Eugene E. Kinsey, Attorney at Law

323 Main St., 2nd Floor, Seal Beach, CA 90740

MANDATORY FINANCIAL DISCLOSURE

(DECLARATION OF DISCLOSURE)

IN CALIFORNIA

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California Public Policy Requiring Full Financial Disclosures In Divorce Actions

California law recognizes the vital importance of full and accurate disclosure of assets, liabilities and financial circumstances at the early stages of a marital action in order to ensure a proper division of the community estate and fair and sufficient child and spousal support awards. [Ca Fam §§ 2100(a),(b) & (c), 2120(a)]

To promote this goal, and with few exceptions, Ca Fam § 2100 et seq. mandates the exchange of prescribed "preliminary" and "final" declarations of disclosure, along with current income and expense declarations, in all dissolution, legal separation and nullity actions.

For purposes of § 2100 et seq., the following definitions of assets and liabilities apply ("unless the provision or context otherwise requires") (Ca Fam § 2101):

"Asset" includes, but is not limited to, any real or personal property of any nature, whether tangible or intangible, and whether currently existing or contingent. [Ca Fam § 2101(a)]

"Default Judgment" does not include a stipulated judgment or any judgment entered pursuant to a marital settlement agreement. [Ca Fam § 2101(b)]

"Earnings And Accumulations" ncludes income from whatever source derived, as provided in Ca Fam § 4058 [Ca Fam § 2101(c)]

"Expenses" includes, but is not limited to, all personal living expenses, except for business-related expenses. [Ca Fam § 2101(d)]

"Income & Expense Declaration" includes the Income and Expense Declaration forms approved by the Judicial Council; it also includes any other form of "financial statement" approved by the Judicial Council for use in lieu of the Income and Expense Declaration, provided that the alternative form satisfies "all other applicable criteria" [Ca Fam § 2101(e)]

"Liability" includes, but is not limited to, any debt or obligation, whether currently existing or contingent. [Ca Fam § 2101(f)]

Limited Exceptions To The Requirement To File Financial Disclosures

Summary Dissolution - Final Declaration Not Required: Parties to a summary dissolution (Ca Fam § 2400 et seq.) are exempted from the Ca Fam § 2105 "final" declaration of disclosure requirements. But the Ca Fam § 2104 "preliminary" declaration of disclosure requirements fully apply to summary dissolutions. [Ca Fam § 2109; Ca Rules of Court Rule 5.130(a)]

Default Cases: In default cases, petitioner may waive the Ca Fam § 2105 "final" declaration of disclosure requirements. But petitioner must still serve a Ca Fam § 2104 "preliminary" declaration of disclosure (it cannot be waived). [Ca Fam § 2110]

Good Cause Shown: For "good cause," the court has discretion to excuse the exchange of final disclosure declarations and current income and expense declarations. [Ca Fam §§ 2105(a), 2106]

Mutual Waiver Of Final Declaration: On specified conditions, the parties may stipulate to a mutual waiver of the final declaration of disclosure requirements. But that waiver does not excuse the parties' compliance with their underlying statutory disclosure obligations. [See Ca Fam § 2105(d)]

Financial Disclosures Are Served On The Opposing Party But Are Not Filed With The Court

The extensive disclosures required by the statutes could reveal sensitive information which, if filed with the court, would become a public record. Because the threat of public access might discourage full and truthful disclosures, the statutory scheme requires that each party serve his or her declarations on the other party (within specified time limits); but the disclosure declarations are not filed with the court. [Ca Fam §§ 2104(a),(b), 2105(a)]

While the declarations of disclosure themselves are not filed with the court, each party must file proof of service of each of the required declarations; and likewise as to any amended declaration of disclosure. [Ca Fam §§ 2103, 2104(b),(d), 2106]

Mandatory Forms

The requisite § 2100 et seq. disclosures must be made on mandatory Judicial Council forms executed under penalty of perjury. [Ca Fam §§ 2104(a), 2105(a)] These forms include:

Declaration Of Disclosure (FL-140): The FL-140 form is actually a skeleton "cover sheet" to be used for both the "preliminary" and "final" declarations of disclosure (or an amended declaration of disclosure). The details must be furnished by applicable attachments (indicated by checking appropriate boxes on the cover sheet).

The attachments include:

  • A completed Schedule of Assets and Debts (Form FL-142);

  • A completed Income and Expense Declaration (Form FL-150);

  • A statement of all material facts and information regarding valuation of all assets that are community property or in which the community has an interest (No form - must be specially drafted);

  • A statement of all material facts and information regarding obligations for which the community is liable (No form - must be specially drafted);

  • An accurate and complete written disclosure of any investment opportunity, business opportunity or other income-producing opportunity presented postseparation that results from any investment, significant business or other income-producing opportunity from the date of marriage to the date of separation (No form - must be specially drafted).

