Tips for Dividing Assets When Divorcing

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At Seabrook Family Law, we understand that dividing assets during a divorce in California can be a complex and emotional process, especially when both parties have accumulated significant property or debts over the course of the marriage. California follows community property laws, which means that, in general, any property or debt acquired during the marriage (except for property received by gift or inheritance) is considered equally owned by both spouses. Generally, the following tips are applicable for dividing assets during divorce proceedings: 

  1. Understand California’s Community Property Law:

  • Community Property: Generally, any property acquired during the marriage is considered “community property” and is typically divided 50/50. This includes earnings, real estate, investments, business interests, retirement accounts, and debts. 
  • Separate Property: Property acquired before the marriage, after the date of separation, or by gift/inheritance during the marriage is considered separate property and is not subject to equal division. 
  • Quasi-Community Property: Assets acquired by a party during marriage while living out of state that would be considered “community property” if acquired in California. 
  1. List All Assets and Debts:

  • Inventory: Make a thorough list of all assets (bank accounts, real estate, vehicles, retirement accounts, investments, etc.) and debts (mortgages, credit card balances, loans) accumulated during the marriage. 
  • Identify Separate vs. Community Property: Keep track of which assets are separate and which are community. For example, if you had a house before marriage but your spouse contributed to the mortgage payments, part of the house could be considered community property. 
  • Document Everything: Gather documents such as bank statements, deeds, titles, investment account records, and loan statements. Accurate documentation can help avoid disputes later. 
  1. Consider the Value of Assets

  • Appraisals: For valuable items like real estate, businesses, or collectibles, consider getting professional appraisals to ensure that the asset is valued correctly. 
  • Retirement Accounts: Retirement accounts (401(k), pensions, IRAs) are generally divided, and they may require a Qualified Domestic Relations Order (QDRO) to transfer funds. Division via a QDRO is preferable as said division is considered a non-taxable event. 
  • Business Interests: If you or your spouse owns a business, its value and ownership interest will need to be assessed. This can be a complicated area, and it’s important to have a forensic accountant or business appraiser involved. 
  1. Make a Plan for Dividing the Assets

  • Negotiation vs. Court Decision: In California, spouses can either negotiate a settlement themselves (with or without the help of mediators or attorneys) or have the court decide on the division. If possible, negotiating a settlement may save time, legal fees, and emotional stress. 
  • Equitable Distribution: While the community property law usually mandates a 50/50 division, in practice, the courts may allow for “equitable distribution” where assets are divided in a way that is fair but not necessarily equal, depending on multiple factors present in the case. 
  1. Consider Tax Implications

  • Be aware of the tax consequences of asset division. For example, selling a home or transferring retirement funds could trigger capital gains taxes or early withdrawal penalties. Understanding these can help you make better decisions about which assets to keep. 
  • Capital Gains Taxes: If you sell property like a family home or investment real estate, be mindful of potential capital gains taxes on any profits made. 
  • Tax-Deferred Accounts: Dividing retirement accounts may involve tax penalties, so consult a financial professional to understand the best way to transfer assets without triggering unnecessary taxes. 
  1. Retirement Plans and Pensions

  • Community Property: In California, retirement plans that were earned during the marriage are typically divided as community property. This includes 401(k)s, pensions, IRAs, etc. 
  • QDRO: If you are dividing a 401(k) or pension, a Qualified Domestic Relations Order (QDRO) may be necessary to allow the transfer of funds without triggering penalties. 
  • Be aware that pensions can be more complicated to divide than other assets because they involve future income streams. Consider consulting with a financial advisor to determine the best approach. 
  1. Address Debt Division

  • Community Debts: Like assets, debts incurred during the marriage are considered community debts and will generally be divided 50/50. This can include mortgages, credit card debts, and car loans. 
  • Separate Debts: Debts that one spouse incurred before the marriage or after the date of separation may be considered separate property. However, if one spouse used community funds to pay off separate debts, that debt may become a community obligation. 
  • Debt Responsibility: If one spouse has a higher earning capacity, they may agree to take on a larger portion of the debt. It’s important to have clear agreements in place about who will pay what. 
  1. Consider Spousal Support (Alimony)

  • Spousal support may be awarded in cases where one spouse needs financial assistance following the divorce, especially if there is a disparity in income or earning capacity. 
  • Support can be temporary (during the divorce process) or permanent (post-divorce). Factors like the length of the marriage, the standard of living during the marriage, and each spouse’s financial situation will influence the amount and duration of support. 
  1. Child Custody and Support

  • Custody and Visitation: If you have children, the custody arrangement can also affect the division of assets. For example, the spouse with primary custody may be awarded the family home to provide stability for the children. 
  • Child Support: Child support is typically calculated based on the income of both parents and the time each parent spends with the children. Child support obligations are separate from asset division but must be considered when evaluating the financial situation post-divorce. 
  1. Work With Professionals

  • Attorney: A family law attorney specializing in California divorce law can help you understand your rights, negotiate terms, and represent your interests. 
  • Mediator: If you and your spouse can communicate and work together, a mediator can help facilitate an agreement outside of court, which may save time and money. 
  • Financial Advisor or Forensic Accountant: A financial expert can help you assess the value of assets, create a plan for dividing them, and understand the long-term financial implications of asset division. 

Final Thought: 

 

Asset division can be one of the most difficult aspects of a divorce, but with careful planning and the right professional help, you can ensure that your assets are divided fairly and in a way that sets you up for financial success after the divorce.” 

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