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Property Issues in California Divorce

What  is  Community  Property?To ensure that any pension settlement is
enforceable it is advisable that any
California is a community property state insettlements regarding pensions are contained
which spouses are entitled, with somein 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 duringEach party is required by California law to
the marriage through the efforts of eitherfile a preliminary and final "declaration of
spouse or with community property funds. Thisdisclosure" with the Court that they have
means that, even if only one spouse workedserved an Income and Expense Declaration and
during the marriage and the other stayed atSchedule of Assets and Debts on their
home raising children, both spouses arespouses. The final declaration can be waived
entitled to one half of the communityby the written agreement of the parties. The
property. "During marriage" refers to thedisclosures will list each spouses community
time period from the date of marriage to theproperty assets and debts and separate
date when the parties legally separate. Theproperty. Most disputes involve the extent
date of separation is often contested becauseand valuation of community property assets.
it determines the extent of the communityIf a spouse tries to hide assets, your
property estate. The courts have said thatattorney can employ various discovery tools
separation occurs where one spouseforcing a spouse or a third party to turn
subjectively intends to end the marriage andover financial records. For example, they can
does something to evidence that intent. Itsubpoena 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 theirdocuments such as tax returns, W2's, bank and
separate property which is not divided in abrokerage statements and keep them in a safe
dissolution. Separate property is anyplace.
property that is acquired before the
marriage, including any rents or profitsThe law requires the parties to make full
received from those items; property receiveddisclosure of all their assets and
after the date of separation with separateliabilities and also any business investments
earnings, inheritances that were receivedand opportunities. The case of Marriage of
before or during marriage; and gifts solelyRossi, 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 beState 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 communitywinnings. She had been married for 25 years.
or separate property debts. With few2 years after the case was over and a
exceptions, debts incurred during theJudgment had been entered, her ex-husband
marriage are community property debts thatdiscovered 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 incurredintentionally not disclosed her winnings in
during the marriage are community propertythe divorce proceedings. News reports
debts regardless which spouse's name is onindicate that Denise ended up filing for
the credit card. Student loans are one of thebankruptcy.
main exceptions to this rule. In certain
circumstances, the community may be entitledDon't  forget  some  often overlooked assets!
to a re-imbursement if the couple pays off
one spouse's student loans during theSome assets that are easily overlooked but
marriage. Debts that you incurred beforemay  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 fromAre their tax consequences of a property
community earnings. Parties should also besettlement?
aware that if one spouse remains in the
property after separation they may beIt's important that you consider the tax
incurring indebtedness to the other party ifconsequences of any property settlements
the fair rental value of the property exceedsduring a dissolution. Generally, IRC section
the mortgage, taxes and insurance payments on1041 provides that transfers to a former
the home. These are called Watts claims. Thespouse incident to a divorce are not taxable.
reverse may also be true. If the spouseHowever, if either spouse agrees to sell an
living in the house is paying the mortgageasset as part of a settlement there may be a
which exceeds the fair rental value, they maytax 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'sgains 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 athe principal residence. Similarly, the tax
pension or retiremement plan. Theconsequences of distributions from pension
non-employee spouse is entitled to a portionplans now or in the future should also be
of the plan that was earned during marriage.considered.



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