Homes, QDROs, stocks, cars, businesses, debt… There can be a lot to divvy up in a divorce as you go your separate ways. Freedom Law 805 will guide you through this complex process and fight for what is yours. We partner with industry experts in QDROs, real estate, and accounting to ensure you get the best outcome possible when dividing your assets in a divorce case.
The Big PiCture
Most California family law property division issues boil down to one question: is this community property or separate property? Answering this question can become extremely complex, however. Below are some definitions and examples to help you understand what belongs only to you and what is shared.
Community Property
In a nutshell, everything you earn or buy with the money you earned during marriage is community property. This means all income from your job, all contributions to your retirement plans, all property such as homes and cars you purchased with income earned during marriage, and all payments you made toward these assets with income earned during marriage. The same goes for your former spouse’s earnings. Even if you never had a job, half of the money your spouse earned during marriage belongs to you. Similarly, all debt acquired by either of you during marriage is community debt. It makes no difference whether you and your spouse held joint or separate bank accounts during marriage. Income earned during marriage is community property, aside from the exceptions listed below.
SEPARATE PROPERTY
Everything you earned before your wedding day and after the day you and your spouse separated (not the day your divorce became final) is your separate property. Separate property also includes gifts or inheritances you received during marriage, as well as income your separate property generates during marriage. For example, if you owned a rental property when you got married, the rental income you earn from that property during marriage is your separate property. The same goes for other assets you owned before marriage. If they generate income during marriage, or increase in value, 100% of that income and increase in value is yours. Your spouse has no claim to your separate property.
Date of separation
The date of separation can become a point of contention in divorces. It can affect whether an asset is community or separate property. The Family Code defines date of separation as the date that one spouse expressed an intent to end the marriage, if his or her conduct was consistent with this. To illustrate, suppose a wife moves out with plans to reunite with her husband after he addresses his issues, but she files for divorce six months later. The husband may argue her move-out day was the date of separation if his employer stock options vested shortly after she moved out. The wife may show her attempts to salvage the marriage during this period to set the date of separation as the day she filed for divorce, which affects her community property interest in the stocks. You must determine the date of separation before you can resolve most asset division issues.
Mixed property
Few couples foresee divorce at the time they get married. So, they share things. Spouses use their separate savings from before marriage to buy a home together. They continue contributing during marriage to 401k’s they had before marriage. They pay off student loans with income earned during marriage. They pay off mortgages during marriage on rental properties they inherited. This makes things complicated when the couple decides to divorce.
A reputable family attorney will partner with a CPA trained in the process of “tracing” separate and community funds in commingled accounts. The CPA will provide you with a clear calculation of what funds are separate versus community property. Sometimes couples each hire their own expert to convince the judge what funds are community versus separate property.
Common Exceptions to the Rules
Prenuptial Agreements
Some spouses prefer to have more control over their assets and income during marriage. “Prenups” can designate income earned, assets acquired, and debt incurred as each spouse’s separate property or debt where they would otherwise be community property and debt. Prenups can also resolve issues like spousal support, inheritance rights, retirement accounts, and more. It is much easier to part ways per the terms of a prenup if spouses have kept their finances separate during marriage. A prenup can still be enforced if couples commingle funds, but a forensic accountant may be needed to determine what funds, assets, and debts belong to which spouse.
Claims of Waste
Spouses owe a duty to each other during marriage to handle community funds responsibly and openly with each other. When one spouse has recklessly used community funds during the marriage, the other spouse may have a claim to be reimbursed for the other spouse’s wasteful expenditures. Your attorney will help you determine if you have a legitimate dissipation of community property claim.
Student Loans
The Family Code has special rules for student loan debt in marriages. The law views an educational degree as primarily benefiting the spouse who obtained the degree, and presumes the community should be reimbursed for student loan payments. If the couple significantly benefits from the degree, which is typically presumed if they remained married for 10 years after the student spouse graduated, a portion of the debt may be shared. The judge has discretion per the terms of section 2641 of the Family Code to decide if student loan debt is a community or separate property debt.
Employer Stock Options
If you and/or your former spouse have stock options or “RSUs” (restricted stock units), you will likely need the help of a forensic accountant to divide your investments. Two different formulas apply to determine community versus separate property interests in stock options: Hug and Nelson. Hug is generally used when the stock option rewards the employee’s past performance or a mix of past performance and an incentive to retain the employee. Nelson is generally used when the intent of the stock grant is to reward future performance. Hug gives the community a larger share, benefiting the non-employee spouse, and Nelson benefits the employed spouse more, as it results in a larger separate property share. Freedom Law 805 partners with highly experienced forensic accountants to calculate your interest in your or your spouse’s stock options.
Out of State Marriages
California is a community property state. Other states have different rules. If you and/or your spouse acquired property outside of California during your marriage, this is “quasi-community property.” It will be treated just like community property in your California divorce case. There are some nuances your attorney can explain in your particular situation, but for the most part, California’s community property laws will apply to property you and your spouse acquired during marriage, wherever you lived.
QDROs
Spouses can agree to any terms they want regarding their assets, including keeping their own retirement accounts without getting QDROs. This can result in a major loss of community funds, however, for the spouse forgoing his or her interest in a retirement account. Qualified Domestic Relations Orders (QDROs) direct retirement plan administrators to pay out funds from a retirement account to each spouse as the account matures. This is referred to as an “in-kind” QDRO division. Couples can also decide to opt for a retirement account “cash out” rather than an ongoing QDRO. With a “cash out” option, a QDRO expert will assess the current value of the non-earning spouse’s community property interest in the account. The earning spouse will then pay the other spouse that amount in cash and keep the entire retirement account for himself or herself. You can read about QDRO tax considerations here.
Whether you and your former spouse go with a QDRO cash-out or in-kind division, you will need expert assistance. Freedom Law 805 partners with a QDRO expert who preps divides retirement accounts for very reasonable flat fees.
Who Gets the House?
The simplest way to answer this question is for you and your spouse to reach an informal agreement. Once you decide who gets the house, you will determine how much the spouse who is keeping the house will pay the leaving spouse. This is called a home “buyout.”
If you agree on which spouse will keep the home, but can’t agree on the buyout amount, the house may be placed on the market and the spouse asking to stay in the home will have the “right of first refusal.” This means that the purchasing spouse will have the right to buy the home at a price that another genuine buyer is willing to pay for the home. The benefit for both spouses of a right of first refusal is avoiding real estate agent commissions and other costs involved in a standard real estate sale. Both spouses keep more money, or equity, with an informal transfer.
When spouses cannot agree at all, the court may order the house to be placed for sale on the market and the proceeds be divided according to each spouse’s community and separate property interests in the home.
You may also be able to obtain a “move-out” order if you have been the victim of domestic violence. If you obtain a domestic violence restraining order (DVRO), a term of your DVRO can be an order that the abusing spouse move out immediately. You can learn more about DVRO’s here.
Property division can be complicated and difficult to navigate on your own. If you have questions, give us a call for a free consultation.
EN 
ES