|August 11, 2009|
Family Law. Family law is the designation given to the area of law that deals with divorce, child custody, child visitation, child support, spousal support (alimony), and generally all matters related to the evaluation and distribution of the parties assets upon divorce. This article will focus on the evaluation of assets upon divorce.
California is a community property state. While most people understand “community property” means “50/50” most fail to understand how the concept is actually applied.
Generally, community property assets or debts are those assets or debts incurred from the date of marriage through the date of separation (the date one party decides he or she no longer intends to be married and objectively conveys that intent to their spouse). Thus, if you go to work after you are married and earn a paycheck, that money is “community” and upon divorce each party is entitled to half, even if only one party went to work while the other stayed home.
Separate property assets or debts are those obtained by a party either, before marriage, after separation or that received by gift or inheritance. Thus, if you go to work and earn a paycheck before you marry, after you marry, those funds will be classified as your “separate” property. Additionally, if you were given 5 shares of GE stock before you were married, and those share increased in value, split, paid dividend income or were sold to buy other stock, the increases in value and income would also be classified as separate property even if the increases occurred during marriage.
Assets may also be classified as a combination of property. Generally there are two types: A community property asset with a separate property contribution, or a separate property asset with a community contribution. It is common for a couple to marry and one spouse may own a house before marriage. The house is the separate property asset of one spouse.
However, after the parties marry and they reside in the residence, the mortgage payment is generally paid by community funds (income earned as a married person) which then creates a community interest in that separate property asset.
There are formulas for splitting up that interest that Family Law practitioners refer to as a §2640/Moore/Marsden calculation. The calculation becomes more complex when the parties refinance, sell and buy a new home, etc.
An example of a community property asset with a separate property contribution would be something like a pension or retirement program. There are many types of retirement programs and each program dictates when the benefits will be paid. This often prevents liquidation at time of divorce and the parties must wait until the employee reaches the proper age or number of years of employment.
For example, after the parties marry, the wife may take a job that has a retirement plan. Up to the date of separation, the interest in the retirement plan is entirely a community property asset. However, after separation, the wife continues to contribute to the plan. If the plan pays benefits after 20, and the parties were married for the first 10 years of the plan, the allocation of the benefits would be as follows: the first 10 of 20 years would be community property and the latter 10 of 20 would be the separate property of wife.
Thus, wife would own 50% of the benefits as her separate property, and the community would own the other 50% of the benefits. The result is that wife would receive her 50% separate property interest and half of the 50% community interest. Assuming all contributions were constant, and assuming the benefit was $1,000.00 per month until death, wife would receive $750.00 and husband would receive $250.00. If the example were a 401K, and assume wife doubled her monthly contributions after separation, the benefit would be recalculated to reflect wife’s larger contribution to the plan.
A final note on the application of community property principles: they do not apply unless you are married.