HOW TO SPLIT ASSETS IN DIVORCE – INTRODUCTION

How to split assets in divorce is a question which need to be discussed in almost every divorce. If you are thinking about getting a divorce, you need to get some professional guidance.

Even if your first consultation is free, you should make best use of that time. Prepare for the consultation by doing a little reading or watching
videos on general divorce topics. Having a basic understanding will help you ask the attorney questions that are important to you rather than
wasting time discussing something that you can easily find on-line.

This overview of how to split assets in divorce has been written to help you in understanding some concepts, terminology, rules and exceptions.

Basic terminology you need to know in order to understand how to split assets in divorce

The basic terms you must be familiar with are:
1. Community property
2. Separate property
3. Day of separation

Community property vs Separate property

Under Calif. Family Code 770-771 Separate property is:
(1) property owned by either spouse before marriage or,
(2) property acquired during marriage by gift, bequest, devise, or
descent, or
(3) The rents, issues, and profits” of their separate property, as well
as earnings acquired by a spouse while living separate and apart from
the other spouse.

To put it simply; the following things are separate property:
Everything you had before marriage
Everything you inherited
Everything you received as a gift
Everything that resulted from using your separate property

Under Calif. Family Code 760, California community property is: “All property, real or personal, wherever situated, acquired by a married
person during the marriage while domiciled in this state”.

To put it simply; everything everything spouses got during the marriage when they lived in California, except separate property.

Day of Separation
Day of separation is the day when spouses are permanently physically separated with no intent to resume marital relationship.
The day of separation is important because it determines the ownership of property acquired after the separation.

For example, if you separated July 4th, and filed for divorce November 5th. Anything that you earned after July 4th is your separate property
as well as appreciation in stock.

How is community property handled on divorce?

The general rule is that upon divorce, every community asset and liability shall be divided 50% to each spouse. However, there are some exceptions to this rule.

For example, if one of you hid any property during or before the divorce proceeding, the court will award this party lower than 50% of the
community property asset.

Another example is if one spouse has incurred educational debt, he or she needs to pay 100% of this debt even if the debt was incurred during
the marriage.

If the spouses own a house and have minor children, it is also permissible that one spouse cashed out another spouse. Changing the character of an assets by agreement. How assets will be split in divorce also depends what kind of agreement the spouses made before or during there marriage.

There are two types of such agreement- premarital and marital (transmutation). In prenuptial agreement, (also called “prenup”) the parties can agree just about anything with some exceptions.
They cannot agree to limit child support. The prenup can govern the disposition of properties on death, separation or divorce.
There are a very strict requirements that need to be met in order for a prenup to be enforceable. We have discussed those requirements on the prenuptial agreement page on this website.

Marital agreement, (also called “postnup” or “transmutation”) is very similar to prenup. Unlike prenup, before 1985 it could be made orally or in writing , but after 1985 in should be in writing with some exceptions. In a marital agreement the couple could agree to any of the following property transfers between spouses:
1. Transfer community property into separate property
2. Transfer separate property into community property
3. Transfer separate property into separate property.

This is where the application of special rules applies: community property is used in the improvement of the other spouse’s separate property, or the house was bought before marriage and payment on mortgage during the marriage was paid.

Specific situations will have complex rules in each, and many more. Let’s name a few of the rules that are quintessential to mention in cases of stock division, business division, in our future articles on this website.

If you have need an attorney consultation please call 714-390-3766 any time that is convenient for you.

One of the most argued issues, and pretty much complicated, is the division of assets during a divorce. It is absolutely necessary for a person who is to face this area of the law to have an understanding of the terms and the way it all functions within the legal system.

We will further develop insights into the key concepts and strategies for splitting available assets in divorce to enable further clarity in your divorce.

Understanding Equitable Distribution vs. Community Property

Equitable distribution: Most of the states maintain a model of equitable distribution, in which they share assets and debts relatively but not necessarily in an equal proportion, depending on issues like the financial status of each spouse, the length of the marriage, and contributions made to the marriage.

Community Property: On the other hand, states abiding by community property laws, such as California, regard all the liabilities and properties that were incurred during marriage as owned jointly and divided equally at the time of dissolution.

Identifying and Valuing Assets

1. Inventory of assets: The steps to financial divorce through sentence, the first step to take is to create a complete list of all the assets that may be part of the marriage estate, which includes but is not limited to real estate, bank accounts, investment accounts, retirement accounts, and

2. Appraisals: The appraisal will be required on some of the assets whose value is in flux, such as businesses, and in some cases on real estate, which will need professional appraising to attach their current value.

3. Separate vs. Community Property: To more clearly indicate what may comprise separate property (that which one owned before the marriage or that received as a gift or by inheritance) and community property.

Special Considerations

– Debts: Similar to assets, debts must be classified as either separate or community and divided accordingly.

– Retirement Accounts: During a divorce, the division of retirement accounts would mean creating a Qualified Domestic Relations Order (QDRO) to successfully transfer money from one account to another without penalties due to early withdrawal.

Businesses – valuation and division of a business could be complex and, to ensure this, it takes into consideration the current value of the business, future earning potentials, and non-monetary contributions by any of the spouses. – Tax implications: The division of assets may attract big tax implications. For example, selling off assets as part of the division process may attract capital gains taxes.

Negotiating a Settlement Mediation and Negotiation: A process that most couples get to work through asset division is mediation or collaborative law processes, presenting many couples with outcomes that are more flexible and personalized than they can receive through the courts.

Legal and Financial Counseling: Be sure to seek counsel from professionals such as divorce attorneys and financial advisors to help you wade through the legal maze and protect yourself from the financial piece. Prenuptial and Postnuptial Agreements: Prenuptial and postnuptial agreements are important in asset division in case of divorce, provided they do not fall below the legal standard of fairness and are not forced into it. Conclusion An equal division of assets requires both parties to the divorce to pay attention to legal principles, assess all assets by all means, and optimally negotiate cooperatively between the spouses. Thus, understanding the nature of community property, the necessity to differentiate between separate and martial property, and the subtleties of valuing sophisticated property set the foundation for just division. Professional guidance and negotiations in the spirit of good faith can enable the parties to arrive at such agreements in order for them to look after their best interests and make a fresh start after the split.

 

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