure with respect to your income, assets, and debts. A broad “discovery phase” in divorces allows each side to obtain documentation and information from the other side, and pretty much nothing is off limits, especially financially. In high asset cases, you can anticipate that the discovery phase will be lengthier and more complex as the other side tries to uncover as much information as possible. It can be tempting to try to hide things, such as a significant upcoming bonus or a recent investment acquisition. Any semi-attentive attorney on the other side is going to look for these types of omissions. Once a judge learns that you have tried to hide something, your entire case will be tainted and you will have negatively affected your credibility. If your case goes to a trial, a judge may have a hard time ruling in your favor if he or she thinks you have purposely tried to mislead your spouse and the court by hiding assets or income. Therefore, it’s best to be open and honest about your income and assets with your attorney, and leave it up to her or him to work with you to fashion the strategy to achieve the best outcome for you.
- Don’t Understate Your Marital Standard of Living
As part of the divorce process, you will be required to complete a document that outlines your marital standard of living. In New Jersey, this document is called a Case Information Statement, or CIS. In the CIS, you must list what you spend each month on fixed expenses, such as a mortgage, car payment, and utilities, as well as your fluctuating expenses, such as food, clothing, and entertainment expenses. These expenses are then tallied to determine your approximate monthly marital standard of living. Courts use the marital standard of living mostly to determine a party’s spousal support (alimony) entitlement or obligation. To try to lower the alimony, it is not uncommon for one spouse to purposely attempt to under-value their monthly expenses. For example, although they may know that the family eats out several times a week for $150 per dinner, a spouse might claim on their CIS to only spend $100 per month on dining and restaurants, when in reality the figure is closer to $1,000. Under-stating the marital lifestyle can lead to excessive litigation as the courts will require proofs to determine the true expenses. It is usually not that difficult for the other side to prove the marital lifestyle, either through receipts, credit card statements, or witness testimony. Here again, if a judge realizes that a party has purposely tried to under-value the marital standard of living, that person’s credibility will be greatly damaged. Therefore, when outlining the marital standard of living, carefully analyze what happens with your net monthly income and make sure that the monthly standard of living is on par with that figure. If you bring home $20,000 net per month and you claim your marital standard of living is only $7,500 per month, be prepared to show the court that you have accumulated approximately $12,500 per month in savings. Otherwise, something won’t add up.
- Make Sure Your Standard of Living Matches Your Historical Earnings
Similar to the tip above, you should also be careful that the marital standard of living you disclose to the court is not so high that your purported income could not satisfy that type of lifestyle. This is most common for entrepreneurs and business owners who are not typical W-2 wage earners. If you or your spouse tell the court that your marital standard of living is $8,000 per month ($96,000 per year), but your tax returns show gross income of only $65,000 per year, it becomes obvious that you have not fully disclosed your income. Courts are savvy to the many ways that business owners and sole proprietors can decrease their gross income “on paper,” so don’t expect the judge to simply rely on your tax returns for income determination purposes. If your spouse can prove that you’ve enjoyed an upper-middle-class lifestyle for the past ten years, it’s going to be very difficult to convince a judge that you earn minimum wage. Once again, if you attempt this approach, your credibility is shattered.
- Understand the Expanding Definition of Income
Many professionals have complex compensation packages that become particularly relevant during a divorce. Things like paid vehicles, expense reimbursements, travel and accommodations, or stock options can all be analyzed and included as part of your income when determining your alimony or child support entitlement or obligation. It is not uncommon to find yourself in court arguing over whether or not a particular benefit should be included or excluded from your income when determining your financial entitlements or obligations incident to a divorce. It is helpful to provide your attorney, and often the court, with your complete employment contract and any other documentation that demonstrates your salary and perks. Bonuses are another frequently-litigated issue. Don’t assume that just because your bonus is “discretionary,” it will be excluded from your income. The court will instead look to prior years; if you’ve consistently earned a bonus, you can expect that it will be included in your income. To the extent that you can demonstrate that your bonuses have fluctuated over the years, the court may average them and then increase your base pay by the average bonus figure. To assist your attorney in limiting your spouse’s attempts to overinflate your income during the divorce process, be as candid and detailed as possible about the myriad ways you are compensated for your work.
** Part II of this Installment Series will be presented in Flaster Greenberg’s next Litigation Newsletter, due out in early spring. **
Angie Gambone is a member of Flaster Greenebrg’s Family Law Department concentrating her practice in the areas of complex family law, divorce and custody matters. She also focuses her practice on adoption, family formation and the family law needs of nontraditional and LGBT families. She can be reached at 856.382.2217 or firstname.lastname@example.org.