A “breakup budget” should be built around preserving the estate at separation and anticipating mandatory financial disclosures. California’s stated policy to preserve community assets and liabilities “at the date of separation” makes the separation date a key financial planning milestone.
Specifically, a breakup budget should consider several factors, including the income of both spouses, the cost of regular household expenses, the fact that one of the spouses will likely have to move out and pay for a separate residence, and the possibility of one spouse having to pay temporary spousal support to the other. Additionally, if a couple has children, they will have to factor in the costs of caring for their children, as well as childcare costs, which may change upon separation.
California favors early, full financial disclosure and preservation of the estate.
The California Family Code declares a policy to “marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation to avoid dissipation of the community estate before distribution,” to ensure fair child and spousal support, and to reduce costs by fostering full financial disclosure by both spouses. It further states that “a full and accurate disclosure of all assets and liabilities, regardless of the characterization as community or separate, together with a disclosure of all income and expenses” must be made early in the proceeding, and that each party has a continuing duty to “immediately, fully, and accurately update and augment” disclosures upon material changes. (Cal Fam Code, section 2100).
Requirements for Mandatory Financial Disclosures
Except by court order for good cause, each party must serve a preliminary declaration of disclosure executed under penalty of perjury on a Judicial Council form. This preliminary disclosure is due within 60 days of each spouse filing their respective Petition for Dissolution or Response. The preliminary declaration must include tax returns filed within the prior two years. Along with the preliminary declaration, each party must provide a completed income and expense declaration identifying all assets and liabilities in which they have an interest or obligation, regardless of characterization. If either party has a partial interest in any property or debt, they must provide the ownership/obligation percentage in this declaration. The income and expense declaration also requires a detailed, supportable monthly budget. (Cal Fam Code, section 2104).
Continuing duties between spouses after separation
From the date of separation to the distribution of community property and debts at the conclusion of a divorce, each party is subject to fiduciary standards as to activities affecting the other party’s assets and liabilities, including “accurate and complete disclosure of all assets and liabilities and all current earnings, accumulations, and expenses,” and each party has a duty to update these disclosures if a material change occurs). (Cal Fam Code, section 2102). Spouses are in a confidential, fiduciary relationship with each other requiring “the highest good faith and fair dealing,” and neither may take “any unfair advantage of the other,” including duties to provide access to financial records and to render “true and full information” upon request regarding transactions concerning community property. (Cal Fam Code, section 721). Each spouse must act with respect to the other in the management and control of community assets and liabilities consistent with fiduciary rules until assets and liabilities have been divided.
Temporary Spousal Support During the Divorce
During a divorce or legal separation proceeding, the court may order either spouse to pay an amount necessary for the support of the other spouse, consistent with specified statutory considerations. (Cal Fam Code, section 3600). Temporary spousal support is based on the need of one spouse and the ability of the other spouse to pay, and it is intended to maintain living conditions as close as possible to the marital standard of living. The possibility of having to pay temporary spousal support should be factored into any breakup budget.
Conclusion
Practically, a pre-separation budget should be paired with a plan to document the financial “snapshot” at separation, including financial accounts, debts, recurring expenses, and income streams, because California rules are designed to ensure both parties and the court can identify what existed at separation and what changed thereafter. Since disclosure must include “all income and expenses” and must be updated upon material changes, a budget that tracks income and expense categories contemporaneously can reduce later disputes once a divorce or legal separation is filed.
In California, a “breakup budget” is not merely a personal finance exercise, but it should also be designed to align with California’s policies of preserving the community estate at separation and ensuring early, full, and continuously updated disclosure of assets, liabilities, income, and expenses. Each spouse should factor into a breakup budget their anticipated monthly expenses, the possibility of having to pay for or receive temporary spousal support, the potential cost of one spouse having to acquire a separate residence, and, if there are children involved, the cost of childcare after the spouses have separated.
When spouses are going through a divorce or legal separation, navigating the complexities of California legal requirements relating to financial disclosures can be a difficult process and may therefore feel overwhelming. Having the right legal guidance can make a meaningful difference. If you have any questions about divorce, financial disclosure requirements, or protecting your financial future, our firm is here to help you understand your options and move forward in a way that best suits your interests.