California is a community property state. Unless there is a premarital agreement, then all assets purchased during the marriage (between date of marriage and date of separation) are presumed to be community assets and are owned equally by both of the parties. Of course, with every presumption, there are exceptions.
First, what is the date of separation? The date of separation is the date when one of the parties has determined to leave the marriage and communicates that fact to the other parent in some manner. That communication is generally moving out of the family residence. Sometimes the date of separation can be a moving target changed by periods of attempted reconciliation, marriage counseling, marital relations, etc. The date of separation, whatever it turns out to be, is the date after which all earnings are no longer community, purchases are no longer community, new debt is no longer joint. It is the very important cutoff date for the non employee spouse’s right to a continuing ownership interest in the working spouse’s pension, retirement, IRA’s, etc.
Any property received by one spouse in the form of a gift or inheritance is the separate property of the receiving spouse and is not subject to division and sharing with the other spouse. Because there is a presumption that all property received during the marriage is community, it is important to keep all proof of gifted and/or inherited property. Also, if your intent is to keep your inheritance all yours and not divide it with your spouse, then you must not comingle your separate assets with any community accounts. For example, if you deposit your gifted income (or proceeds from the sale of a gifted item) into your joint account with your spouse and from which you pay community bills and into which you deposit community income, then you may have comingled your money with community money such that the entire account including your separate funds and all of the funds will be divided with your soon to be ex spouse.
If you and your spouse purchase a home during the marriage then that house is presumed community. If the down payment came from either premarital assets of one spouse or a separate funds of one spouse, then that spouse is entitled to be reimbursed that investment ‘off the top’ of the net sale proceeds, if any. If the family residence was purchased prior to marriage and has not been transmuted into community asset (no refinancing, no title change, etc.) then the house remains the separate asset of the spouse that purchased the property and the community will be entitled to reimbursement of its community interest in the property. How much of an interest the community has depends on the value of the property at the time of marriage and separation, the amount of the loan pay down during marriage, the cost of major improvements which affect property value, etc.
In your family law case, the parties each file a Schedule of Assets and Debts in which they list for the court all of the property of the marital estate, its value, the amount of debt attached to the asset. This would include the residence, all cars, boats, trailers, motorcycles, savings and checking accounts. This also includes all household furniture and furnishings, jewelry, art, collectibles. This includes all other real property, timeshares, vacation accounts. This includes all 401K’s, IRA’s, pensions, retirement accounts, deferred compensation accounts, all work related accounts. This includes the business, any partnership, corporation, etc.
Once both parties have disclosed their statement of all of the assets, then we are positioned to start settlement discussions. The parties need to determine which of the assets they want and which are to go to the other party. We do the same thing with the community debts discussed below. Then as if putting together a detailed comprehensive balance sheet, we see what is the best way to divide all of the assets and debts so that it is a fair and manageable distribution. It may requiring sale of some items; it may require the liquidation of some savings accounts. The parties are allowed to divide assets/debts however they want even if it is not necessarily a ‘fair’ distribution, meaning it is not an equal 50/50 divide. If you take your case to trial on these issues, the court divides assets and debts according to the law and not necessarily with a realistic balancing of accounts. This is because the court is limited by the law requiring community assets to be divided equally. Sometimes an ‘equal’ distribution is not practical nor manageable. Sometimes, an equal division requires an otherwise unnecessary sale of cherished assets.
When the employee spouse’s pension is to be divided, then typically the pension holder (unless a Federal pension) must be joined to the family law case. This is so the court has the jurisdiction (power) to order the pension divided. The community portion of the pension is determined and the non employee spouse’s share is rolled over into an account in his/her name alone. When the employee spouse become retirement eligible (and not upon actual retirement), the non employee spouse may start collecting her/his share of that pension – even if the working spouse still has not retired. The order that divides the pension and provides for payout, survivor benefits, cost of living increases, etc. is set forth in a Qualified Domestic Relations Order (QDRO) and is prepared usually at the conclusion of the family law case, post judgment, and then served on the pension holder.
Division of Debts:
As with division of assets above, the date of separation is critical. All of the community debt must be disclosed in the family law matter and it will all be subject to division (unless discharged in bankruptcy) by the family court. Typically, when trying to divide debt, it is best to assign the debt to the person actually named on the debt. For example, we would assigned all debt in wife’s name alone to wife; all debt in husband’s debt alone to husband. Then any joint debt needs to be assigned and an analysis of how fair and balanced such a division turns out to be.
Disputes may arise when one party was unaware of the debt incurred by the other party. A dispute arises when some of the debt incurred during the marriage was for extra marital affairs of one party; or when the debt was a secreted gambling debt; or was for cosmetic surgery of one party; or was for the bail bond of one party. The general rule is that if the debt was incurred during the marriage and benefited the community to any degree, then even if the debt was not previously disclosed, the debt will be deemed a community debt. Clearly the debt for extra marital affairs would not have benefited the community and would not be deem a joint debt. Bills for cosmetic surgery arguably could benefit the community so depending on how long before separation the debt was incurred and if both spouses agreed, the debt will likely be a joint debt.
Another general rule is the party taking the asset will also be assigned the debt. If husband takes the house, he takes the house debt. If wife takes the new furniture, then she takes the debt incurred for that purchase. If husband takes the Harley, he takes the debt attached to it. Again, the parties can agree to divide debt any way they want but the family court is limited. The family court will assign debt and simply divide it equally. This may not be practical especially if one party is clearly not able to service that debt causing more credit problems, and placing a higher burden on the other spouse.