Marital Estate Distribution
Asset Division/Moore-Marsden/Business Valuation
Assets and debts are often difficult to divide during a divorce. Many assets are comingled; and require an experienced family law attorney to separate the community from separate property. Complex asset divisions often require forensic accounting to calculate complex Moore-Marsden interest a spouse may have in a separate property of the other spouse, tracing of commingled assets, or business valuations. Retirement accounts and investment accounts are most often comingled as contributions occur before and during the marriage. Real property, if purchased before marriage, may have a Moore/Marsden component. Some debts by definition are separate debts such as student loans of each spouse, for example. Per Family Code 2641, if such debts were paid down or off during the marriage, the community may be entitled to reimbursement during a divorce.
What or who is considered community property ?
In California, most assets acquired during the marriagemestic partnership (DP) are community property assets and thus, equally divisible during a divorce.
Are earnings considered community property?
Yes, all earnings unless excluded by agreement, are community property until the date of separation. Even if only one spouse works outside the home, the earnings are considered community, and all acquisitions with such earnings are also a community.
If community property funds are used to pay down a separate property mortgage, are they reimbursable during a divorce?
Per Family Code section 2640, separate property contributions to the acquisition of property including down payments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property (interest on the loan or payments made for maintenance, insurance, or taxation of the property are excluded) are reimbursable unless there was a written waiver.
Are debts accumulated during marriage community debts?
Most debts accumulated during marriage are community debts. Debts accumulated after date of separation may be either assigned to the person that incurred them or to either party depending on needs if the money was spent on life necessities.
Are any assets acquired during marriage or DP separate property?
Spouses can agree to keep or convert any asset into separate property. Pre-nuptials and post-nuptial agreements must be carefully negotiated and drafted to avoid future pitfalls.
Separate property generally includes all property acquired before marriage together with all the profits and rents received from such property, all property acquired by gift or inheritance during the marriage, and all property designed separate property by the terms of a pre-nuptial agreement or post-nuptial agreement. All earnings and accumulations post-separation (unless acquired with community funds) is the separate property of each spouse.
Parties have great flexibility in deciding how to divide their assets and debts. If, however, the parties cannot agree and the court has to decide the issue of division of the family home, retirement accounts, bank accounts, personal property, etc., the court must apply California law and divide the assets and debts equally. Equal division does not mean that each asset must be split in half. The court has the discretion to award one asset to one party if it is offset by another asset received by the other party so that the balance sheet shows an even property distribution.
How is the family residence divided ?
Spouses can agree to a variety of ways to split the family residence. If one spouse wants to buy-out the other spouse’s interest in the residence, that spouse can either do so with a cash-out refinancing, other assets (exchanging assets for the house), or spousal support exchanges in Long Beach, CA.
Does the court have the power to order a party to accept a buy-out offer of the other spouse?
The court has no discretion to order a buy-out by one party of the other party’s interest. So, if you want the house and there are no other major assets available now, you should find a way to come to a settlement. If there is a disagreement about who should take the house (the house being the only major asset besides retirement accounts), an order for the sale of the house is likely. In some cases, it is possible to defer the sale of the residence if it is in the best interest of the child(ren) but that analysis has strict statutory requirements, which among others requires a showing of the economical feasibility of a deferred sale scenario. When the children no longer live in the residence, the asset is ultimately sold; and equity is divided.
Sometimes it is not economically feasible for one spouse to keep the residence. Many divorcing women want to keep the home regardless of the cost. If the decision is not carefully analyzed, it may lead to a situation post-judgment where the spouse with the family residence becomes too cash-poor to keep the asset. The decision to keep or sell the house is best to be grounded in economics not emotions.
For a buy-out, parties must agree on a valuation of the asset (fair market value or stipulated value). If the parties cannot agree on the value of the residence, a joint or separate appraiser may offer help in establishing fair market value. Parties can also seek the assistance of an experienced realtor. If there is no agreement on valuation, the court must ultimately decide the value. Each party is qualified to testify on the value of the house. Valuation of an asset includes establishing fair market value and subtracting all encumbrances. If separate property funds were contributed to the purchase of the residence or its maintenance, the party that contributed such funds may have 2640 reimbursements (Family Code section 2640). On the flip side, community funds were used to pay down a separate property of one spouse, there may be a Moore/Marsden interest in the house for the non-title holder.
Retirement Accounts/Pension
All interest in a retirement account, pension, profit-sharing, or other employee benefit plan acquired during the marriage is community property.
