Division of Property?
We fight to make your life better financially, now and in the future
In your divorce, you need to make sure that the division of property is addressed right away. Often times, it is ignored.
Why? When you start your divorce, there seem to be an overwhelming number of things that you need to worry about. Custody, visitation, child support, and spousal support, are often the early fights that need to be addressed right away. These are “triage issues,” and like an emergency room doctor, the courts deal with these pressing issues first.
Property division simply gets lost in the fog of war. This happens because during the fight over the “triage issues,” many people will put the division of property on the back burner. Emotions and time take a toll. Attorneys who are not well equipped kick the can down the road for later. Often times, later never comes.
This delay in dealing with property division is a huge mistake. By delaying dealing with the financial issues, you are delaying the finality of your divorce. In some cases, a lengthy delay may cause you to lose the ability to prove your case and that could cost you hundreds of thousands of dollars.
The best approach is to start on your property division immediately. To do this, you simply need to work on your financial disclosures as required by California Law. It should be neither costly or difficult to do.The Law Office of Sean Musgrove works with their clients to complete the division of property quickly and decisively.
By dealing with the division of property early on, legal strategies can be created to put the client in the best possible situation. The division of property is dealt with at the same time the “triage issues” are being dealt with. We have the staff and experience to get this done quickly for you.
In the end, dealing with the division of property saves both time and money. This is what the staff at the Law Office of Sean Musgrove does for their clients.
When it comes to the division of property, we fight to make your financial life better.
The following is general information that you should be aware of regarding the division of property. If you have any questions, please call for a free consultation at 916-965-4577.
What is property?
When going through a divorce, it is important that you understand what “property” actually is. Property is anything that you can buy or sell. Some examples are:
- A house, condominium, or land
- Automobiles, motorcycles, boats, and recreational vehicles
- Household furniture, or
Property is also anything that has value, such as:
- Bank accounts,
- Deposits on apartments,
- Retirement pension plans,
- 401(k) plans and IRAs,
- Stocks and Mutual Funds,
- Life insurance that has cash value,
- A business, or
- Intellectual property such as something that has a patent or a copyright.
Community Property Defined
Community property is generally everything that spouses own together.
It is essentially everything, except for gifts or inheritances, that you “bought or got” while you were married. This includes debt. There are some specific exceptions to this general rule which we will discuss later.
Community property includes all earnings that either spouse earned during the marriage. It also includes everything bought with the earnings from the marriage.
What if you are unsure if something is community property? The Court will look at the source of the money that was used to buy it. If the money used to purchase something was money earned during the marriage, the property is community property.
For example, if you bought a house with money you were saving from your paycheck every month during the marriage, the house belongs to both you and your spouse, even if you paid for it yourself. That is because the source of the savings is community property earnings.
Community property includes debts accumulated during your marriage. The name on the credit card does not matter. There is no such thing as their credit card or my credit card. If it was a credit card that accumulated debt during marriage, then it is debt that the community is responsible for.
In California, each married person owns one-half of the community property. Each married person is also is responsible for one-half of the debt. Community property and community debts should be, and often are, divided equally.
You may have more community property than you think. For example, if your spouse has a pension plan, you have the right to part of the money if any of it was earned during your marriage.
You may also have more community debts than you think. Your spouse may have dug a financial hole for you that you are not aware of. If the debt was incurred during your marriage or domestic partnership, it may to your debt too.
That is why it is so important to make sure all of your financial disclosures are done correctly and done right away. You do not want to wait to divide significant amounts of property until after you “map out” the financial status of the marriage by doing the mandatory disclosures.
What happens if there are debts that were created for vices?
Of course, California divorce courts are courts of equity. That means that fairness can and should prevail.
If one spouse has run up tens of thousands of dollars in debt gambling at the local Indian casino, then that would not be for a community purpose and you may not be held to owe that debt. This is very complex and requires clear evidence.
It is important that you hire an attorney who can identify these issues early.
What is separate property?
Separate property is anything you owned before you were married. Also, inheritances and gifts to you or your spouse, even during the marriage, are separate property.
If you receive rents, profits, or other sources of money from your separate property, that can be viewed as separate property. If you buy property with money that is separate property, that new property is also considered separate property.
For example, if you buy a condo with money you inherited, the condo belongs to you and will be considered your separate property. This is true even if you purchased the condo during the marriage, because it was bought with your separate property. This is true even if you receive the money during the marriage. If the money is separate property, it will remain separate property.
Separate property is also any property that you obtain after the date of separation. This includes the money you earn.
Date of Separation and Evidence
The date of separation is very important because it determines whether something is separate property or community property.
If you have a separate property claim, it is your burden to prove that claim to the Court. If you do not show evidence that the down payment on the condo was separate property, the Court may rule that it was community property and you could lose the separate property protections.
You should always look at the source of the money used to purchase an item. If you do that, you will be able to consider whether something is community property or separate property.
By hiring an attorney early on, you will be able to make an early determination of what property is what. That will lead to an exit strategy. The Law Office of Sean Musgrove does this always.
What if something has both community money and separate property money?
Sometimes things are commingled and are part separate property and part community property.
This is referred to as a commingled asset. It is commingled as the separate property and community property are one. This can be very complicated.
Here is a common example.
- Before marriage, one spouse worked at a job for ten years that had retirement benefits.
- After that spouse got married, they continued working for another ten years.
- The happy couple divorces after ten years.
