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