The Probate and Family Courts require the completion of a financial statement; this financial statement is required in all matters involving a marital dissolution (divorce), support (alimony and child), and other financial matters.
Why is this document so important? It is extremely important for a few reasons:
- This document will become part of a permanent record;
- This document will be used as a benchmark for future support modifications;
- This document will be used to divide all marital assets; absent extraordinary circumstances, the division of marital assets is a FINAL distribution, which cannot be modified or changed.
This document will be used to decide a divorcing individual’s financial future; therefore, it requires the proper time and attention to make certain the information is accurate and presented in the most appropriate manner. This document is signed under the penalties of perjury that the information is complete, true, and accurate.
The amount of an individual’s annual income before taxes determines if a short form (less than $75,000) or a long form (more than $75,000) financial statement needs to be prepared. If an individual is self-employed or has rental property additional forms (Schedule A and Schedule B) are required.
In my years of working in family law, I have reviewed and prepared numerous financial statements. Some of the repeated mistakes that are often observed include the following:
- Weekly v. Monthly Figures
- As one navigates through the financial statement pages, there are pages that request weekly figures and other pages that request monthly figures. Special attention should be given to ensure that the proper figure is reported.
- Self-Employment Income (Schedule A)
- There is confusion surrounding the term “self-employment.” Based upon my experience as a Certified Public Accountant and a litigation support professional, it is my belief that the Schedule A should only be utilized in matters that involve a sole-proprietorship (tax form Schedule C of Form 1040) or a partner of a partnership (Form 1065). Generally, self-employed individuals must pay self-employment tax; self-employment tax consists of Social Security and Medicare tax primarily for individuals who work for themselves.
- Therefore, the Self-Employment Income reported on Schedule A should NOT be utilized for business owners that are S-corporations, even though such individuals may consider themselves to be “self-employed” due to the fact that they are a business owner. The determining factor is not if you own the business, but how the business’ income is taxed to the individual and whether such income is subject to self-employment tax.
- It is worth noting that Schedule A uses mostly monthly figures, but it also includes a line item that is weekly (“weekly expenses”). Again, close attention is required in accurately completing said schedule.
Accurately reflecting an individual’s financial position along with one’s income and expenses can be complex, especially when there are multiple sources of income and business interests are involved. DiSanto, Priest & Co. has the experience and expertise to assist in preparing this very important document, so let our trained professionals help you and your clients prepare an accurate, well thought-out financial statement.