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DO I HAVE TO TURN OVER MY BUSINESS RECORDS IN A DIVORCE?
June 29, 2019

Do I have to turn over my business records?

 

In a divorce action the Courts no longer focus on fault.  However, a great dal of time is spent on learning about the other party’s assets, particularly if the other party has hidden assets and earnings from the other spouse or if the marriage is a high net worth marriage involving complex business ventures.

A complex set of laws and regulations and court rules will dictate what documents must be turned over to the other side.  At the outset you will have to exchange net worth statements listing your monthly expenses and income as well as your debts and liabilities.  These statements must be sworn to under oath and from a good platform for the attorneys to double check to ensure that the numbers represent the true net worth of each party.  After that, the parties exchange demands for documents in the form of a Notice of Discovery and Inspection, Interrogatories which are informational demand requesting that statements made about your financial situation be sworn by the party answering them, and depositions.

Typically, personal bank statements ranging back to at least three years or more are required to be turned over, but if the marriage is of longer duration then the divorce lawyer for your spouse might ask for additional years of documents. Credit card statements are also the subject of discovery as are personal tax returns, loan statements and pension or retirement account statements, and a wide array of other such documentation. 

Discovery in a matrimonial case is exhaustive and entails a lot of paper gathering.  It is also mandatory that you comply with the requests and if your spouse does not comply then the other attorney may render a deficiency notice as to the items that you failed to turn over.  If you continue to resist the exchange of documents requested of you then the remedies are harsh, such as precluding you from presenting a financial case at trial. You may also be held in contempt if your behavior is contumacious and unrelenting,

 

Thys, it makes sense to start collecting the data needed before you file for divorce so you can give your attorney an idea as to what is at stake.


For privacy reasons, one might ask if the records produced and disclosed are confidential in a New York Divorce action. The answer is found in  Domestic Relations Law § 235(1) which mandates that all papers filed in a matrimonial matter be deemed confidential and not subject to disclosure.  That said, as to your divorce action unlike most other states , New York does not have a common law right to privacy (Howell; Freihofer, supra;Arrington v. New York Times Co., 55 N.Y.2d 433, 449 N.Y.S.2d 941, 434 N.E.2d 1319).

Where discovery in a New York divorce becomes complex is where one or the other party owns a business with partners or investors that expect confidentiality of their records or where one of the spouses is running a real estate venture with other parties or corporations.  Sometimes a spouse will try to hide behind a corporate veil and not disclose business tax returns and business banking accounts because they are privileged under the Federal Privacy laws of New York.  However, if the spouse is the sole shareholder of the corporation the Courts will pierce the corporate veil and make your spouse turn over all these records.

If a spouse is working in the other spouse’s business or if the spouse is at home making indirect contributions such as raising the children, holding corporate parties, or entertaining perspective investors or buyers, then the spouse typically would have an interest in the business but the interest in the business is fractional and depends on how much you contributed to the business. 

You can expect that if a business was started during the marriage or increased significantly during the marriage that the Court will appoint an independent evaluator to review the records, he or she needs to decide as to the value of the business. It would then be up to the court to apply the law to arrive at your fractional interest in the business, if any.

 

By Lisa Beth Older

Your New York City Divorce Lawyer

Practicing in Manhattan