Retirement accounts 403(b) plans and qualified plans such as 401(k) accounts are generally split by way of Qualified Domestic Relations Orders (QDROs). If the spouse is not yet retired, the QDRO (as it is commonly known) is prepared before or after the judgment and the funds are generally received as the owner spouse retires. A Gilmore motion can be made at the time the spouse first becomes eligible for retirement but continues working thereafter so that the non-owner spouse can start receiving his/her share.
IRAs are usually split by way of a transfer incident to divorce, which if properly labeled in the agreement does not trigger any taxes. So, if an IRA account is split in half, each spouse will most likely have to pay taxes on distributions from the account but not on funds received (asset transferred). If, however, the transfer is not properly identified, spouses will pay taxes on the transfer and an early withdrawal penalty, if applicable, on the entire amount transferred.
If you are divorcing while nearing the age of retirement, you should be very careful when dividing your retirement assets. There are many pitfalls. Careful analysis of retirement funds must be conducted to properly separate the community from separate interests (if any) and to adequately value the accounts. QDROs must be in place sooner rather than later. If a spouse dies before a QDRO is accepted by the administrator, it can cause a total loss of funds for the surviving spouse. Also, many pension administrators will outright reject QDROs that direct them to pay out lump-sum payouts. Most will only pay the monthly benefits.
Personal Property/Vehicles/Furniture i.e. the Stuff
Many divorcing couples decide to keep the vehicle they drove during the marriage, sometimes with an offset (if one vehicle was more valuable than the other) and sometimes without. Once the petition for dissolution of marriage is served, Automatic Temporary Restraining Orders (ATROs) become effective and spouses no longer can sell, encumber, dispose of, etc. of any assets or change any beneficiary forms (retirement, accounts, life insurance, health insurance, car insurance) without consent of the other spouse. So, if both spouses were on the same vehicle insurance, there should be an express agreement for one or both to obtain new coverage, as well as, for one of both to pay for vehicle insurance for any teenage children (unless they pay for it themselves).
Personal property such as clothing and small personal items are usually kept by each respective spouse. Jewelry can become subject to court division if there is no agreement. Each piece has to be valued (resale not purchase price) and characterized as either community or separate. It is best to agree on the division of jewelry as it can be costly to litigate it. Many women want to keep their engagement and wedding rings without offsets. Unless it makes financial sense to do so, learning to let go during the divorce process will make it less costly both financially and emotionally.
Same with furniture, art, boats…it is always best to agree on the division. You can either value each piece (resale value not purchase price) and create a balance sheet putting item by item on each side of the line (his/her). You can also sell it all on an auction or estate sale and divide the proceeds. Some couples make deals to exchange certain items for others if one likes x and the other prefers y. Some couples use that to hurt one another. Ultimately, the stuff is just that…stuff. It is replaceable and usually not worth the attorney fees that couples end up paying for arguing about diving it.
All property items brought into the marriage or received during marriage through inheritance are considered separate property and should be kept by the spouse to whom they belonged. So, the china women had from their mothers or grandmothers should be awarded to them.
Contact our experienced Division of Assets/Debts Lawyers for a free consultation at (562-426-6522).
Family memorabilia such as children’s artwork, pictures, etc. often become subject to contentious arguments. In today’s world of high-quality reproductions, anything can be duplicated, copied, preserved. If something cannot be copied, it can usually be preserved like children’s artwork. Whatever it is, it should not add fuel to the fire. Your children would surely not want their preschool art or a favorite teddy bear to become a subject of parental conflict.
Financial Disclosures
The law imposes deadlines by which PDD must be completed. The petitioner must serve his/her preliminary disclosure within 60 days of the filing of the petition (Fam. Code Section 2104(f)) and the Respondent must serve his/her within 60 days of the filing of the response.
There are four forms that California law requires each party to complete:
- Income and Expense Declaration (FL-150)
- Schedule of Assets and Debts (FL-142)
- Declaration of Disclosure (FL-140)
- Declaration Regarding Service of Declaration of Disclosure and Income and Expense Declaration (FL-141)
The numbers following “FL” correspond to judicial counsel forms to be used for financial disclosure. The forms can be obtained on the court’s website.
What is each form about?
Income and Expense Declaration contains a statement of income from all sources, including business and investment, as well as all expenses. You must attach the last two months of pay stubs, W2 statement, or other proof of income. The form helps the parties or court calculate child and spousal support, as well as determine the need and ability to pay attorney fees.
Schedule of Assets and Debts lists all of your assets, whether community property or separate property (acquired during or before marriage or during the marriage for separate funds) and all of your debts. The form is very specific about what needs to be attached to the form. Each section asks for supporting documents. Most parties use statements from their date of separation. The form also has a column to designate each asset and each debt as either community or separate. If you are not sure or cannot state at the outset of your case, the column can be left blank.
