How To Prepare A Financial Statement – Presentation

 

How to prepare a Financial Statement

The preparation of Financial Statements and Financial disclosure is critical in a Family/Divorce Law case. It is important for a party to make full and complete financial disclosure. If a party fails to make full and complete financial disclosure, it is possible that an Order or Agreement may be set aside by a Court in the future.

A Family/Divorce Law Clerk can be essential in assisting a client in preparing his/her Financial Statement and disclosure brief.   A lawyer wants to ensure that his/her Financial Statement is prepared properly and there is sufficient financial disclosure to back up the figures in the Financial Statement.    It is important to remember the following when completing a Financial Statement for your client:

1. Which Form?  If there are property issues involved, you should use the Form 13.1.  This is the form used in the Ontario Superior Court of Justice.  If there are just support claims and no property issues, use Form 13.  This is the form used in the Ontario Court of Justice;

2. Income/Benefits – If the person is an employee, his/her income for support purposes is more easily calculated than someone who is self-employed.   You should review the person’s T4 and three recent pay stubs.  If the person is paid weekly, multiply that figure by 4.33 to obtain the monthly figure.  If the person is paid b-weekly, multiply by twenty six (26) and divide by 12 to get the monthly amount.

If a person is self-employed, use his/her Income Tax Return from the previous taxation year (line 150), and include an explanation as to how his/her income was calculated for his/her Financial Statement.  It may be necessary to retain an expert (Certified Business Valuator) to determine the client’s income for support purposes.

You should also obtain details about all of the client’s income for all sources, whether or not the amount is taxable (ie. interest, dividends, capital gains etc.).  Ensure that the sources of the client’s income are also reflected in the asset section of the Financial Statement (ie. if the client earns interest income, make sure that the bank account that generates the interest income is also shown on the Financial Statement).  In addition, include a value (or an estimate) of all employment benefits received by the client (ie. company car, health benefits, club membership etc.);

3. Expenses – This is always the most difficult for a client to complete.  It can be very tedious.  List the client’s expenses for a specific period (average over a twelve month period).   Try to be as accurate as possible.  Organize all receipts.   It is best to review the following documents for the last twelve months to attempt to gather an accurate depiction of the person’s expenses:  bank statements, credit card statements, property tax statement, mortgage statements, utility statements, insurance documents, pay stubs (deductions from income), etc;

4. Assets – The client must be advised to gather all of his/her documentation to substantiate all of his/her assets and liabilities as of the date of marriage and the date of separation.    List all of the property that is owned (not just possessed).  All jointly owned property should be listed as a 50% interest.  Make sure that any figures in the Financial Statement are consistent with the pleadings.  Remember that if the Matrimonial Home was owned both on the date of marriage and the date of separation, there is no date of marriage deduction for the value of the Matrimonial Home;

5. Debts – List all of the debts owed by the client as of the date of marriage, date of separation and present value.  If a debt is jointly owed, list 50% of the debt.

You should include in the Financial Statement, contingent or future debts (taxes, capital gains, notional costs of disposition).  It may be necessary to retain an actuary or CBV to determine the tax liability.  If unknown at the time of drafting the Financial Statement put “TBD” and an explanation.    You should also consider a discount for some debts (ie. the present value of a future payment, minority discount etc.);

6. Excluded Property – Review with the client if the client received any of the following from any third party during the marriage:  inheritances, major gifts from third parties, insurance proceeds, damages for personal injuries.  Can the client trace these funds from the date of receipt to the date of separation?  You need to obtain documentation to support the tracing.   The funds should not be mixed with joint funds from other parties.  If the property is excluded, the full value of the property is included in the property section and then deducted in the excluded section;

It is important to remember that the Family Law Rules provide that a Financial Statement must be updated from time to time.  If it is older than 30 days, the party must either serve a new Financial Statement or swear an Affidavit that there have been no changes in his/her Financial Statement or set out the changes.

A well drafted Financial Statement, with supporting documentation, will greatly assist in a Family/Divorce file.  The lawyer and the client will be very satisfied if the Financial Statement is accurate, neat, and the documentation well organized.

Toronto divorce lawyers are numerous in both price and reputation. Use a reputable firm – use Fine & Associates and allow our family law team to help you through this time of your life.