The law requires spouses and/or domestic partners involved in a dissolution to exchange what is known as Preliminary Declarations of Disclosure. Preliminary Declarations of Disclosure generally consist of two Judicial Council forms-- Schedule of Assets and Debts and an Income and Expense Declaration. The Schedule of Assets and Debts identifies every type of property (separate or community) the party completing the document has an interest in, and the estimated fair market values of real property, household furnishings, jewelry, art, antiques, motor vehicles and boats, bank accounts, credit union accounts, stock and mutual fund accounts, retirement plans, 401k plans, profit sharing plans business interests, promissory notes, and any and all other assets; debts (secured and unsecured), credit card debts, taxes due, and the like are stated. Current statements identifying every asset—i.e. a checking or savings account—and/or debt—i.e. credit card--must be attached to the Schedule of Assets and Debts. An Income and Expense Declaration is also required as part of the Preliminary Declaration of Disclosure. If a spouse is employed, he or she must attach to the Income and Expense Declaration copies of his or her two most recent pay stubs. A spouse who is a business owner or partner will be required to produce profit and loss statements, and most likely tax returns, for the past two years.
A fiduciary duty exists between spouses who are proceeding through dissolution of a marriage or domestic partnership. This requires each spouse to honestly and truthfully disclose all assets and debts and income and expenses. If either spouse or domestic partner fails to identify an asset or debt or misstates his or her income and dissolution of a marriage or domestic partnership is obtained notwithstanding the inaccurate disclosure, the other spouse or domestic partner may move to set aside the judgment of dissolution and potentially obtain one-half of the assets that were not disclosed.
A well known California case related to Preliminary Declarations of Disclosure and the requirement that both spouses disclose all assets and debts is the Marriage of Rossi, where Mrs. Rossi suffered the strictest penalty of all for failing to disclose an asset.
Ms. Rossi purchased a lottery ticket with community property monies before her and her husband separated, and won $2,000,000. She did not disclose the winnings in any mandatory disclosure documents signed under penalty of perjury by each spouse. About two years later following their divorce, Mr. Rossi learned his ex-wife had won $2,000,000 in the lottery.
Under California law one half of the lottery winnings belonged Mr. Rossi because the lottery ticket was purchased with community property funds. But as a punishment for being dishonest, breaching her fiduciary duty and not disclosing the lottery winnings in her Declarations of Disclosure, the court ordered Ms. Rossi to pay to Mr. Rossi all of the lottery winnings. Ms. Rossi was also required to pay her ex-husband’s attorneys fees.
The moral of the story is to be honest and upfront.
Once Declarations of Disclosure are exchanged it is then possible for the parties to attempt to resolve the issues raised in a dissolution of marriage through what is known as a Marital Settlement Agreement or a Stipulation for Judgment.