How to prepare a Financial Statement for your Massachusetts divorce, custody or support matter.

The Financial Statement is the document in which you disclose all of your current income, expenses, assets and liabilities.  Both you and your spouse (or child’s other parent) will need to complete a Financial Statement as part of your divorce, custody or support matter, and the Financial Statements will be updated periodically.

I sound like a broken record when I talk about Financial Statements – I constantly tell my clients that the Financial Statement is the most important document that we prepare in a divorce, custody or support case. . . because IT IS.

Why is the Financial Statement so important?  A Judge is asked to make important financial decisions about your family in every divorce, custody or support case.  Do you honestly know how much money someone else makes, what kind of debt they have or what they pay for groceries or for other day-to-day expenses? Of course you don’t, and neither does a Judge in the Probate and Family Court.

How, then, could you expect that Judge to make these important financial decisions about your family when she does not know anything about your family’s financial landscape?  You can’t.  So, every time you go to Court in your divorce, custody or support matter, you will have to prepare (or update) your Financial Statement.

The Financial Statement that you file with the Court is not just a source of financial information for the Judge making decisions in your case.  It is also a measure of your credibility and the basis on which the Judge will draw first impressions about you.  You may not think that sounds very fair, but it’s reality.  Signing and filing a hastily-prepared and sloppy Financial Statement with the Probate and Family Court is like showing up for a job interview in your pajamas.

Also, before you file your Financial Statement with the Court, you sign that Financial Statement to attest — under the pains and penalties of perjury — that it is accurate to the best of your knowledge.  Enough said there.

Okay, I get it, Janie, so how do I make sure that my Financial Statement is completed properly?  I won’t dance around this. . . preparing and updating your Financial Statement is tedious, like a-real-pain-in-the-ass tedious.  You will not enjoy it.  In fact, I suspect you will feel the same way about preparing your Financial Statement as I feel about ironing.  I.  Hate.  Ironing.  Yet, there is a pile of wrinkled clothes on the floor and they are not going to iron themselves.  Same goes for your incomplete Financial Statement.

In this blog post, I'm going to take you step-by-step through preparing each section of your financial statement.  These instructions will help you break the project down into bite-sized pieces that are easier to consume one at a time.  Then, by the time you appear in front of a Judge, you will have a well-prepared and accurate Financial Statement and make a great first impression.

I encourage you to complete these 8 steps separately and over a period of at least five days.  (Yeah, I know — 8, but we’re in this together.)  Don’t try to tackle every section of your Financial Statement in one sitting (unless, of course, you are going to Court tomorrow!)

Step 1.  Determine whether you need to complete the Short Form or the Long Form.

If your income is less than $75,000 per year, use the Short Form.  If it is $75,000 or over, use the Long Form.  Make this determination based on your income only — not the income of anyone else who lives with you or contributes to your expenses — just your income.  If your income fluctuates and you are not sure which Form to use — for instance, your income totaled more than $75,000 last year, but might be less than $75,000 this year — use the Long Form (because the Long Form is more detailed, so no one will criticize you for using it.)

In this post, I am going to refer to the Short Form that is provided on the Commonwealth’s website.

Step 2.  Fill in your Personal Information.

At the top of the first page, fill in the Division and Docket No. fields.  The Division is the county that you are in (Worcester, Middlesex, Essex, et cetera.)  Your Docket No. is a specific number assigned only to your case.  You can generally find the Docket No. in the upper right corner of any papers that you received from the Court or from the other party in the case (that is, your spouse or your child’s other parent.)

The remaining Personal Information requested in this section is pretty self-explanatory.  In the field No. of children living with you, I generally recommend including the children that are with you at least half of the overnights in any given month (whether they are the children that are the subject of your pending case, step-children, or your companion’s or roommate’s children.)

This section will probably take you fifteen minutes (tops) and you’re done.  Enjoy the break.  You’ll be more annoyed with me after Step 3.

Step 3.  Identify Your Gross Weekly Income.

This is the section in which you identify your gross income — not the income of a spouse or someone else living with you or contributing to your expenses, although I will show you where to indicate those separate contributions.  Again, you report your gross income here — that is, what you are paid before taxes and other deductions come out of your check (we’ll review deductions in Step 4 below.)