Declaration of Disclosure asks that you answer questions about any business opportunities that the marriage/dp had up to the date of separation and about your method of arriving at values for your assets. The form also requires that you attach the last 2 years of your income tax returns.
Declaration Regarding Service of Declaration of Disclosure and Income and Expense Declaration is your proof of service for having the PDD served on the other party. This is the ONLY form that is filed with the court if your divorce or termination of domestic partnership is amicable. If one party files a Request for Order and asks for financial relief, then the court requires a filing of the Income and Expense Declaration. If there is a trial, most parties use their disclosure forms with their attachments as evidence and thus submit them into evidence.
Beyond Basics
Financial Disclosure is nothing more than preparing a summary of your financial life just like you would for taxes. It forces you to take an honest look at all your sources of income, expenses, assets, and debts. Yet parties struggle with disclosure for various reasons.
If it is so easy, why do so many people struggle with?
Some spouses simply do not know their marital financial information because they were not in charge of managing their finances. The law requires that the spouse who is in charge of managing the couple’s finances provides full disclosure. If disclosure is incomplete, there are law-imposed penalties including assignment of the non-disclosed asset to the other spouse. Judgments can be set-aside and sanctions can be ordered against the non-disclosing spouse. However, if you are the spouse that never handled finances, divorce gives you an opportunity to ask yourself ‘why.’ Perhaps you are stuck in a victim mode or a child mode or you delegated the responsibility because you did not care enough about the money. Divorce gives you an opportunity to get to know yourself and make a decision to change.
Some people postpone disclosure because they simply are too afraid to face their finances. Often the marriage/domestic partnership fell apart because of the finances. People, in general, do not want to face the music. It sometimes was a direct or indirect cause of the break-up of the relationship, so the tendency to avoid finances intensifies. However, if you avoid looking at your finances during the beginning stages of your divorce, you are cutting yourself short on the possibility of a quick and amicable settlement. More importantly, you are keeping yourself stuck in the old mental pattern so that you will most likely repeat it in your next relationship.
How to empower yourself through disclosure?
Looking honestly at your finances lets you create a budget for your post-separation life and compare it with your marital lifestyle, which then helps you ascertain the need for spousal support. You have to look at your income and be realistic with your expenses. Most people do not ever look at their pay stub deductions, 401(k) contributions, or even investment accounts.
You can use your divorce to let go of the fear of your money and truly go real. Getting real with your money creates authentic power. Shedding light on an area of your life from which you are running away, releases fears, insecurities; the unknown becomes known. The more you know your money, the better it works for you. If you do not take care of your money, it does not take care of you. Getting real with your financial situation allows you to get out of your victim mentality. If you look at yourself as a victim, life will give you situations that will support that view. Your next relationship will have the same issues because of your refusal to transform. That’s why divorce, in general, is such a wonderful (albeit painful) opportunity to get to know yourself, to let go of old patterns that no longer serve you (or that never served you), and to enter into a more positive stream of life.
If you are the so-called “in-spouse” who managed the money during the marriage or domestic partnership, the sooner you provide the financial information in a format that your ex-spouse can easily understand it, the sooner you can reach a settlement on support and division of assets.
The “in-spouse” may have been less than honest about the finances during the marriage. Disclosure is the last opportunity to fully disclose so that you can free yourself of the negative patterns. It works especially well in mediation where spouses have the opportunity to discuss their motivations, fears, needs etc. without falling back into the patterns developed during the marriage/domestic partnership. In litigation, a good attorney should be able to explain to you the ramifications of non-disclosure.
It is draining (mentally, emotionally, and physically) to hide money, spend it secretly, earn it in a less then honest way. How good can your next relationship be if you perpetuate such negative mental patterns? Can you be happy? Can you have authentic power? Unless you transform negative approaches to finances and disclosure, you may risk getting stuck in denial that what you are creating is good for you or gives you real power.
Litigation/Mediation View
In litigation, the sooner disclosure is completed and the more honest it is, the quicker a settlement may come about. If parties are reluctant to disclose, they prolong the process and increase their attorney fees.
In mediation, if parties are unwilling to make a full and honest disclosure, mediation should be stopped. Mediation can only work if there is at least willing to discuss finances openly and to help each other understand respective approaches/views of money. Money means different things to different people. Your fears and motivations may not be the same as those of your spouse. Clarifying interests is the key to creating a satisfying agreement.
Disclosure can be a great vehicle of empowerment during a divorce/termination of a domestic partnership. It can help both parties become more authentic with themselves and each other for a better settlement and post-divorce life.