FL-150 or FL150 – Your Income and Expense Declaration

In our opinion, the Income and Expense Declaration is the most important document in all of Family Law. There is no doubt in the Family Law community that the Income and Expense Declaration is the most cross-examined document in divorce proceedings. At trial or a hearing, attorneys can and spend hours going line by line and questioning you about everything you write on your Income and Expense Declaration. And if you are not careful, your answers can crush your side of the case in many, many ways.

Let me give you an example. Recently, I won a trial in which spousal support and attorney’s fees and costs were involved. I represented Dad who was inarguably the main breadwinner of the family. He had a job that earned him a very good wage. None of this was ever in question.

However, Mom also had income. She ran her own small business. It had very low overhead, with the only real costs being labor and advertising. Mom’s business was also a cash-heavy business, meaning that most of her customers paid in cash.

Dad helped Mom with her business sometimes during their marriage, mostly just as a body to transport items from location to location. For years, he watched her taking in cash every month. In fact, they often used that cash to go out to dinner, put gas in their cars and shop for groceries. Because she ran the business, Dad did not inquire too deeply into her business or exactly how much cash was typically earned. Dad was never involved in the financial aspects of her business, but he estimated that Mom earned about $5,000.00 per month from her business, after expenses, mostly in cash. This was due to the amount of cash he saw her bring home, and how she would have cash in her hand for household expenses and treats.

Because Mom ran her own business, she filed a Schedule C on her taxes, first on their joint taxes with Dad and then on her separate taxes after they separated. Her Schedules C’s would only list that she earned about a couple thousand dollars at most for an entire year. She would take in tens of thousands of dollars gross, but then had tens of thousands of dollars in “expenses” which would greatly reduce her “income” from her business.

When Mom was drafting her Income and Expense Declarations during the divorce process, she would write that she earned only a couple hundred dollars per month from her business, at most. At first, Mom did not attach any Schedule C’s from her tax returns nor prepare and attach any Profit and Loss Statements to her Income and Expense Declaration. This is contrary to the requirements of California law which states that if you have your own business, you must attach a Schedule C or a Profit & Loss Statement to your Income and Expense Declaration to prove your income from your business. Lastly, she had no backup receipts or invoices showing any of her figures.

After I cross examined her regarding her lack of documentation and her “made-up” figures, and pointed out that Mom was missing those required documents that are supposed to be attached to her Income and Expense Declaration, Mom, upon being ordered to produce them by the judge, began to create those Profit and Loss Statements. However, her Profit and Loss Statements always denominated both profits and expenses in whole dollar amounts, with no pennies. As anyone knows, it is very rare that the expense of anything comes in full dollar amounts with no pennies involved. What is wrong with this? Well, the very best case scenario, she was rounding up or down to the nearest dollar. At worst, she was completely manufacturing those figures and they had nothing to do with her “real” income or expenses.

The second point was that Mom’s Profit and Loss Statements did not match her Schedule C’s. Her gross profits were not the same, her expenses did not add up to the same amount declared on her tax returns, and her net profits were all different.

And, a look through Mom’s bank statements showed much more cash being deposited than she was declaring in either her Profit and Loss Statements or her Schedule C’s.

Yet despite this, Mom continued to plead poverty, saying that she spent 40 hours a week working at a job that earned her significantly less than minimum wage. At trial, Mom asked that Dad not only pay her spousal support but also contribute to her attorney’s fees and costs based on her poverty.

At trial, I cross-examined Mom on her Income and Expense Declarations. I asked her about the amount of monthly income she listed. I asked her about her Profit and Loss Statements. I then went through her tax returns, specifically her Schedule Cs, and had her compared those numbers with her bank statements and finally, I compared all those figures to those she has listed on her Income and Expense Declarations and demonstrated to the Court how none of those numbers matched at all.

I was able to get testimony from Mom where she admitted that she did not keep any books on her business. She did not keep track of how much money came in nor how much money went out. Mom even admitted that she had no receipts to prove her expenses. Mom could not even explain how she came up with the expenses she was claiming on her Schedule C’s. All she would say is that she did not earn $5,000.00 per month from her business but could not explain why she would continue working a small business that earned her less than minimum wage.

In the end, the Court found that Mom was not a credible witness and that she provided inaccurate Income and Expense Declarations throughout the divorce. Not only did the Court deny Mom spousal support, not only did the Court deny Mom any contribution by Dad for her attorney’s fees and costs, but the Court in fact also ordered that Mom pay Dad $20,000.00 as sanctions because the Court found that if Mom had been truthful in her Income and Expense Declarations then there would not have been a need for trial.

Entire books can be written about the Income and Expense Declaration. This is just one example of why it is so important for your Income and Expense Declaration to be as accurate as possible, particularly if you are self-employed.

The assistance of attorney can be vital to defending your interests in a divorce matter. If you feel you need assistance in your divorce, or just have questions regarding your matter, or you know someone that needs help in their divorce case, do not hesitate to call us at Pinkham & Associates, APLC for a free consultation at 714-730-0111.