This is also the section that a Judge will immediately refer to if there is an issue with calculating a child support obligation under the Child Support Guidelines (or when deciding Alimony or any other financial issue in your case.)  Particularly for child support calculations, and whether you will pay or receive child support, it is extremely important that you identify the different components of your income accurately.  Otherwise, you risk a miscalculation in the support order.

Here is the best way to identify your gross weekly income and avoid the mistakes that people often make when reporting income on their Financial Statements. First, gather your W2(s) from last year and your most recent four (4) paystubs from this year.  You are going to use these to report your gross weekly numbers in this section, and also attach copies to the Financial Statement that you file with the Court to corroborate the income numbers you have reported.

Your paystub should itemize your Base Pay, Overtime and Deductions for that pay period, showing what was deducted from your gross pay to reach the net amount that you receive for that pay period.

Next, separate your Base Pay from your Overtime (or Shift Differential.)  This is particularly important for the calculation of child support, because overtime is not automatically included in (or excluded from) the child support calculation; but, the Judge will not even know there is an issue with including or excluding overtime if all of the income is lumped into one line.

Your Base Pay is what you are paid for working full-time (generally 40 hours weekly), and your overtime is the additional pay received over and above your full-time workweek.  Report your Base Pay on line 2)a), and your Overtime on line 2)b).  Often, although not always, Overtime is paid at a higher rate than your Base Pay, but you should separate out the Overtime even if it is paid at the same rate as your Base Pay.  If you receive a shift differential (e.g., additional pay for working an evening or weekend shift), you should identify that in Section 2)b) also.

If your overtime or differential pay fluctuates, then you should report either the average you received during the last full year, or the year-to-date average for the current year, whichever number more accurately represents the overtime that you consistently receive.

Again, regardless of how often you are paid, the Financial Statement is asking for your income in weekly numbers.  So, you convert the numbers to weekly numbers as follows:

  • if you are paid $Y monthly, convert $Y to weekly with this formula — $Y x 12 months = Annual, and then Annual divided by 52 = Weekly (do not make the common mistake of dividing monthly numbers by 4 — there are not 4 weeks in every month!)
  • if you are paid $Y bi-weekly (26 times per year), convert $Y to weekly by dividing $Y by 2; and
  • if you are paid $Y bi-monthly (24 times per year), convert $Y to weekly with this formula — $Y x 24 pay periods = Annual, and then Annual divided by 52 = weekly.

Report contributions as income in line 2)p) only if the contribution is not tied to a specific expense.  I think lawyers (and probably Judges) have different opinions about this; but, in my practice, I do not report contributions from others (including household members) as income on line 2)p) unless that contribution is not tied to a specific expense and the money is paid directly to the person signing the Financial Statement.

For instance, if you rent a room in your home, charge your roommate $100 weekly, and your roommate pays the $100 directly to you each week, then you should report $100 on line 2)p) as a Contribution from household member(s).  If your roommate splits the electricity and cable bill with you, then — in my opinion — you should not report that on line 2)p).  Instead, you should report, in the Expense Section of the Financial Statement (discussed below), your share of expenses and add an explanatory note that your roommate pays the other half of these expenses.

Step 4.  Identify the Deductions from your Gross Weekly Income.

This is the section in which you report the money that is deducted from your paycheck before you receive whatever is left over.  For this information, you are going to look at the paystubs that you gathered in Step 3, and use the same formulas described above to convert the deductions to weekly numbers.

You should report all deductions from your paycheck — that is, everything that is deducted before you have the net available to you to spend.  The most common deductions are:

  • federal taxes;
  • state taxes;
  • Social Security/FICA/Medicare;
  • contributions to a pension, IRA, 401K or other retirement account;
  • your share of health, dental, vision and life insurance premiums;
  • union dues;
  • child support or alimony paid to another person; and
  • any other payments that come directly out of your paycheck.

A final  note here about deductions — many of us have our net paychecks direct deposited into one or more of our bank accounts.  Although these amounts that are deposited into a bank account will show on your paycheck as a deduction, don’t get too cute and try to show this as a deduction on the Financial Statement (i.e., and then show your net income as $0.)  If you instructed your employer to directly deposit your net paycheck into one of your bank accounts, then the money is available to you to spend right now and it should be included in the 4. ADJUSTED NET WEEKLY INCOME line in this Section of your Financial Statement.  This line will calculate automatically for you once you have filled in your gross income and individual deductions using the above instructions.

