Property division can be a contentious issue when couples divorce. Who gets the house? How will you pay the debts you own? What belongs to one of you or both of you?
Dividing assets during a divorce can be draining and expensive, especially when you do not understand the legal requirements or what you are entitled to during a divorce. In this article, San Diego Family Law Attorney will guide you on the basics of dividing assets in a California divorce. You will learn your rights, the legal provisions, and the position of property agreements in a California divorce.
Overview of Property Division in a California Divorce
Property division is one of the most contentious issues in a divorce, especially in divorces with significant assets. The decisions you make during the divorce affect your financial security and that of your children.
While you might have a property division agreement that both of you agree to, the judge will have to approve this agreement. Where you do not have a written agreement or cannot agree, the court will follow the law when dividing your assets.
The property includes real estate, cars, furniture, bank accounts, debts, cash, security deposits, pension plans, 401 (k) plans, and life insurance with a cash value, businesses, patents, and stocks. This property counts as belonging to the two of you until the judge signs a final order on that property. Therefore, even if you have informally split your assets and liabilities, you need to get a final order from the judge to prevent further problems down the road, for instance, when debts are unpaid or property needs to be sold or inherited.
Note that, in California, the law allows 50-50 sharing of property. This means that after a divorce both parties end up with roughly the same value of the property.
Figuring out how to divide property begins with taking stock of everything that you own. You can list the property into community property and separate property. You must fill form FL-142 (Schedule of Assets and Debts), where you list all your property and debts. You and your spouse must declare all your assets and debts to each other. Hiding property or attempting to convert certain property often leads to stiff penalties.
The next step after listing your property is comparing your lists to identify disagreements on:
- The nature of property as community or separate property
- The value of community property
If both of you agree on the property division, you can settle the division or proceed to trial if you do not agree on the division of your property.
Property division comes with lots of issues, including valuing property, determining the nature of the property, and deciding on the equitable distribution of that property. You and your soon-to-be-ex must also think about the welfare of any children you have, debts, and other obligations you may have.
Community Property and Separate Property
California recognizes property acquired by either spouse during the marriage as equally owned by both spouses. This property is also subject to equal distribution between the spouses if they choose to separate or divorce. Although there are certain exceptions, the general rule is that community property must be divided 50-50 between the spouses, and the court is obligated to ensure this equal division.
Community property in California includes:
- All income either spouse receives during the marriage, including salary, interest, capital gains, retirement accounts, and stock dividends.
- All property acquired during the marriage.
In California, it does not matter whether one of the spouses earned the entire household income or bought the property; what matters is that the property was acquired during the marriage.
Separate property, on the other hand, is property (assets and debts) that a spouse acquires before or after the marriage. Separate property remains with the spouse who acquired it unless they merged it with the community property.
Some of the property considered as separate property in California includes:
- Any assets acquired before marriage or after legal separation
- Property that you inherited before or during the marriage
- Profit from assets you acquired before the marriage (with exceptions)
- Gifts, which are given exclusively to the spouse (including from the other spouse)
- Income earned when living separately
Issues that Complicate Asset Division
Asset division is not an easy process to start with. However, issues such as commingled assets and certain types of property often complicate asset division.
Commingled assets mean that you and your partner mixed up separate property with community property. For example, you and your partner bought a home using money the other party acquired before marriage.
Dividing such an asset will require the judge to trace the origin of the funds used to purchase the home. If the property has gained value throughout the marriage, the court has to determine the value of the community portion of this property.
Consulting with an attorney when you have such issues in a property division case is always the best option, as he or she can guide you on the best steps to take towards dividing your assets the correct way.
Retirement and pension plans are other common complications in asset division during a divorce, particularly if the spouse contributed to the retirement plan before and after the marriage.
What makes the division of pensions and retirement plans difficult is the possibility of a penalty if you cash out your plan before its maturity.
Business ownership also complicates the asset division process, as the spouse is entitled to half the business earnings. Where such a business existed before the marriage, its valuation becomes difficult. Another issue related to business ownership is whether both parties should retain their ownership interest in the business after the divorce.
Another potential issue when dividing assets is a settlement or judgment from a lawsuit. The court has to consider factors such as:
- Whether you sustained the injury before or during the marriage
- If the settlement was to reimburse you for funds paid out of separate or community property
In an example, let’s say Ashley is hurt in an accident during the marriage and received a settlement of $100,000. Part of the settlement ($25,000) reimbursed Ashley for the money she spent on her medical expenses following the accident. Now if Ashley paid out this money from the proceeds of her inheritance (separate property), she is entitled to $25,000 from the settlement. The remaining $75,000 is distributed evenly between her and her spouse.
Having children also complicated property division due to issues such as child support and custody.
Misappropriation of property is another issue that often arises in the division of community property in California. When one spouse intentionally and without the consent of the other spouse uses community property for their own purpose, they have misappropriated that property. The court punishes the offending spouse by giving less than an equal share of the community property.
Some of the common instances of misappropriation include:
- Negligent mishandling of community property
- Illegal gambling
- Drug use
- Failing to pay taxes on community property for several years
- Giving large sums of money to other people without the other spouse’s consent
If you believe that your partner misappropriated your community assets, contact an attorney to help you understand whether their behavior falls within the description of misappropriation.
Valuing Assets in a California Divorce
As mentioned earlier, determining the value of your marital estate is the first step towards dividing your assets during a California divorce. Property valuation can become a stressful event, especially in a drawn-out divorce.
