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