Divorce is rarely easy, either emotionally or legally. When divorcing spouses have no children and few assets to divide, the process may have fewer pitfalls and proceed smoothly, but many divorcing spouses have complex marital assets for division. California’s divorce law views married spouses as a community of two. Any assets accumulated during the marriage belong to the community and become subject to equal division in a divorce.
For most spouses, a divorce is a major event in their lives financially as well as personally. It’s critical to avoid making common mistakes that may become pitfalls in the process of splitting assets.
Trying to Hide Assets
During the discovery phase of a divorce, both spouses must make full financial disclosures. Some spouses try to hide assets by making transfers in cryptocurrency, withdrawing cash, failing to report income, or by “gifting” money to relatives with a secret agreement for later return. It’s important to speak to your attorney about your rights and obligations during the division of your marital assets. Failing to disclose assets is perjury, and secretly removing and hiding assets is criminal fraud. Both could result in criminal charges with fines and jail time.
Failing to Identify Separate Assets
Don’t try to go it alone when dividing assets with a spouse to form a settlement agreement. Some assets and properties are yours alone and not subject to division. For example, assets that were gifted to you, inherited by you, or that belonged to you before your marriage and never commingled with your spouse are yours to keep without dividing them with your spouse.
Failing to Claim Marital Assets
It’s important to speak to your attorney or divorce finance expert to ensure that you’ve claimed your share of all marital assets, including some that may not be immediately obvious. For example, your spouse might have an account that was theirs before the marriage, but you have a valid claim on your half of any interest accrued during the marriage. Another common scenario is when one spouse owns a real estate property before the marriage or inherits one during the marriage but the other spouse invests money or time into making significant improvements to the property that increases the value. This gives them a valid claim on a portion of the property.
Don’t Misshandle Retirement Accounts
Retirement accounts are often one of the most valuable of marital assets. It’s important to speak to an attorney or a divorce financial expert about the tax implications of dividing an account. Simply withdrawing money from an account like a 401K to hand a percentage to a spouse results in serious tax penalties. Instead of withdrawing the amount allotted to a spouse, it’s best to use a Qualified Domestic Relations Order (QDRO) which transfers the money to a spouse without penalties by treating the spouse as though he/she is an original policyholder.
Don’t Retain the Family Residence if It’s a Financial Strain
Many times a spouse wishes to remain in the family home after a divorce, especially if they have primary custody of the children and want to avoid a greater disruption to their lives. It’s important to consider the mortgage, property taxes, insurance, and maintenance costs to ensure that this option is financially feasible. It’s a common mistake to argue for the family home, only to find it unaffordable after the divorce.
Some spouses agree to continue joint ownership of the home, but this can also be troublesome if one spouse fails to make their portion of the mortgage payments which may result in poor credit ratings or a default on the loan.
Before you begin the process of asset distribution in a California divorce, it’s critical to obtain experienced legal representation to protect your rights throughout the process and ensure you don’t miss or undervalue any asset you’re entitled to under California divorce law.