| What is Community Property? | | | | To ensure that any pension settlement is |
| | | | enforceable it is advisable that any |
| California is a community property state in | | | | settlements regarding pensions are contained |
| which spouses are entitled, with some | | | | in a "Qualified Domestic Relations Order" |
| exceptions, to an equal division of community | | | | (QDRO) signed by the Court. |
| property and debts in a divorce (called | | | | |
| dissolution in California). | | | | How do I figure out the extent of my husband |
| | | | or wife's property? |
| Community property is all property, in or out | | | | |
| of state, that either spouse acquired during | | | | Each party is required by California law to |
| the marriage through the efforts of either | | | | file a preliminary and final "declaration of |
| spouse or with community property funds. This | | | | disclosure" with the Court that they have |
| means that, even if only one spouse worked | | | | served an Income and Expense Declaration and |
| during the marriage and the other stayed at | | | | Schedule of Assets and Debts on their |
| home raising children, both spouses are | | | | spouses. The final declaration can be waived |
| entitled to one half of the community | | | | by the written agreement of the parties. The |
| property. "During marriage" refers to the | | | | disclosures will list each spouses community |
| time period from the date of marriage to the | | | | property assets and debts and separate |
| date when the parties legally separate. The | | | | property. Most disputes involve the extent |
| date of separation is often contested because | | | | and valuation of community property assets. |
| it determines the extent of the community | | | | If a spouse tries to hide assets, your |
| property estate. The courts have said that | | | | attorney can employ various discovery tools |
| separation occurs where one spouse | | | | forcing a spouse or a third party to turn |
| subjectively intends to end the marriage and | | | | over financial records. For example, they can |
| does something to evidence that intent. It | | | | subpoena the records of third parties such as |
| could be moving out of the family home, | | | | banks and CPA's. In complicated cases it may |
| telling your spouse the marriage is over, | | | | be necessary to employ the services of a |
| arranging for a new place to live, etc. | | | | forensic accountant. It is a good idea to |
| | | | minimize this risk by taking some simple |
| What is Separate Property? | | | | steps as part of any pre-divorce planning. |
| | | | You should make copies of important financial |
| The parties are entitled to keep their | | | | documents such as tax returns, W2's, bank and |
| separate property which is not divided in a | | | | brokerage statements and keep them in a safe |
| dissolution. Separate property is any | | | | place. |
| property that is acquired before the | | | | |
| marriage, including any rents or profits | | | | The law requires the parties to make full |
| received from those items; property received | | | | disclosure of all their assets and |
| after the date of separation with separate | | | | liabilities and also any business investments |
| earnings, inheritances that were received | | | | and opportunities. The case of Marriage of |
| before or during marriage; and gifts solely | | | | Rossi, illustrates what can happen when one |
| to one spouse. | | | | party tries to conceal assets. In 1996 Denise |
| | | | Rossi won $1.3 million in the California |
| Do debts and credit cards also have to be | | | | State Lottery. She chose to conceal the |
| divided? | | | | winnings from her husband and filed for a |
| | | | divorce 11 days after learning of her |
| Debts are also classified as either community | | | | winnings. She had been married for 25 years. |
| or separate property debts. With few | | | | 2 years after the case was over and a |
| exceptions, debts incurred during the | | | | Judgment had been entered, her ex-husband |
| marriage are community property debts that | | | | discovered that his ex-wife had won the |
| will be divided equally in the dissolution. | | | | lottery. He filed a Motion and the judge gave |
| It does not matter whose name is on the debt. | | | | all of the $1.3 million dollar lottery |
| | | | winnings to the husband, since the wife had |
| For example, credit card debts incurred | | | | intentionally not disclosed her winnings in |
| during the marriage are community property | | | | the divorce proceedings. News reports |
| debts regardless which spouse's name is on | | | | indicate that Denise ended up filing for |
| the credit card. Student loans are one of the | | | | bankruptcy. |
| main exceptions to this rule. In certain | | | | |
| circumstances, the community may be entitled | | | | Don't forget some often overlooked assets! |
| to a re-imbursement if the couple pays off | | | | |
| one spouse's student loans during the | | | | Some assets that are easily overlooked but |
| marriage. Debts that you incurred before | | | | may turn out to be valuable include: |
| marriage or after separation are separate | | | | |
| property debts. | | | | • Tax refunds |
| | | | |
| What happens to the Family Home? | | | | • Frequent flyer miles |
| | | | |
| The family home in California is often the | | | | • Season tickets |
| marriage's most valuable asset. The division | | | | |
| of the family home can be complicated if | | | | • Prepaid insurance |
| there are minor children and one spouse wants | | | | |
| to stay in the home. The community property | | | | • Vacation pay |
| interest in the home is further complicated | | | | |
| where the property is in the name of one | | | | • Club memberships |
| spouse and was acquired prior to the marriage | | | | |
| but the mortgage payments have been paid from | | | | Are their tax consequences of a property |
| community earnings. Parties should also be | | | | settlement? |
| aware that if one spouse remains in the | | | | |
| property after separation they may be | | | | It's important that you consider the tax |
| incurring indebtedness to the other party if | | | | consequences of any property settlements |
| the fair rental value of the property exceeds | | | | during a dissolution. Generally, IRC section |
| the mortgage, taxes and insurance payments on | | | | 1041 provides that transfers to a former |
| the home. These are called Watts claims. The | | | | spouse incident to a divorce are not taxable. |
| reverse may also be true. If the spouse | | | | However, if either spouse agrees to sell an |
| living in the house is paying the mortgage | | | | asset as part of a settlement there may be a |
| which exceeds the fair rental value, they may | | | | tax consequence. For example, if parties |
| be entitled to what's called Epstein credits. | | | | agree to sell the family home and divide the |
| | | | net proceeds they may have to pay capital |
| Am I entitled to a share in my spouse's | | | | gains tax on any gain. The Tax Reform Act |
| pension? | | | | 1997 gives each spouse a $250,000 exemption |
| | | | from gain realized on the sale or exchange of |
| Another valuable asset in a marriage is a | | | | the principal residence. Similarly, the tax |
| pension or retiremement plan. The | | | | consequences of distributions from pension |
| non-employee spouse is entitled to a portion | | | | plans now or in the future should also be |
| of the plan that was earned during marriage. | | | | considered. |