Property division is one of the most complex aspects of the divorce process. In this podcast, Seal Beach divorce lawyer Ann A. Thomson helps listeners understand the difference between community property and separate property, and how property is divided, including the factors a court considers when dividing property. She also offers advice on what you can do to ensure you get your fair share once the divorce is finalized.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Ann A. Thomson, Family Lawyer
Ann A. Thomson has 17 years’ experience exclusively practicing family law in the Orange County and Southern California area. To learn more about the property division process, or how Ann’s firm can help your resolve your divorce-related issues, go to www.annthomsonlaw.com.
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Read the Transcript of this Podcast Below.
What’s the difference between community property and separate property in California?
Community property is property that’s subject to division by the family law court. Generally, and I’m just going to talk in general terms, it’s property that’s acquired between date of marriage and date of separation through one of the married spouse’s time, effort, and skill during marriage.
Separate property is property that’s acquired before marriage or after separation. You can also acquire separate property during marriage through gift or inheritance – meaning if you inherit from your great-aunt and/or you inherit a family property and it’s kept in your separate name, it’s your separate property.
Everything in family law is arguable, and you either come to an agreement or the judge makes a decision. Community property is something that’s central to any family law case because you are going to divide community property and keep separate property separate.
What factors must a judge consider when dividing community property?
The main factor that a judge considers in dividing community property is really when the property was acquired by either spouse. What that means is, was it acquired during marriage through the time, effort, and skill of one spouse. It doesn’t really matter whose name the property is in – and we’re talking about real property, money, any personal property – anything that’s acquired during marriage is divided in half.
It doesn’t matter whose name it is under, it is subject to division if its community property. The general rule is, when it’s acquired, if it’s acquired between date of marriage and date of separation, then it’s community property and subject to division.
If only one spouse worked during the marriage, are contributions to that spouse’s retirement accounts considered community or separate property?
A lot of people have that same question because they think that if they are the working spouse, whether it’s the man or the woman, if they contributed to retirement during marriage, if it’s in one person’s name solely, that person believes that it’s their community property, but it’s really not.
It’s really community property if it’s contributed to during marriage. Whether it’s in one name or both names, it’s going to be divided in half. If you are the spouse that stays home and does not contribute to retirement and the retirement is only in your spouse’s name, if your spouse contributed to it during marriage, it is half of yours whether you contributed to it or not.
Can a judgement be obtained without equally dividing the community assets?
A lot of people want to know whether they’re able to agree to something that is different from a 50/50 split, meaning half to one spouse and half to the other. It really falls upon the declaration of disclosure requirements in California, and what that means is that at the beginning of a case, the petitioner and the respondent fill out a declaration of disclosure.
They do it at the beginning of the case, and that’s called the preliminary declaration of disclosure. What happens is, you follow the instructions on the form – it’s very, very simple instructions – and your document can be as detailed as your life is detailed.
The declaration of disclosure requirement is something that can’t be waived, and it has to be filled out by a petitioner and respondent to disclose your allegations regarding separate or community debt or property. Once those have been disclosed, you can agree to an unequal division of community property.
If you go to court, meaning you can’t reach an agreement and the judge needs to decide the division of community property and debts, then the judge is bound to divide everything equally and generally in kind – meaning that the credit card debt will be divided, the equity in the home will be divided equally, all of it is equally divided if you go to court.
You can divide things unequally if you decide to go by way of settlement, so long as assets and debts have been properly disclosed and the person who is taking less of a community property split is making a knowing and intelligent waiver of that property. But if you go to court, meaning you can’t reach a settlement, the judge is bound to divide everything 50/50.
If a couple has not been able to reach a final agreement on division of property but one of them is really anxious to get the divorce finalized – maybe because they’re planning a remarriage – is it possible to finalize a divorce without having an agreement regarding property? If it is possible, are there any pros and cons to doing that?
A lot of people are anxious to be single for one reason or another. It may be because you want to get remarried, or just the psychological effects of being legally single and not married to that person any longer really impacts the pace of the case. It is possible to terminate your marital status, meaning that you’re able to restore yourself to the status of a single person.
After six months and a day, you can file a motion for bifurcation of marital status. What that means is, marital status can be bifurcated or separated from the other issues that are pending in your divorce case. Prior to the division of assets or the determination of custody or support, or other issues concerning your case, you can bifurcate or separate the issue of marital status so that you can be restored to the status of a single person.
With that, if the property division has not been effectuated or other issues have not been settled in your case, the court may require and usually does require that certain conditions are set forth in the judgement of termination of marital status. What that means is, the non-requesting spouse, meaning the spouse who is not asking to terminate the marital status at that time, is protected financially.
