Property Division in California Divorce
Going through a divorce can cause emotional pain in so many ways. And the longer the process takes, the more the parties involved suffer. One part of the process that can take a long time, and often involves the most disagreement and hostility, is the division of the marital community property.
Ideally, dividing marital property should go smoothly; in a best-case scenario, both spouses agree to split their joint assets in a way that’s reasonable and fair. Frequently, though, the parties do not agree.
In California, courts typically accept a division of property that treats both spouses fairly. When the spouses can come to a fair split of all the assets, the parties sign a Marital Settlement Agreement or the Superior Court can include an order outlining the division of the property in the divorce decree. Keep in mind, however, that until a judge issues the final order, assume that any debts and community property belong to both parties in the divorce.
Community Property in California
The State of California recognizes community property, which includes any debt or property a couple amasses from the time they become married till they separate, and it remains community property until a distribution approved by a judge. In cases in which spouses cannot come to an agreement on a fair division, the Superior Court instead divides the community property.
The law assumes that any property a couple acquired during a marriage — including earnings and anything purchased with those earnings — qualifies as community property. Either spouse can dispute the status of a particular item as community property by presenting evidence supporting that assertion, for example a written statement signed by both parties — such as a prenuptial agreement — or a deed or other proof of ownership.
While courts require fair division of the “community estate,” the law does not call for literally splitting every asset between the two spouses. Instead, the overall distribution of assets must be roughly equal. For example, if a couple has two cars of unequal value, each spouse might get one car, and the spouse receiving the lower-valued car would receive additional assets to make up the difference.
Marriages also may include “separate property” that is not subject to equal division. Separate property includes any assets that one spouse acquired prior to the marriage, whether through earnings, gifts, purchases, personal injury awards, pension proceeds or inheritances.
The Family Home and Retirement Accounts
Many divorces involve young children under the age of 18. In such cases, the court often allows the parent with primary custody to stay in the family’s home.
Typically, the parent remaining in the home pays expenses related to the home, including property taxes, mortgage payments and homeowner’s insurance. However, the court may require the other spouse to pay some or all of the payments if a significant difference in income exists.
When children no longer live there or all the children have become legal adults, the house may be sold, depending on the agreement reached by the two parties or ordered by the court.
If one spouse builds value in a pension fund or retirement account during the marriage, that portion of the value is defined as community property under California law. In California, spouses must complete a form called a Qualified Domestic Relations Order when they share each other’s retirement benefits. In a divorce, the court can use an order to divide pensions and retirement accounts fairly even if the parties cannot come to an agreement on their own.
Alternatively, a professional Actuary acting as an expert consultant in the divorce can recommend a fair distribution of retirement benefits by evaluating factors such as the current value of the shared portion.
Dividing Marital Debt
In California, divorcing spouses must each complete a form known as a Schedule of Assets and Debts to disclose all property and liabilities to the other partner. Each party is required to declare all separate and community property.
Dividing debt can present special challenges. In many cases, spouses simply divide the debt owed by half, and each spouse takes on debt equivalent to that amount. However, creditors are not required under the law to honor divorce agreements and can pursue the spouse who signed the original contract. Creditors can seek payment regardless of which spouse agrees to take on responsibility for the debt after the divorce.
To avoid future problems with debt payment, spouses sometimes agree to pay off credit cards and other debts with proceeds from the sale of property. The spouse who takes on credit cards also can secure a new credit card and transfer the existing debt.
If a spouse incurs debt after separating but before the divorce is final, the debt falls into one of two categories. If the debt is necessary for daily life or for the needs of children, the court may assign it to either spouse depending on the ability to pay. Debt for unnecessary expenses typically is assigned to the spouse who incurred the debt.