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