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The Duty of Financial Disclosure in Your Colorado Divorce Case

calculator-and-pen-indicating-work-study-1632106By: Curtis Wiberg

When parties are getting a Colorado divorce, each party and the Court need to know what the marital estate consists of. To achieve that, Colorado Rule of Civil Procedure, Rule 16.2, was enacted requiring each party to disclose just about everything about the financial information they possess. The specifics of what that entails were discussed in detail in a prior article written by this firm.

Since the enactment of Rule 16.2, the Colorado appellate courts have interpreted and applied this rule, and have clarified further what duties of disclosures parties in a divorce or custody matter owe to each other.

One Colorado Supreme Court case, entitled In re: Marriage of Schelp, was a consolidation of three separate cases where lower courts had reopened cases based on fraudulent disclosures in divorces that had been finalized prior to Rule 16.2’s effective start date of January 1, 2005. The Colorado Supreme Court stated it was improper to apply Rule 16.2 retroactively to divorces before January 1, 2005, as the lower courts had done. In so doing, though, the Court highlighted just how radically different the new Rule 16.2 was compared to the old rules. Previously, the burden was on a spouse to discover and acquire information from the other spouse, and if that spouse failed to use due diligence in uncovering information, that was their failure, not the non-disclosing spouse.

The Court in Schelp specifically stated “the new disclosure duties, in contrast, shift the responsibility for omissions or misstatements from the party receiving the documents to the party submitting them. Subsection (e) of C.R.C.P. 16.2 establishes the new affirmative disclosure duties. It requires that parties disclose all facts that materially affect the rights and interests of the parties: Parties to domestic relations cases owe each other and the court a duty of full and honest disclosure of all facts that materially affect their rights and interests and those of the children involved in the case. The court requires that, in the discharge of this duty, a party must affirmatively disclose all information that is material to the resolution of the case without awaiting inquiry from the other party. This disclosure shall be conducted in accord with the duty of candor owing among those whose domestic issues are to be resolved under this Rule 16.2.” In re: Marriage of Schelp, 228 P.3d 151, 156 (Colo. 2010), (internal citations omitted).

The Court further emphasized how the consequences had strengthened against a non-disclosing spouse, by stating “The new disclosure duties specified in C.R.C.P. 16.2(e)(1) operate in tandem with the five-year retention provision of C.R.C.P. 16.2(e)(10). The five-year retention provision states that for any disclosures made under the new rules, the court shall retain jurisdiction for a period of five years after the entry a decree to reallocate assets and liabilities if either party failed to comply with his or her affirmative duties to disclose financial information. Rule 16.2(e)(10) renders inactive C.R.C.P. 60(b)’s six-month window, which formerly operated as a bar for such retained jurisdiction.” Id.

In a more recent case, In re Marriage of Hunt, 353 P.3d 911 (Colo. App. 2015), a panel for the Colorado Court of Appeals found an opportunity to apply the provision of Rule 16.2 to invalidate a parties’ signed Memorandum of Understanding (a contract usually deriving from Court ordered mediation) compensating wife for her 50% portion of the value of husband’s business. In Hunt, the husband disclosed that his business was worth an amount that turned out to be far lower than what the value of the business was later appraised to be. Husband, in making his disclosure, failed to provide prior appraisals and other business related documents that were specifically required to be disclosed under Rule 16.2. Wife, relying on that first partial and inaccurate disclosure agreed at mediation to far less than what the actual half share of the value of the business should have been. When Wife later requested relief from the signed Memorandum of Understanding, the District Court judge ruled that wife chose not to further explore the value of the business and her agreement to a lower value locked her in to that agreement as part of the overall terms of the divorce.

On appeal, the Court of Appeals disagreed with the lower court, and emphasized that the parties, because of Rule 16.2, are under an affirmative duty to provide the documents listed in Rule 16.2. If a party fails to provide documents that are required to be disclosed, then the Court is required to look at whether the non-disclosure “materially affects” the outcome. When wife agreed upon a $250,000 payment as representing her half share of husband’s business that was later appraised at $2.64 million, the Court had little problem finding that the non-disclosure of required information materially affected the outcome, and ordered the case back to the District Court to reallocate the parties’ marital estate.

The lesson of these two cases is clear. When you are going through a divorce, Rule 16.2 demands that you disclose your financial documents with complete candor and transparency. The failure to do so can lead to the re-opening of your case (which can involve significant attorney fees) and even sanctions. The specifics of what needs to be disclosed in Rule 16.2 can seem overwhelming, and it’s important that your Denver family law attorney has the experience and expertise in helping you navigate the disclosure process, including providing full and accurate disclosures as well as ensuring adequate disclosures are received from the other party. Keep in mind that the duty to disclose pursuant to C.R.C.P. 16.2 cannot be waived by agreement of the parties. Finally, I have seen instances in which failure to disclose leads not only to significant litigation and cost, but the undisclosed asset(s) just end up getting divided anyway.

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