Solving Complex Family Law Issues with Creative Strategies

California Division of Assets and Debts

As a community property state, California has intricate rules for how property gets divided between separating spouses in a divorce or domestic partnership dissolution. As a result, it’s imperative that you find a divorce attorney with the knowledge and experience to handle your needs – especially in high-net-worth and complex property division cases.

The right approach to property division balances your ultimate goals with your financial realities to get you and your family the best possible long-term outcome.

Property division can prove to be one of the most complicated parts of your divorce. The more assets you have or the greater your debts, the more you and your soon-to-be-ex-spouse have opportunities for conflict. The stakes are simply higher. But you can avoid stepping on any financial landmines by consulting with a legal team that understands the nature of your complex assets and debts. Handling challenges and complications with a deft hand early on in the divorce process can save you countless headaches in the future.

In a worst-case scenario, you and your spouse could spend your legacy litigating how to divide your assets over the course of months or even years. This could disrupt not only your personal life but your professional career as well. The right divorce lawyer can help you get to a fair and constructive property division agreement with your spouse while protecting your financial interests and avoiding a protracted court battle.

At Moradi Saslaw, our Orange County divorce lawyers advocate tirelessly for our clients at every point of the property division process. Our tenacious team has experience valuing and negotiating nearly every type of asset common in Orange County including limited partnerships, stock options, and professional practices. Our legal backgrounds in transactional work and business litigation allow us to guide clients to successful outcomes and litigate any disputes that cannot be resolved through negotiation. We know how to track down assets even if your spouse is hiding them, with forensic accountants and other financial experts on call so that we leave no stone unturned.

How Are Assets Usually Divided in a California Divorce?

California is a community property state. Any assets or debts you acquire or earn during your marriage and before your date of separation are split equally between spouses.

Any other assets and debts are separate property owned and owed entirely by one spouse.

That sounds simple enough, but there’s plenty of gray areas when it comes to categorizing community property versus separate property, especially with complex assets and debts.

Separate Property vs. Community Property in California

Absent a prenuptial or post-nuptial agreement to the contrary, each spouse receives an equal 50% share of all community property received during the marriage. This applies to assets and debts, which are also split in half between divorcing spouses.

Timing is important when it comes to characterizing property. Community property rules apply from the date you get married until your date of separation.

Your date of separation doesn’t have to be the day you start to physically live apart. In fact, the date of separation occurs as soon as one spouse communicates their intent to break up or end the marriage and takes consistent outward actions to manifest their intent. For example, sleeping in separate beds, attending social events separately, or filing for divorce.

Community property earned or received during your marriage could include:

  • Wages, salary, and business income
  • Personal property like furniture, cars, jewelry, and fine art
  • Land, houses, rental properties, and other real estate property
  • Your checking, savings, banking, and investment accounts
  • The cash value of insurance policies held by either spouse
  • Founder’s stock, stock options, and restricted stock units (RSUs)
  • Venture capital, private equity, and hedge fund carried interest and performance fees
  • Retirement plans, pension plans, 401ks, and bonds
  • Businesses, partnerships, or professional practices
  • Employee benefits that pay for living expenses

Neither spouse can legally sell or give away community property without the other spouse knowing or consenting to the transaction.

An asset or debt could count as community property even if it’s only under the name of a single spouse. For example, only one spouse may hold title to a real estate property that could still count as community property if it was acquired during the marriage with funds earned during the marriage. A credit card balance may only be under one spouse’s name but both are equally responsible for paying if the credit card was used during the marriage for the community’s benefit (such as for groceries, household items, joint trips, and other mutual expenses).

Student loans are an exception. Any student loans you owe qualify as separate debt owed by you alone – the same goes for your spouse. Your property division case may get more complicated if one spouse has helped the other pay for their education or if one spouse has been using community funds to pay off their student loans.

What Assets are Separate Property in a Divorce?

Married couples in California have the legal right to own separate property independently of their spouse. That means any property characterized as your separate property belongs 100% to you. Your separate property could include:

  • Assets acquired before your marriage or after your date of separation
  • Any income, earnings, or wealth acquired before marriage, or after you’ve separated
  • Property received by one spouse through inheritance
  • Individual gifts, including gifts from one spouse to another
  • Any income, profit, rent, or interest from a separate property asset

In similar terms, all debts incurred before your marriage or after your date of separation are separate debts owed entirely by you. Some debt may count as separate debt even if it was incurred during the marriage but not in the interest of the community – for example, one spouse’s secret gambling debts. You could also argue that your share of community funds should be refunded by your spouse for any money they spent on an external affair.

Although inheritances and gifts are generally considered to be separate property regardless of timing, there are exceptions to many of these rules depending on the circumstances. Determining exactly which assets and debts to include in the process and whether to characterize them as separate or community property is not easy and may be hotly contested.