The person who’s requesting to terminate marital status early, before the determination of the other issues, will basically indemnify the other spouse financially against anything that could happen because of the termination of marital status. If there’s adverse financial effects on the non-requesting spouse, the person who’s requesting the termination of marital status will indemnify that person.
There are probably 10 or more conditions that the court will impose upon the requesting party, but you can terminate marital status early, before the determination of other issues.
Most divorcing couples are concerned about an equitable settlement to ensure that they get their fair share. What advice would you give them?
The preliminary declaration of disclosure and the final declaration of disclosure are required of divorcing couples so that the petitioner and the respondent can accurately set forth the assets and debts of the marriage. If one spouse is concerned about an equitable division, that means that spouse, whether it’s the husband or the wife, does not have confidence that the other spouse is being truthful, because there are two different ways to approach a declaration of disclosure.
When you look at it, do you have confidence that your spouse has disclosed accurately all your assets and debts. The disputes arise when someone receives the other spouse’s declaration of disclosure, whether it’s preliminary or final, and looks at it and says, “Well, I think that this asset is worth more” or, “I think we have other debt out there” or, “There’s a bank account I know is in Wells Fargo but it’s not disclosed by the other spouse”.
When you don’t have confidence in receiving the other person’s declaration of disclosure, perhaps you propound discovery – meaning you’ll send form interrogatories or special interrogatories or demand for production of documents, or perhaps your lawyer will send out subpoenas to usually banks or other financial institutions to basically do some discovery to see if your spouse is telling the truth.
Another way to go about an equitable division is hire a forensic accountant and perhaps that forensic accountant has other ideas or can create a marital balance sheet, which means you know you can put different values as to properties and debts on the marital balance sheet and make a proposed division of community assets and debts.
You have to start with the declarations of disclosure and decide whether you have faith in your spouse’s disclosure, because really you have a fiduciary duty to your spouse. That means that when you fill out your declarations of disclosure, you need to be truthful. Whether you’re a petitioner or a respondent, you have to be truthful and you have to attach bank statements and deeds and credit card statements, and things like that.
If for some reason you don’t have confidence and you are worried that your spouse is not disclosing all the assets and debts, you can engage in discovery. You can file a motion with the court to have a forensic accountant appointed. There are certain steps you can take, but you should talk to your lawyer. I use a lot of forensic accountants in the things that I do just to make sure that the person that I’m representing is getting an equitable division.
If one spouse owns and operates a business or a number of businesses, how can the other spouse be sure that he or she is obtaining their portion of the community interest in the business during divorce?
A lot of things are valued because a dollar amount is associated with it. If there is a bank account that’s subject to division, you know how much is in the bank account and you equally divide it. Businesses are different, and usually what is required to value a business is a forensic accountant. The reason that is, is because businesses do not have price tags, meaning they don’t walk around with a value assigned to them usually.
If you’re valuing a sign-making business, restaurant, or a medical practice, typically the court will either appoint a joint forensic accountant or you can hire your own forensic accountant to do a business valuation. If you or your spouse owns and operates a business and that business was started during marriage, or even before marriage but was operated during marriage, there’s going to be a community value component to that.
In order to value that properly, the forensic accountant will look at the books, and look at the documents and the bank statements and the hard assets, and come up with a value and make that representation to you as a litigant and also to the court. If you can’t use that valuation for purposes of settlement, then you need to take it to court and have it divided.
Usually, spouses who operate businesses will think their business is not worth anything because they want to say, “Well my business is just me” or, “It’s me and my phone” or, “It’s me and two employees and there’s no value to it”, and there really is. There’s really community value to a business, and usually the court will find that there’s some “good will”, a term that the courts, forensic accountants, and lawyers use to mean that, and this isn’t the technical definition obviously, are people going to come back to your business? That’s kind of an intangible value that a forensic accountant will put on a business using the various tax returns, bank statements, cash flow, and things that are relative to the business so that you can develop a value for purposes of division.
Are professional practices like a law practice or a medical practice valued or divided differently than a, for example, sign-making business or restaurant?
They are going to be approached by the forensic accountant in a different way. A lot of times there are businesses like a sign-making business, t-shirt business, or a clothing company and there are hard assets associated with that.
Usually, when there’s a professional practice like a doctor’s office or a legal practice, there aren’t too many hard assets to value and there is a different, more intangible value, like a good-will number might be a little bit larger than would another type of business. But it really behooves the litigant to either their own forensic accountant or to have the court appoint a forensic accountant to value the business.
There are certain valuation methods that the forensic accountants use and are more appropriate for some businesses over others, but the method of valuation is a little different. But it still can be valued and there is still substantial value to a professional practice.