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Equal Division of Community Assets is the LAW in California

Don't lose more than  of your assets

If you're worried that your soon to be ex is going to walk off with all your assets in a California divorce, you may only be half-right. What I mean is, California is a “community property” state, which in turn means that all community property and debt acquired from the date of marriage until the marital cut-off date (typically called the “date of separation”) is divided and distributed equally in the event of a divorce.

The best scenario in any divorce is when the two parties can come together and reasonably and rationally divide the estate in accordance with California’s “community property” legal scheme. California courts will generally accept any fair and reasonable property division the parties mutually agree to. A fair and reasonable division typically means a basic mathematical equation: from the total fair market value of the community assets, the joint obligations are subtracted, yielding the net community estate, which is divided in two, with each equal part assigned to each party respectively.

Unless agreed otherwise, each spouse must receive half of the net community estate, but if the parties cannot agree, the Superior Court splits it equally at the time of Judgment. Only a prenuptial agreement can be used to overwrite the rule of equal division of community property.

Only “community property” gets divided equally; meaning, the separate property of a spouse before the divorce remains that person’s separate property after the divorce even if it’s increased in value. But what is separate property?

Separate property of a married person, which is not included in the division of the community estate, includes:

  • all property owned by the person before marriage;
  • all property acquired by the person after marriage by gift, bequest, devise, or descent;
  • and certain rents, issues, and profits of the property.

It is important to remember that “separate property” is indeed “separate”, and thus a married person may, without the consent of their spouse, convey his or her separate property both during marriage and the divorce.

After entry of a judgment or legal separation of the parties, the earnings or accumulations of each party are their sole and separate property once again.

What is the “Rebutable Presumption” Rule Governing Community Property?

Don't lose more than  of your assets

There is a “rebutable presumption” in California family law courts that property purchased during marriage is “community," not separate. This means that the courts presume that property acquired by the spouses during marriage in any joint form (tenancy in common, joint tenancy, or tenancy by the entirety, or as community property) is community property. This presumption affects the burden of proof and may be rebutted by either of the following:

  • “A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property”; or
  • “Proof that the parties have made a written agreement that the property is separate property.”

When dividing up the community estate, dollar-for-dollar divisions are not always possible. Consequently, the court has the latitude to give one spouse an asset of the community estate in order to effect an equal division.  

The court does not consider marital fault when deciding on who gets what; so stop thinking allegations of adultery will get you anywhere. However, in the event of economic or financial misconduct, such as violations of ATRO, hiding assets, etc., the court may also award, from one spouse’s share, an amount the court determines he or she deliberately misappropriated to the detriment of the other spouse.

Debts, though initially assigned equally, may get unequal treatment where community assets are not sufficient to cover community debts.

Debts accumulated after the date of separation but before final judgment are treated as follows:

  • “debts incurred by either spouse for necessaries of life of either spouse or the children of the marriage for whom support may be ordered, in the absence of a court order or written agreement for support or for the payment of these debts, shall be confirmed to either spouse according to the parties’ respective needs and abilities to pay at the time the debt was incurred”; and
  • “debts incurred by either spouse for non-necessaries of that spouse or children of the marriage for whom support may be ordered should be confirmed without offset to the spouse who incurred the debt.”

What does this mean? Well, it means that all debts incurred after separation but before final judgment that are for the basic necessities of life are still considered to be community, and thus will be assigned (not divided) in almost the same way that attorney fee awards are made: according to need and ability to pay. Other debts which are for non-necessities are assigned to the party who incurred them period.

Difficulties Can Arise When the Character of a Particular Asset is Not Clear

Don't lose more than  of your assets

Ordinarily, it is not difficult to determine whether a particular asset is community or separate property. However, certain types of assets can pose unique problems in this regard, including a business that one spouse owned before marriage and both spouses worked on during the marriage, or property that belonged to one spouse before marriage but was shared during the relationship. The division of investment, pension and retirement accounts also pose their own world of difficulties; though not insurmountable by any means.

Dividing Community Pension and Retirement Accounts

When a married person accumulates an interest in a pension, retirement, profit sharing, or other employee benefit plans during the marriage, the part that was accumulated during the marriage is community property.

Retirement benefits vary greatly but can generally be divided into two groups:

  • Defined Contribution Plans: These involve a defined amount of money belonging to the employee, and where an employee and/or the employer make defined contributions. The balance of the plan is constantly changing, but its value is definable at any given point. 401(k)’s, 403(b)’s and profit sharing plans fall into this category.
  • Defined Benefit Plans: These are a retirement benefit where an employer promises to pay a benefit to an employee sometime in the future, based upon some type of formula. Normally, this formula is based on the employee’s salary near the end of his or her career and the number of years he or she worked for the employer before retirement. Defined benefit plans are much more complicated to value and often require the professional evaluation of an actuary to determine exact values.

Pension Plans are divided in one of two ways: 1) a reservation of jurisdiction or 2) a cash-out. The spouse who owns the retirement plan can pay the other spouse for the non-owner spouse's share of the community interest, or the court can reserve jurisdiction to have each spouse receive a proportionate share of the benefits when they are paid. Pensions plans can also be complicated to value and will sometimes require the professional evaluation of an actuary to determine the exact community property portion.

In California and other jurisdictions, if spouses share in each other’s retirement or pension plan, a Qualified Domestic Relations Order must be completed. A QDRO is a written set of instructions that explains to a plan administrator that two parties are dividing pension benefits. The instructions set forth the terms and conditions of the distribution - how much of the benefits are to be paid to each party, when such benefits can be paid, and how such benefits should be paid.

The other method of dealing with a pension involves obtaining "actuarial evaluation." An actuary is an expert who deals with statistical and financial evaluations of insurance policies, annuities, and pensions. By reviewing the plan description as well as the accumulations on the account of the employed spouse, the actuary can determine the "present value" of the community share of the pension plan. With a cash-out, the employed spouse receives the pension plan in its entirety, and the other spouse receives other community property assets of equivalent value.

There is a lot to digest when dividing up a community estate, and the larger the estate the more complex. Instead of navigating this minefield alone, it is always in your best interest to consult with an experienced family law attorney regarding your rights and the division of your community estate. 

To speak to an attorney at the Law Office of Channe G. Coles about your divorce in Santa Barbara County, please visit us online at www.ccsblaw.com or call us at (805) 617-4618 for a free confidential consultation.

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