Motion for financial disclosure: fishing expedition or balanced request?
By AdvocateDaily.com Staff
Ludmer, principal of LudmerLaw, explains that there is an inherent tension between the two main objectives of any motion for financial disclosure: ensuring that there is enough evidence for a fair adjudication of the case on its merits, and making sure there are some reasonable limits on what must be turned over to the opposing side.
“Disclosure is never going to be perfect, but you hope there can be some reasonableness between the parties in reaching an agreement. However, I have seen instances where disclosure motions are weaponized,” Ludmer says.
He says that overly broad motions can sometimes cross the line separating legitimate requests from fishing expeditions.
“A request can also be tactical and abusive if it’s an attempt by a better-funded party to dissuade the other side from continuing with litigation,” Ludmer says.
At the other end of the spectrum, he says parties who provide slow or deliberately inadequate responses are equally abusing the system.
“Well-funded payors may try to bog down the process as a tactic to make a fair adjudication too expensive, difficult, or time-consuming for the requesting party,” Ludmer says.
Disputes frequently arise in cases involving a self-employed litigant or someone with complicated business interests. Those involving former spouses with business partners add another layer of complexity, he adds.
“There are extra tensions when financial disclosure involves an unrelated party with an interest in the business, as well as the privacy and cash-flow concerns that come with it,” Ludmer says.
However, he says courts have built a solid body of case law for determining the appropriateness of requests.
“That jurisprudence builds on the Family Law Rules and various provisions of the child support guidelines,” Ludmer says.
For example, he says requesting parties shouldn't have a problem obtaining the general ledger for a company owned by a responding party since that is the only document that can give a full understanding of the various line items contained in the financial statement filed with the court.
Ludmer says opaque entries in a general ledger can raise suspicions about whether an individual has declared all of his or her income or may be using the business to write-off personal expenses, potentially prompting requests for additional documents.
“The difficulty at a preliminary stage of analysis is that it can be hard to self-edit and judge whether an inquiry is overly broad or too intrusive,” he says.
A judge’s determination of what is proportionate and reasonable will depend on a number of factors, including the amount of money at stake in the litigation and the cost and difficulty of retrieving the requested information and documentation.
“Generally, the process should err on the side of providing that information,” Ludmer adds.
One of the hallmarks of a fishing expedition, Ludmer says, is when requests come in for documents that are tangential to the parties or only theoretically relevant. He says these cases often involve parties from the second generation of a wealthy family, where a requester may be tempted to ask for tax and estate plan details regarding the responding party’s parents or other family members.
Ludmer says requesting parties can buttress their case for disclosure by hiring a financial advisor who can identify the documents they need to make a complete analysis.
However, he says any expert request for documents must be carefully worded, in order to avoid the appearance that the advisor is biased against the responding party or engaged in advocacy on behalf of the requester.
Such an appearance could compromise the objectivity of any formal report prepared by the expert further down the line in the litigation, Ludmer says.
“A more expensive option is to have one financial advisor who gets into the nitty-gritty and tests all sorts of concerns by getting additional documents," he says. "Then you could hire a separate advisor to come in with no prior involvement, to do the objective analysis and base their assessment on all of the documents that were previously assembled and organized and summarized."
Ludmer, noting that he draws on his 31 years of business law knowledge and his bachelor of commerce when dealing with these issues, says "Properly representing clients in this area requires a good base of business and accounting knowledge on the part of the lawyer who is quarterbacking the financial disclosure/expert report process and making the judgment calls."