The process of divorce can turn your life upside down and one effect of that will be putting a good portion of what you own onto the bargaining table. It’s a time when everyone needs to take prudent steps to protect themselves. Couples who have accumulated diverse sources of wealth may find themselves looking for ways to protect their assets in a divorce.
The best way to protect your assets in a divorce is to know, with precision, the assets you have and where their ownership originated. That positions your attorney to best present your case under California’s community property law.
What Community Property Law Means
Community property law requires that overall assets be split 50/50. This does not mean that every individual asset must be divided equally. For example, maybe the property you own near the beach is important to you, while your spouse places greater value on the family home. These priorities can be worked out in a settlement where everything collectively is divided on a 50/50 basis.
This makes California, and the eight other states that use the community property principle, a little bit different. Most states use the principle of equitable distribution. This is where the goal of 50/50 is still aimed at and even used as a starting point, but courts have more leeway based on what they believe meets the more intangible definition of “equitable.”
California judges do not have that leeway. Settlements must be 50/50. But that still leaves open the question of what property is subject to the 50/50 split.
The Difference Between Marital Property and Separate Property
Property in a divorce settlement is classified as either marital property or separate property. Separate property is what you own by yourself. Marital property is what you own with your spouse. Separate property is yours in the settlement. Marital property is subject to 50/50 division.
The key difference between marital property and separate property is the point when ownership originated. The Mercedes you owned prior to the marriage is separate property. The Volvo XC90 you bought together with your spouse is marital property. The Mercedes you can keep. The Volvo has to either be sold and the money split equally or used as one piece of an overall 50/50 settlement.
Seems simple enough, right? Well, when you work as many divorce cases as we have, you know things are rarely that simple.
Consider this example–you’ve been at your job for 15 years. You started the job before you even met your spouse, much less got married. That makes your 401(k) separate property, right? What will actually happen is that courts will consider the value of the 401(k) accrued prior to marriage as your separate property and anything afterwards to be marital property.
Now, to get an accurate gauge on this, you need to know more than just the amount that was in the account on your wedding day. You also need to know how much the value that was accumulated by the wedding day contributed to the interest accrued after the wedding date. You can then make the case that this should mean the amount considered separate property is higher than it might appear.
Does it sound complicated? It is. That’s why forensic analysts can be called in as expert witnesses to identify how much of the 401(k) is yours and how much must be shared equally.
Other examples where the line between marital property and separate property gets blurred are the stock options that will vest 20 years into the future. If they were acquired when you were married, they are marital property–even if it was a benefit given by your employer. Or the inheritance you got five years ago–strictly speaking, that’s separate property…unless you co-mingled the funds with marital property. Then it might be considered a gift to the marriage and therefore marital property.
All these examples underscore that–even in a state governed by community property laws–you and your attorney still have a lot of work to do to make sure your rightful share of the assets is protected.
Steps to Protect Your Assets
The first thing to do is get a complete catalog of everything you and your spouse own. This list should include items that you might consider their separate property–we noted above that you might have a stronger case for at least a portion of these assets then you might realize.
You also want the list to have things that might be considered small ticket. Photograph albums might not have a huge dollar value in court, but they can have tremendous sentimental value. Even if you’re fine with your spouse getting them, this can still be leveraged to help you get something else that might be more important to you.
Furthermore, the list should also include your debts. Credit card debt classified as marital property will have to be shared after the divorce. The same goes for everything from mortgages to car payments to any other documented debts you and your spouse may owe. If your spouse owned a business and took a loan to expand, that needs to be on the list.
Once the list is complete, work with an appraiser to have them valued. Your attorney should be able to connect with you a professional you can trust and whose analysis will be respected by the court.
It’s also time to start gathering proof that assets you want classified as separate property really do belong to you exclusively. Your uncle left you a painting that now hangs in your living room. It’s valuable, not just as a family heirloom, but in the marketplace. Your spouse might not care about the painting but may certainly have interest in claiming half of its value. Written proof that your uncle left you this as a gift will do a lot to strengthen your case.
Whether you’re the person keeping the house or the one leaving it, you’re going to need furniture. Most couples have a considerable amount of furniture that will be considered marital property. Maybe there’s an Ottoman chair that you brought into the marriage and really want to leave with. Is there any receipt that can be found to document your purchase? Even if you don’t have the actual paper receipt, a credit card record might prove useful in helping you keep the chair.
All your financial documents should be photocopied. This includes three years of tax returns, bank statements and reports on your stock portfolio and 401(k). It includes documents that show the value of your real estate holdings and profit/loss statements from your business. Reviewing all this documentation is a good way for your attorney to uncover anything that might be overlooked.
The Importance of Transparency
It’s common for couples going through a divorce to have lost trust in each other. That can lead to charges that a spouse is hiding assets. Hiding assets is a serious offense. It can be charged as perjury in the state of California–the person doing the hiding is effectively lying to the court about what they own. A perjury conviction can result in up to four years of jail time.
Your spouse has every incentive to be transparent ,but hiding assets can be more subtle than transferring money to an account in the Cayman Islands or something else that sounds like it came out of a script in your favorite legal TV drama. For example, a business-owning spouse might seek to alter the timetable by which clients pay them in order to understate their current income. If your soon-to-be ex is a business owner, you have the right to that business’ financial records and invoices.
Know What You Want & Communicate
Once everything is compiled and valued, and the court has decided which property is separate and which is marital, it’s time to start negotiating towards the 50/50 split. Neither spouse is likely to get everything they want. You’ll need to understand which assets you want and which you can live without. Your attorney needs to know that information. You can further help your lawyer if you know what your spouse wants the most. The attorney who knows what the other side wants and doesn’t want is in a stronger position at the bargaining table.
Trabolsi | Levy | Gabbard LLP is skilled at the art of negotiating divorce settlements. We know how to steer our clients through the process of property division, and we do it with both legal savvy and personal compassion. Clients are coming to us at a time in their lives that can be challenging, and our deep team of lawyers keeps that uppermost in mind when we fight for their interests. Call us today at (310) 455-8364 or reach out to us online to set up an initial consultation.