Line 7. GROSS YEARLY INCOME FROM PRIOR YEAR should match your W2 from last year; or, if you had more than one employer, the total of all of your W2(s) from last year.

Finally, you can identify the Number of Years you have paid into Social Security by obtaining a copy of your Social Security Statement, which you can request using this link.  On the third page of your Social Security Statement, you will see your “Earnings Record,” which will list the years during which you have contributed to Social Security.  Count the number of years listed and that is the number you fill in to this section of the Financial Statement.

Step 5.  Identify your Weekly Expenses.

This is probably the most tedious part of the Financial Statement form, because this is where you identify where and how you spend your money.  The space provided on the Short Form is not particularly helpful either, because it does not list nearly all of the common expenses that people incur in their day-to-day lives and it provides a very small space to identify a lot of information.

In my experience, when people look only at the space provided in the Financial Statement form, they tend to forget many of their day-to-day expenses and end up under-reporting those expenses to the Judge deciding the case.  This is particularly troublesome in cases where Alimony is an issue (because Alimony decisions are based, in part, on the recipient’s financial need.  The WEEKLY EXPENSES section of the Financial Statement is the first place a Judge will look to determine financial need.)

To avoid under-reporting expenses, I have created a sheet for my clients that includes an expanded listing of possible expenses.  This list has grown longer over the years (each time I think of an expense that is not on the list!)  My clients have a much easier time identifying all of their expenses using this sheet because it prompts them to think of those occasional (but significant) expenses that they would have otherwise forgotten.

Here is a link to my expense sheet.  Use it to identify all of your expenses, the amount you spend on each and how often.  Many people find it helpful to review past bank statements or check registers, and think about/calculate how much you spend on any given item and how often.

Then, convert the expenses to a weekly number.  In my experience, most expenses are either weekly (groceries, gas, child care), monthly (mortgage, rent, utilities) or several times a year (real estate taxes, water/sewer bill, automobile repairs.)

If you identify an expense that you incur monthly or several times a year, figure out what you spend on average in a year and then divide that average yearly number by 52.  Once you have done that for each expense, you can group like expenses together to fit into the space provided on the Court’s Short Form.  For  instance, you can group your weekly grocery and dining out expenses under Food.  When you go to Court, you will sign and file only the Short Form, but you should bring the separate expense sheet with you in case you need to refer to it to answer
any questions about the expenses you have reported on the Short Form.

Finally, remember that you are reporting your personal expenses in this Section, and you should not include here any of your business expenses if you own a business.  Also, if your employer pays a particular expense for you, then you should disclose that fact in this Section (for instance, under p) Motor Vehicle Expenses if your employer provides a vehicle and pays for the gas and repairs.)

 

Step 6.  Identify your Assets.

This is where you identify everything that you own, regardless of when you acquired the asset or whether you own it solely or jointly with another person.  The asset section of the Financial Statement is divided into several subsections — namely, real estate, motor vehicles, retirement and investment accounts, bank accounts and miscellaneous assets.

In the Real Estate section, you are going to list any real estate that you own by its address, and how the title is held to that real estate, which you can obtain from the deed conveying the property to you.  If you need to find a copy of your deed, you can do so at this website.  Under Fair Market Value, you will list the value at which you could sell the property on the open market — this is different from the tax-assessed value.  If the division of this real estate will be an issue in your case, then you will likely have the property appraised.  Before you obtain an appraisal, it is acceptable to put “Undetermined” as the value (at least before your Pretrial Conference.)  On the Mortgage line, fill in the remaining balance on your mortgage (not the monthly payment — that goes in the expenses section.)  The Financial Statement form will then calculate the equity (or, if you have indicated “Undetermined” for the Fair Market Value, you must also indicate “Undetermined” on the Equity line.)

A common mistake people make with real estate is to forget that a family member (such as an elderly parent) has added their name to that family member’s home.  If your parent has done this, you must disclose your interest in the real estate on your Financial Statement form, even if everyone agrees that this real estate will not be divided and even if Asset Division is not an issue in your case.