California Family Code 2552 requires that property division and valuation take place as close as possible to the date of the divorce trial as possible. The reason for this statute is that some types of property, such as stocks, may change their value constantly. Therefore, if valuation occurs months before the trial date, the property might have increased or declined in value, leading to an inequitable distribution of the property.
Setting the valuation date as close as possible to the trial date helps:
- Protects the efforts of a spouse who puts effort in increasing the value of a certain property after separation.
- Prevent one spouse from intentionally and maliciously diminishing the value of an asset.
- It allows for a more equitable distribution of marital assets.
In most cases, the court lets you figure out how you want to divide property before involving a spouse. This way, you and your spouse can discuss who wishes to retain what property and the division strategy you would like to use. When dividing the property yourself, it is not always necessary to get the actual values, especially if you are not selling the property.
Some of the tips to keep in mind when you start valuing the assets include:
- Schedule a real estate appraisal. The appraisal involves an inspection of the inside and outside of your home and other property you may have. The appraiser will help you determine the market value of the home at the time of the divorce.
- Calculate the value of significant assets such as antiques, jewelry, artwork, vehicles, and businesses
- Check your vehicle’s current market value on the Kelley Blue Book. Alternatively, you can check your car’s value on the National Automobile Dealer Association. You should print out the photocopies and other documents from the valuation to present during the court proceedings. Note that the court requires professional appraisals for high-value vehicles.
- Calculate the value of your bank accounts and other financial assets. It makes sense to work with a financial advisor who can help you obtain the correct value of your financial assets.
- Calculate the value of each spouse’s interest in a business. A forensic accountant will help you at this stage by evaluating all the assets connected with the business. You should be aware of the common mistakes couples make when valuing a business during a divorce. These mistakes include:
- Using a valuation method that the court does not approve
- Failing to include all assets of the business during the valuation
- Applying value multiples to the wrong income streams
- Omitting minority discounts during the valuation
- Failing to consider unique events such as temporary fluctuations
- Omitting some assets and liabilities
Prenuptial and Postnuptial Agreements
A prenuptial agreement is a tool couples use to protect their property rights in the present and future. A prenuptial agreement is important during the division of assets in a divorce. It will be enforced if the spouse:
- Received all the information about the other party’s finances and property before signing the agreement
- The spouse had at least seven days between receiving the agreement and signing it to give him or her enough time to review the agreement.
- The spouse had the representation of a separate attorney when signing the agreement.
In the prenuptial agreement:
- A spouse can give up their rights to spousal support in case of a divorce (unless it is extremely unfair at the time of its enforcement)
- Change the status of a community or separate property
- The couple can agree on how to divide community property in case
- Define inheritance rights of children from an earlier relationship
A prenuptial agreement does not allow you to:
- Waive rights to ERISA governed employee benefits
- Control child-related rights such as custody and child support. (Unless it is for issues, such as offering additional support to a child's wellbeing through things like college expenses or supporting an adult child).
Although a prenuptial agreement can simplify the divorce process, the court still has the authority to invalidate the agreement if it does not meet the necessary standards. In most cases, if a prenuptial agreement unfairly favors one spouse, the judge may choose to ignore the agreement.
Failure to disclose all assets when drafting a prenuptial agreement could also lead to the voiding of the agreement during a divorce, as one of you was dishonest.
Couples can also sign a postnuptial agreement, which also protects their finances and assets in case of a divorce. The postnuptial agreement serves the same purpose as a prenuptial agreement, only that the latter is signed after the marriage. A postnuptial agreement provides rules for the distribution of property, assets, investments, pets, and other issues that might arise in case of a divorce.
Consulting an attorney when drafting a prenuptial or a postnuptial agreement is always advisable as the attorney can guide you on the legal requirements. The attorney also advises you on the best action to take to protect yourself and your property in case of a divorce.
Marital Settlement Agreement
A marital separation agreement or a property settlement agreement is a contract between you and your spouse about the division of property, payment of child support, and alimony. You can draw up an MSA before or after you file for a divorce or legal separation.
In an uncontested divorce, the spouses are more likely to sign a marital settlement agreement that divides their community and separates property.
Having a marital settlement agreement significantly simplifies the divorce process, especially when this agreement adheres to California’s family law. Therefore, you should work with a qualified family law attorney who understands the law and can guide you to creating a legally enforceable marital settlement agreement. The courts generally approve a marital settlement agreement that is fair and equitable to both parties, especially in uncontested divorces.
Do I Need an Attorney?
Dividing assets in a divorce requires that you meet certain legal obligations before the court can approve your agreement for distributing community and separate property after a divorce. Working with an attorney saves you the trouble of spending too much time and money trying to learn the curves by yourself.
An attorney will help you determine which property falls under community and separate property. He or she also helps track the property your partner has declared to ensure that your spouse does not hide some of their property or under-declared assets.
An attorney will also advise you on certain matters, such as the steps you may take to protect yourself if you signed a prenuptial or postnuptial agreement that is unfair to you.
Having separate legal representation with your ex-to-be is ideal as it protects you from the risks of the attorney having a conflict of interest when you and your partner disagree on certain issues.
Find a Divorce Attorney Near Me
A divorce is an emotionally charged event for most couples. In addition to breaking up with someone you intended to spend the rest of your life with, you have to deal with stressful issues such as child custody and asset division.
Asset division is difficult for some couples, especially those who do not understand the difference between separate and joint property. Even those with a clear understanding of the difference might need help taking actions that serve them best after the divorce.
San Diego Family Law Attorney works with couples who are going through a divorce by helping them understand the property division process in California. We help our clients identify the nature of different properties they own and draft property division agreements that meet California’s property division laws. You can book a free consultation to discuss your case on 619-610-7425.