The result is that the retirement is commingled.
This can be very complicated; however, the first ten years of retirement contributions will be considered separate property. The second ten years will be community property. Why? Look at when the right to the retirement was earned.
An expert may need to be hired to determine what the value of the contributions are worth. It is best to work with an attorney in doing this so you do not create a legal time bomb. Pensions are valuable. Pensions have special rules and are very technical. Lawyers will help navigate through these complexities for you.
Does it matter when property gets divided?
The division of property happens at the end of a divorce and can become more complicated as time passes.
The reason that property division becomes more complicated is that there are several rules in place that allow for credits and reimbursements to be considered at the time property is divided in a divorce. Two of the more common adjustments are from Watts Charges (Marriage of Watts (1985) 171 Cal.App.3d 366) and Epstein Credits (Marriage of Epstein (1979) 24 Cal.3d 76). If you own a home, these cases can change the entire landscape of how you divide your property because if someone stays in the home and pays a mortgage, there could be thousands, tens of thousands, or even hundreds of thousands of dollars in credits or reimbursements accruing over time.
These two cases are very important in a dissolution. Specifically, in Epstein, the Court said that if a person is paying on a community debt (a mortgage) with money they earned after separation (their separate property), the paying person can get reimbursement from the community. What does that mean? It means that each month you pay the mortgage, you can ask to get to be reimbursed for the half the other spouse should have been paying on that community debt. These credits can accrue from the moment the separation occurs until the time the divorce is final.
While that might sound great if you are paying the mortgage, another case that was decided after Epstein is Watts, which states that you don’t necessarily get to live in the house rent-free while your spouse pays half the mortgage. The Court in Watts reasoned that if one of the spouses stays in the home while the other moves out, the spouse who remains in the home prevents the community from renting out the property. If the property were rented, it would offset the cost of the mortgage. Since one person is still living in the home and the community does not benefit, the person who remains should pay the fair market value for rent back to the community.
These two cases work together and can make a huge difference in the final division of property.
How do Credits and Reimbursements work?
Let’s consider the marriage of Mr. and Mrs. Sample. Harry and Wanda Sample were married for 13 years. They have a child and own a home in the East Sacramento area of Sacramento County. The mortgage on the home is $2,000 per month. When the Samples decide their marriage is not working and they separate, they agree that Wanda will stay in the home with their child and Harry will move out. They agree that Harry will pay the mortgage instead of child and spousal support. Harry will visit their child every other weekend and they will split the holidays.
The Samples follow this arrangement for an entire year when Wanda decides that she wants to be divorced. She files a Petition for Dissolution in the Sacramento County Court. Wanda and Harry agrees to keep the custody orders in place, they agree that Wanda should be paid $2,000 total per month in child and spousal support and they agree on the characterization and value of their property. They agree who should have what property. Great! That was easy, right? Not necessarily.
Wanda looked at the numbers and realized her portion of the property division was much less than Harry’s portion. He got $60,000 more in net assets than she did. Wanda tells Harry that they need to include $30,000 payable to Wanda in their divorce judgment to make everything even. Harry got his retirement and some large investment accounts while Wanda got a home with a mortgage. It wasn’tt an equal division and that’s not fair. Harry feels like he has been very fair to Wanda and that Wanda should not get the extra money. Harry finally consults a lawyer. Can a lawyer really help Harry? After all, equal is equal. A lawyer might be able to help. Harry and Wanda did not include the Watts Charges and Epstein Credits when they divided the property.
Harry can seek a reimbursement from the community of $1,000 per month for each month he paid the mortgage for the last 12 months (Epstein Credit). Also, the fair market rent on their 3 bedroom, 2 bath house in East Sacramento was $2,600 per month. That means that Harry can seek reimbursement of $1,300 per month for his half of the fair market rental on the property (Watts Charge). Together, Harry may be entitled to $2,300 per month for 12 months in credits and reimbursements. That is a total of $31,200. Harry may not owe Wanda $30,000 – she may owe Harry money.
Imagine Wanda had gone to a lawyer right away after Harry moved out and she told the lawyer what she and Harry had agreed to. A good family law lawyer would have been able to warn her about the risks of Watts Charges and Epstein Credits. Instead, the lawyer would have advised Wanda that she and Harry should file for divorce right away and make the $2,000 a Court-ordered support amount. Once the payments are Court ordered, Harry’s separate property earnings becomes Wanda’s separate property support payments. Now Wanda is paying the $2,000 per month mortgage with her separate property. Instead of a $2,300 per month reimbursement to Harry, she only risks a $300 per month reimbursement to Harry – she can seek reimbursement from Harry for the $1,000 Epstein credit even if he charges her for fair market rent.
If Wanda consults with a lawyer and the Samples divide their property in only 6 months, the maximum reimbursement on the home for 6 months at $300 is $1,800. That means Wanda should get at least $28,200 from Harry to make the property split equal instead of the earlier example of possibly owing Harry money after the property was divided.
But what about Wanda who might end up owing Harry money after Watts Charges and Epstein Credits? She didn’t t know better and Harry was not paying spousal support or child support. Watts Charges and Epstein Credits are discretionary and the incomes of the parties are often a major factor. The judge is not obligated to have Wanda reimburse Harry. If Harry demands reimbursements for the mortgage and fair market rent, Wanda should talk to a lawyer right away to help her with this situation.
The Law Office of Sean Musgrove has the experience and the experts on hand to help you.