Is There An Obligation to Tell My Husband About the Year-End Bonus I Am About to Receive?
This is a tough topic, because if you've found yourself here it is because you are struggling with your legal and ethical responsibilities to tell the other side about the bonus that you just learned you've earned for the prior year's efforts. You want good news, not bad - which is why you are squinting at the screen right now hoping to not read something that churns your stomach?
Whether you must now disclose your year-end bonus depends a lot on where you are in your dissolution proceedings. But first, some cynical advice if you are contemplating divorce but have not yet pulled the trigger, about whether to tell him or her now: While concealing information when asked directly about it by your spouse before you've separated arguably breaches the fiduciary duties that arise upon marriage per Family Code section 721, forgetting (oops) to mention that fact arguably does not. Of course, if you are not separated and don't have a premarital agreement, every dime of the bonus earned before the date of separation is half theirs. If you bank it, then later on it will get divided. If you conceal it, later on it may all belong to her by operation of Family Code section 1101. If you earn it and spend it, it will bring up your average monthly income figures for purposes of a child or spousal support calculation, or maybe an attorney fee application, once you are forced to submit an Income and Expense Declaration to the extent the income came in within 12 months of having filled out that disclosure. Family Code section 4058(a)(1) defines "income" for purposes of child support, and almost always for purposes of spousal support, and expressly includes bonus income.
What to Consider About Disclosing Bonus Income - and You Get to Live With the Decision!
Bonus income for support purposes is either (1) simply averaged into your prior 12 month's earnings or (2) addressed with Ostler Smith Orders. We've written about Ostler-Smith percentage of bonus income orders, and that is not what today's blog is about.
If a divorce is already pending, or maybe there are child support issues arising from a non-marital relationship, then what you do now may depend on where you are in the proceedings. Here are some common situations:
- A family law proceeding is pending and support orders have already been made. There is no current motion or hearing pending.
- A family law proceeding involving support is pending and there is a hearing coming up, or one is about to be filed by one or both of you.
- Nothing is pending and you don't expect it to be.
- Your matter has a trial date.
- You have or have not yet prepared and served your Preliminary Declaration of Disclosure. PDDs must be accompanied by an updated FL-150 "Income and Expense Declaration".
- You have or have not yet prepared and served your Final Declaration of Disclosure. FDDs must be accompanied by an updated FL-150 "Income and Expense Declaration".
- No family law discovery has been undertaken. The most common and simple discovery tool in divorce cases are the Judicial Council Form Family Law Interrogatories, which is pre-printed and just requires some boxes be checked and that it be dropped in the mail - easily done and it could come at any time. Those from interrogatories require a Schedule of Assets and Debts, plus a current Income and Expense Declaration.
- You are awaiting family law discovery that is surely forthcoming.
- Family law discovery has already been answered. You don't expect more.
- You have not yet received the bonus although you know it is coming - and you or your lawyer is trying to determine whether you should hurry up and prepare your PDDs, FDDs, or responses to Form Interrogatories before the bonus is actually handed to you, or deposited into your account.
I want to be clear, dear reader, that I am not advising you on your current dilemma and what to do because I don't know it. I am just issue spotting. While you have an obligation to be transparent in real time and so to disclose all material facts and circumstances that affect you, your support or property obligations and division issues, or possibly the interests of your spouse, lawyers often game the system and the public perception is that the really good matrimonial lawyers game the system and win for their clients. That's why they charge the big bucks, neh?
But telling you to be safe and honest is the only thing that a responsible lawyer can do, with your bonus issue. Because if you screw it up, get greedy, and/or lie to the Court your goose may get cooked and the financial consequences in terms of monetary sanctions and attorney fees, whether or not this bonus of yours is properly characterized as joint income or your separate property, the potential loss of 100% of the CP amount you concealed may result in consequences that far outweigh your irritation about having to share your toys with that person whom you now hate, oh so much!
So, to Tell or Not to Tell About that Bonus?
Here are some suggestions:
- Always tell the other side in a pending divorce or support case that you are about to receive the bonus.
- If you cannot bring yourself to do that, then ask yourself whether you are going to have to disclose it anyway in answers to discovery, or in connection with a support motion that requires the parties to file updated Income and Expense Declarations. The Rules of Court require family law litigants to update their Income and Expense after 90 days from the prior one, probably exactly so these kind of income events must be disclosed if things change for the better (or worse) over time. Cal. Rules of Court, Rule 5.427. Especially in Los Angeles support RFO's can take months to be heard and so the original Income and Expense Declarations may become stale. Whatever you do, you cannot commit perjury and actively misrepresent financial circumstances that have already occurred. But pretending your opacity was unintentional is a dangerous and dirty business.
- Get anything that needs to be filed filed before receipt of the funds. Not depositing that bonus check so that there is no record of your receipt as of the moment you make a sworn representation about your income can be risky; if an employer is subpoenaed, they will likely have recorded the transaction on the date the check was issued.
- Timing can have a huge impact on whether your hope that your fortunate bonus circumstance can be obfuscated will come to light. If you know your receipt of that bonus is certain, get your answers to discovery, your declarations of disclosure, your FL-150's, and your declarations executed and filed before your receipt of the check.
Keep in mind as to Declarations of Disclosure that you have a duty, sua sponte (i.e., without being asked), to augment your prior Declarations of Disclosure with updated information per Family Code section 2102(b)(1) to the extent there have been "any material changes" relating to assets and debts, but also income. Declarations of Disclosure, again, include the Income and Expense Declaration.
So, often the question for the high-conflict divorce litigant, or their wily lawyers, is effectively "is the other party so ignorant, or her attorney so lazy or stupid or [fill in the box]" that they aren't going to catch it? Because, sadly, that is the waltz that so many family law attorneys step to. Which is not surprising. Volkswagen with its emissions' cheating scandal personifies the values of our society on the corporate level, and mirrors human nature in general. We know what is happening to VW, neh? Of course, the Wall Streeters who blew us all up with the mortgage crisis seem to have gotten away with it. I dunno, what is your risk profile?
I believe the lawyer consensus - and I could be wrong about them - is that you should only disclose the bonus when you have to sign something under penalty of perjury. This leaves open the question whether you might be sanctioned later if you didn't lie, but you just failed to be proactive and transparent and disclose the facts without having had to be asked.
And, this article has implications for attorneys representing your spouse, and how they might catch you, right? If your Wife's attorney reads it - bam! Form Interrogatories in the mail, or at least Supplemental (please update prior response) Rogs!
Sad to say, high earners and family law litigants who bend over forwards to be honest rarely get stars or a break because they were ethical or followed the spirit of the law. But, of course, those people are rewarded in another way. They pay the freight, spend less on attorneys, learn or don't learn from their relationship mistakes for purposes of the next one, and they take their lumps and finish their cases. Which, for some, isn't nearly as satisfying as attempting to burn that person whom you once loved so much.
Here are some more articles about bonus income!
That is my New Year's message. For tonight.
Author: Thurman W. Arnold