Declaration Regarding Service Of Declaration Of Disclosure (Form FL-141): Proof of service of the preliminary and final disclosure declarations and each party's income and expense declaration must be filed with the court. The Code also states that each party, or his or her attorney, must execute and file with the court a sworn declaration verifying service on the other party of the prescribed final declaration and current income and expense declaration or stating that service of the final declaration of disclosure has been waived pursuant to Ca Fam §§ 2105(d) or 2110 (Ca Fam § 2106).

The Preliminary Declaration Of Disclosure

The parties must exchange prescribed "preliminary" declarations of disclosure "[a]fter or concurrently with" service of the petition for dissolution, nullity or legal separation. [Ca Fam § 2104(a)]

Section 2104 is cast in mandatory terms (Ca Fam § 2104(a)--"each party shall serve on the other party . . ." (emphasis added)). The statute contains no exceptions and, therefore, the preliminary declaration of disclosure requirement implicitly cannot be waived by the parties or the court. [Ca Fam § 2104(a)]

Normally, each party's preliminary declaration may be served any time during pendency of the action. But a special rule applies in bifurcated dissolution cases. When a party seeks to sever the proceeding for an early "status only" dissolution, unless already served, a preliminary declaration of disclosure with a completed schedule of assets and debts ordinarily must be served along with the motion to bifurcate. The parties may stipulate in writing, however, to defer service of the preliminary declaration until a later time. [Ca Fam § 2337(b)]

Contents: Unless the parties have stipulated to a mutual waiver of the final declarations of disclosure (see below), the preliminary declarations of disclosure are essentially only a general "inventory" of the parties' respective assets and liabilities. Unlike the final disclosure declarations, characterization and valuation details are not required.

Specifically, each party's preliminary declaration of disclosure "shall set forth with sufficient particularity, which a person of reasonable and ordinary intelligence can ascertain," the following information (Ca Fam § 2104(c)):

  • The identity of all assets in which the declarant has or may have an interest and all liabilities for which the declarant is or may be liable . . . regardless of the characterization of the asset or liability as community, quasi-community or separate. [Ca Fam § 2104(c)(1)]

  • The declarant's percentage of ownership in each asset and percentage of obligation for each liability where property is not solely owned by one or both parties to the action. [Ca Fam § 2104(c)(2)]

  • Optionally, the declarant's characterization of each asset and liability. [Ca Fam § 2104(c)(2)--"may also set forth the declarant's characterization of each asset or liability" (emphasis added)]

The above inventory-type information is not sufficient if the parties are stipulating to a mutual waiver of the final declarations of disclosure. In that event (among other things), each party must have fully augmented his or her preliminary declaration of disclosure to also disclose "all material facts and information regarding the characterization of all assets and liabilities, the valuation of all assets that are contended to be community property or in which it is contended the community has an interest, and the amounts of all obligations that are contended to be community obligations or for which it is contended the community has liability." [Ca Fam § 2105(d)(3)]

Each party's preliminary declaration of disclosure must be accompanied by a completed income and expense declaration . . . unless a "current and valid" income and expense declaration has already been provided. [Ca Fam § 2104(e)]

The Final Declaration Of Disclosure

The exchange of preliminary declarations (above) is an interim step toward the requisite exchange of more comprehensive "final" declarations of disclosure before consummation of a marital settlement agreement or entry of the ultimate judgment. [Ca Fam §§ 2105, 2106] Like the "preliminary" declaration requirement, service of prescribed "final" declarations is cast in mandatory terms (Ca Fam § 2105(a)--"each party, or the attorney for the party in this matter, shall serve on the other party . . .").

However, in the following narrow circumstances, the mutual exchange of final declarations may be excused:

Good Cause: For "good cause," the court may exempt the parties from compliance with the requirement of service of a final disclosure declaration and accompanying current income and expense declaration. [Ca Fam §§ 2105(a), 2106]

Summary Dissolution: Final declarations of disclosure are not required in summary dissolution proceedings. (But the exchange of preliminary disclosure declarations is required.) [Ca Fam § 2109; Ca Rules of Court Rule 5.130(a)]

Petitioner's Waiver In Default Cases: In true default cases (respondent has neither filed a response nor entered a general appearance), petitioner may waive the final declaration of disclosure requirements. Such a waiver exempts petitioner both from serving a final disclosure declaration on respondent and from receiving respondent's final disclosure declaration. But petitioner must still serve (and file proof of service of) a preliminary declaration of disclosure. [Ca Fam § 2110] An uncontested or stipulated judgment is not a "default" case for this purpose. [Ca Fam § 2101(b)]

