Balance Sheet - What is it and How to Build One

In the divorce process, a balance sheet serves as a financial snapshot that outlines the assets, liabilities, and net worth of an individual or couple. This document, typically a spreadsheet or table provides a comprehensive overview of the financial landscape, offering insights into the distribution of assets and debts, which can be very helpful in property division.

There are three key components to a balance sheet:

1. Assets: the valuable resources owned by an individual or couple. This category includes various types of properties, financial accounts, investments, personal possessions, and any other items of value. Examples of assets include real estate properties, vehicles, bank accounts, retirement accounts, stocks, bonds, jewelry, artwork, and business interests.
2. Liabilities: the debts and financial obligations owed by an individual or couple. These may include mortgages, loans, credit card balances, tax liabilities, outstanding bills, and any other forms of debt.  Liabilities are subtracted from assets to calculate the individual or couple's net worth.
3. Net Worth: the difference between total assets and total liabilities. It serves as a measure of financial health and stability, indicating the individual or couple's overall financial standing. A positive net worth signifies that assets exceed liabilities, while a negative net worth indicates that liabilities surpass assets.

A balance sheet facilitates a comprehensive assessment of an individual or couple's financial situation, providing clarity on their assets, debts, and overall net worth. This assessment is important for understanding the financial implications of divorce and determining the distribution of property. By listing all assets in one place, a balance sheet aids in the identification and valuation of assets, ensuring that no valuable resources are overlooked during the property division process, and categorizing assets and liabilities that are marital/joint and non-marital/separate. This helps spouses make informed decisions about which assets to retain, sell, or distribute as part of the divorce settlement.

A balance sheet also highlights existing debts and financial obligations, allowing spouses to assess their respective liabilities and negotiate fair allocations of debt responsibility. Understanding the extent of debt can influence decisions regarding asset distribution and financial planning post-divorce.

Supporting Documents

While building a balance sheet, it is helpful to gather supporting documents for all of the assets and liabilities listed to provide evidentiary evidence if needed.  In Court, you will likely need to provide supporting statements or screenshots confirming the existence of accounts and showing whose name is on the particular asset and the value on a particular date.  This information can provide assurances to your spouse and help your attorney, if you have one, gain a full understanding of the financial picture.

Helpful for You and the Court

In divorce proceedings, a balance sheet serves as essential legal documentation that may be submitted to the court as part of the financial disclosure process. It provides transparency and accountability, enabling courts to make informed decisions about property division and spousal support arrangements. Even if not submitted to the Court, a balance sheet can assist the parties negotiate directly with one another or work with a mediator or other professionals to reach agreement. A balance sheet plays a pivotal role in divorce proceedings by offering a comprehensive overview of assets, liabilities, and net worth. By accurately assessing the financial landscape, individuals and couples can navigate property division with clarity and ensure a complete and accurate distribution of property.

See the downloadable Balance Sheet Template and Example to help you create your own balance sheet.