The most difficult property division issues involve mixed property that is not entirely community property or separate property. For example, one spouse may have paid the down payment for a house with their own separate funds then the couple continued to pay the mortgage with community funds. Tracing each of your assets and debts to their source and categorizing them properly is a crucial part of the property division process that you must get right.

As soon as you or your spouse starts divorce proceedings, the court will implement restrictions on what spouses can do with community and separate funds. For example, you cannot borrow against marital property after the divorce petition has been filed. Although you’re generally able to control your separate property at your own discretion, you may be legally restricted from selling even your own separate property until your divorce finalizes.

Complex Property Division Issues for High Earners

If you and your spouse have relatively little in assets and debts, the property division aspect of your divorce is bound to be simple. But many successful entrepreneurs, industry leaders, and high-earners hold complex assets that up the stakes and complicate the math.

Complex property division cases often require the additional expertise of specialists such as business or art valuators, real estate appraisers, forensic accountants, and financial investigators. Many of our clients decide to obtain independent evaluations of their assets, such as business valuation, or an appraisal of art. A financially complex divorce could involve valuing and dividing:

  • A family business owned by both spouses
  • A business owned by one spouse alone
  • Corporate partnership assets
  • Ownership in intellectual property rights
  • Personal and commercial real estate
  • Tax liabilities attached to high-value assets
  • Stock options, bonds, and other private investments
  • Pensions, retirement plans, IRA, and 401(k) accounts
  • Fine art, antiques, and other valuable collector’s items

The following issues can also complicate divorce property division:

  • Assets acquired through inheritance, gifts, trusts, or wills
  • Which spouse gets primary child custody and the family home
  • Any spousal support, alimony, or child support obligations
  • The cost of education paid by one spouse for the other

Although valuation sounds like a straightforward process, you and your spouse may disagree on how much your assets are worth. Doing the property due diligence will strengthen your position. Your success depends on finding a divorce attorney whose expertise you can trust.

How to Reach a Property Division Agreement With Your Spouse

Nobody knows your family circumstances better than you do. A settlement negotiation, mediation, or collaborative divorce can help you and your spouse work together to divide your assets on your own terms. If you simply cannot come to an agreement on all of your issues, you may have to litigate them in court, where a judge will decide the outcome for you.

Every family is unique, with different needs. What works for someone else may not work for you. At Moradi Saslaw, our pragmatic Orange County divorce attorneys are ready to meet you where you are and work with you to achieve your financial goals post-divorce.

The divorce property division process includes several steps:

  • First, you and your spouse must each create a list of assets and debts and identify which belongs to whom. If you’re meeting at the negotiation table, it’s important to come in good faith – that means being transparent and honest. If the spouses have disputes over property division, they can be resolved through meditation, negotiation, or collaboration. If you’re litigating your property division issues in court, you and your spouse will be required to file an accurate list of assets with the judge.
  • Once all of your assets and debts have been identified, you must value your property. Courts will generally accept the fair market value (FMV) of your property – i.e., what you would get for the asset if you were to sell it today, not what it cost when you paid for it. Spouses may disagree on how much assets are worth. Your spouse may attempt to lowball the appraisal of certain assets, which is why it’s important to have your own evaluators. If you cannot agree on the value of an asset, you can both present your evaluations to the judge for them to decide between the two.
  • Characterize each asset and debt as separate property or community property. This will affect the outcome of how your property gets divided. You get 50% of all community property, 100% of your own separate property, and 0% of your spouse’s separate property. If you and your spouse disagree on whether an asset is community property, you can prove otherwise by showing its date of purchase, the source of the funds used for the purchase, and how the asset was kept separate during your marriage.
  • Your lawyer or mediator will help you draft a settlement agreement outlining the terms of your property division with your spouse. Any issues you cannot resolve through negotiation or mediation will go to the court to be determined by litigation.

Although California requires community assets to be split 50/50 equally, they do not have to be split equally in kind. That means you can offset the value of one asset with another or with a cash payout. For example, one spouse could buy out the other’s equity in a house.

What if Your Spouse Is Hiding Assets?

Hiding assets is illegal. Each party in a divorce is required to be truthful and upfront in any disclosure documents they submit during the legal process.

If you find out later that your spouse hid assets from you during your divorce, you can reopen the matter in court. A spouse who hides their assets is likely to get sanctioned by the court and ordered to pay the other spouse’s legal fees. The court may even order a greater percentage of the hidden asset’s value to be awarded to the other spouse.

A good lawyer will know where to look for hidden assets. At Moradi Saslaw, we know the tricks people use to hide assets from their spouses and we fight for what our clients deserve.

Call our Orange County family law attorneys now at (949) 688-8880 or use our online contact form to get started.