Stipulated Mutual Waiver: On specified conditions (below), the parties may stipulate to a mutual waiver of the final declaration of disclosure requirements by executing a waiver under penalty of perjury entered into in open court or by separate stipulation. [Ca Fam § 2105(d)] The stipulation must recite all of the following conditions:

  • Both parties have complied with Ca Fam § 2104 and their preliminary declarations of disclosure have been completed and exchanged (Ca Fam § 2105(d)(1));

  • Both parties have completed and exchanged a current income and expense declaration that includes all material facts and information regarding that party's earnings, accumulations and expenses (Ca Fam § 2105(d)(2));

  • Both parties have fully complied with Ca Fam § 2102 (fiduciary duties of disclosure) and have "fully augmented the preliminary declarations of disclosure, including disclosure of all material facts and information regarding the characterization of all assets and liabilities, the valuation of all assets that are contended to be community property or in which it is contended the community has an interest, and the amounts of all obligations that are contended to be community obligations or for which it is contended the community has liability" (Ca Fam § 2105(d)(3));

  • Each party has knowingly, intelligently and voluntarily entered into the waiver (Ca Fam § 2105(d)(4));

  • Each party understands that the waiver does not limit the parties' legal disclosure obligations, but is a statement under penalty of perjury that those obligations have been fulfilled (Ca Fam § 2105(d)(5)); and

  • Each party understands that noncompliance with the statutory disclosure obligations "will result in the court setting aside the judgment" (Ca Fam § 2105(d)(5)).

Final Disclosure Information: The required final declarations are far more than a mere general "inventory." Each party's final declaration of disclosure "shall include" all of the following information (Ca Fam § 2105(b)):

  • All "material facts and information" regarding characterization of "all assets and liabilities." [Ca Fam § 2105(b)(1)]

  • All "material facts and information" regarding valuation of all assets contended to be community or in which it is contended the community has an interest. [Ca Fam § 2105(b)(2)]

  • All "material facts and information" regarding the amounts of obligations contended to be community obligations or for which it is contended the community has the liability. [Ca Fam § 2105(b)(3)]

  • All "material facts and information" regarding the earnings, accumulations and expenses of each party that have been set forth in the income and expense declaration (below). [Ca Fam § 2105(b)(4)]

Updated Income & Expense Declaration Required: An updated income and expense declaration must be served along with each party's final declaration of disclosure . . . unless a current income and expense declaration is already on file. [Ca Fam § 2105(a) & (d)(2)]

Remedies For Noncompliance With Financial Disclosure Requirements

Noncompliance with the disclosure requirements is remediable pursuant to Ca Fam § 2107, as follows:

Optional Remedies: If one party fails to serve on the other party either a § 2104 preliminary declaration of disclosure or a § 2105 final declaration of disclosure, or fails to provide the requisite information "with sufficient particularity," and if the other party has served the respective declaration on the noncomplying party, the complying party "may" proceed as follows (Ca Fam § 2107(a)):

Informal Request: As a first step, the complying party "may, within a reasonable time," request the noncomplying party to prepare the appropriate declaration of disclosure or further particularity. [Ca Fam § 2107(a)]

Formal Procedures: If the informal request is unsuccessful, the complying party "may" next take either or both of the following steps (Ca Fam § 2107(b)):

  • File a motion to compel further response (Ca Fam § 2107(b)(1)); and/or

  • File a motion for an order preventing the noncomplying party from presenting evidence on issues that should have been covered in the declaration of disclosure (Ca Fam § 2107(b)(2)).

Manditory Sanctions: Without regard to the above optional remedies, the court "shall" impose monetary sanctions against a party who fails to comply with any provision of Ca Fam § 2100 et seq. The sanctions must be assessed in an amount "sufficient to deter repetition of the conduct or comparable conduct," and must include reasonable attorney fees, costs incurred or both . . . unless the court finds that the noncomplying party "acted with substantial justification or that other circumstances make the imposition of the sanction unjust." [Ca Fam § 2107(c)]

Contempt Or "Other Remedies": Section 2107 monetary sanctions are "in addition to any other remedy provided by law." [Ca Fam § 2107(c)] In an appropriate case, therefore, compliance with the declaration of disclosure requirements can be compelled through the court's contempt power.

Note: In order for a party to invoke the § 2107 remedies, he or she must have fully complied with the declaration of disclosure requirements. [Elden v. Super.Ct. (Elden), supra, 53 Cal.App.4th at 1510-1511, 62 Cal.Rptr.2d at 329; Marriage of McLaughlin (2000) 82 Cal.App.4th 327, 335, 98 Cal.Rptr.2d 136, 141, fn. 5]

 

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