The Income and Expense Declaration

The Income and Expense Declaration

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In nearly every family law matter a financial disclosure form, known as the Income and Expense Declaration (“FL-150”) must be filed by both parties and submitted to the court. It is a combination financial report, dominated by its profit & loss information, with a smattering of balance sheet data. The purpose of FL-150 is to assist the court in ascertaining the financial needs, obligations and income of the parties to assist in the determination of various areas of support or financial awards. In many cases parties and their attorneys enlist a professional accountant and in light of the depth of education and training obtained by most accountants, the function of the Family Law Income & Expense Declaration may seem simple.

 

However, the role that an accountant will play respecting the FL-150 will depend on if he or she is helping the client prepare the FL-150, or is a forensic accountant retained to help the client win their FL case. This article will focus on general structure and preparation of the FL-150, leaving exploration of subtler areas to a discussion of the financial expert as a litigation resource.

 

Without intending to minimize the duties imposed on accountants in any financial role they fill, preparation of the FL-150 is a matter more akin to bookkeeping than to strategic litigation analysis. Page 1 usually only requires insertion of the monthly, weekly, or hourly wage or earnings figure (Item 1.h), obtained from adding the income figures on page 2 of the FL-150 (Items 5-7). The rest of the page 1 data is entered by the client or attorney.

 

Preparation of FL-150 page 2 requires insertion of figures for all sources of income (Items 5-7). If the client is self-employed, the client-accountant interface may involve sophistication beyond mere bookkeeping. Questions of cash receipt tracking or “business expenses” that could be characterized as perquisites may significantly impact the content of the profit & loss statement or IRS Schedule C attached to the FL-150. These issues may also apply to entries in Item 6.b. (Rental property income).

 

The “Deductions” on page 2 are not the tax-related withholdings. Sought her are the less universal reductions of gross income (Item 10). A large percentage of the litigation use of the FL-150 is for child support and temporary spousal support. Dissomaster, Xspouse, Support Tax, and other approved support software automatically calculate estimated tax and other withholding amounts. As child support in California, as in many states, is largely based on after-tax-cash-flow, these other tax-impacting amounts are needed for correct “guideline support” awards. Item 11 is a brief snap-shot balance sheet, designed to give the court an idea of each parties’ net assets available for various purposes in the litigation.

 

Page 3 of the FL-150 also focuses on household finances and personal expenses, usually provided by the client (Item 12-13). Problems arise in Item 12 because of the possibility that some members of the client’s household may not be their spouses or children. Privacy issues about their income arise when residents are relatives or other 3rd parties. Disputes over 3rd party privacy rights can become heated, requiring legal action to resolve them.

 

The last page deals with children-specific subjects that can impact or provide a basis for altering it up or down from “guideline”. Most critical of these factors is the amount of custodial responsibility each parent has for the children. This is called “timeshare factor” (Item 16.b.). It too, is an area where much argument, justifiable in many instances, arises between the parties. Often these quandaries are solved between the parties’ counsel but, like conflicts over estimated “timeshare factor”, sometimes the court must be decided them. Other categories on page 4 treat special expenses for treatment, education, hardships, and visitation travel related to the children (Items 17-18). This often includes children of subsequent relationships (Item 19.c.).

 

In closing, much of the FL-150 is just applied arithmetic. However, do not relax into thinking calculation mistakes or omitted data are innocuous. Many appellate decisions involve seemingly innocent errors, where the trial court, wrongly or rightly, cited them as a basis for its financial awards. Learning the import of those deficiencies from appellate justices usually creates very unhappy clients.