In the Motor Vehicles section, list all motor vehicles for which your name appears on the title.  Obtain the current Fair Market Value of the vehicle using Kelley Blue Book, and identify what you owe (if anything) on a vehicle loan for that vehicle.  And, don’t forget to list any recreational vehicles in this section.

The next three subsections – lines c), d) and e) in the above image — are where you will identify retirement and investment accounts.  With some exceptions, this section is pretty straightforward in that you will simply identify these accounts by name and the last four numbers of your account number, and fill in the balance from the most recent statement that you have.  Again, you will only include accounts on which your name appears (whether you hold the account individually or jointly with any other person.)

Make sure you save all of the account statements that you have, as you may need to produce copies as part of the Discovery process in your divorce, custody or support matter.

If you participate in the Massachusetts State Employees Retirement System (the “state pension”) — or in any other defined benefit plan — the true value of your pension is generally not identified in any statement that you will receive from the plan administrator.  For instance, for those who participate in the state pension, the statements that you receive from the Massachusetts State Retirement Board generally show only what you have contributed to the pension system.  If a pension is among the assets that will be divided in your case, then you may need to obtain an actuarial valuation on the pension (more on that in another post.)

To double-check that you have listed all of your retirement accounts, take a look at the paystubs that you gathered when you were completing the Income section above.  If there is a deduction listed on that paystub for a retirement contribution, then make sure you have included the corresponding retirement account in this section of the Financial Statement.  If there is a deduction on your paystub that you do not understand, ask your employer about it — because that deduction could reveal an asset that you forgot to include on your Financial Statement.)

Finally, although there is a separate line to list life insurance, only whole-life insurance has a cash value that you need to list on the Financial Statement.  This is different from term insurance, which has no cash value and pays a benefit only upon the death of the person insured.  Click here for more information about the difference between term and whole-life insurance.

Next, you are going to list each and every bank account with your name on it (again, regardless of whether you hold the account individually or jointly with any other person.)  Identify the account by the name of the bank/financial institution, the type of account (checking, savings), the last four numbers of your account number, and the current balance.

Save your bank statements also, as you may need to produce those in Discovery.

Finally, the last subsection of Assets is Other.  Don’t worry — you don’t need to list every single piece of furniture, article of clothing or trinket that you own.  You should, however, list any other asset or piece of tangible property that is not otherwise listed and that has a value of more than $1,000.  Common examples include artwork, jewelry, antiques or collectibles, or firearms.

Step 7.  Identify your Liabilities.

If you have assets, then you most likely also have liabilities.  You will list them in this section of the Financial Statement.  Make sure to include each and every person or company to whom you owe money, even a loan from a friend or family member and even if you are not currently repaying the debt.  The most common examples of liabilities listed in this section are credit cards or charge cards, and I recommend listing open cards or charge accounts even if there is no balance due.  Other examples of debt listed in this section include past due balances for unpaid utilities or unpaid medical expenses.

If you cannot fit all of your liabilities in this section, you are not alone.  Most people cannot.  Use a separate sheet to list additional liabilities and attach that sheet to your Financial Statement.  Here is a template you can use.

Finally, the mortgage on your house and your car loan(s) are liabilities certainly; but, you need not separately list them in this section because you have already identified the mortgage and/or car loan(s) in the Assets section above (as well as the monthly payments in the Expenses section.)  If you have a second mortgage or home equity line of credit on your home, then you should list that debt in this Liabilities section (because you have most likely not listed the second mortgage or HELOC with the corresponding real estate asset.)

Step 8.  The Final Review.

Congratulations, you’ve made it to the last page of the Financial Statement form, where you will date and sign the Financial Statement (and where the Court reminds you that you are doing so under the pains and penalties of perjury.)

Before you sign and exhale, however, I want you to take some time to review the Financial Statement one last time.  It really is that important.  If you have thoroughly reviewed and followed the above steps, however, you are likely in very good shape.  Way to go for hanging in there with me.

I hope this was helpful to you.  If we haven't connected by phone yet, then we should talk.  Click here to gain direct access to my calendar to schedule an initial complimentary call with me.  Take care until then.

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