12 Sep A Property Division Overview
Most states are equitable-division jurisdictions, which means that family law judges equitably divide marital property, and “equitable” may not be the same thing as “equal.” But California is a community property state, so the judge divides most marital property on an equal basis, since the spouses are presumed to be equal owners. Sometimes, property division in a marriage dissolution is a relatively straightforward affair, but in nearly all cases, it is quite complicated and affected by a number of factors. If you are going through a divorce or separation, speak to an attorney in your jurisdiction for assistance.
In some cases, divorce property division begins before the husband and wife say “I do,” because many couples have prenuptial agreements. Such contracts are especially commonplace if either spouse has been married before, and that is very often the case. Under California’s version of the Uniform Marital and Premarital Agreements Act, which is in force in almost all states, spousal agreements may cover property division, alimony, inheritance matters, and almost anything else other than child support or child custody.
In property division matters, judges strongly favor spousal agreements that are at least reasonably fair, so it is not easy to overturn these pacts. Some baseball fans may remember Frank and Jamie McCourt, the billionaire SoCal couple who owned the Los Angeles Dodgers in the early 2000s. When the McCourts divorced, the team was in bankruptcy and almost worthless, so Ms. McCourt gave up her half of the franchise in exchange for about $200 million in other property. When Mr. McCourt later sold the team for over $2 billion, his ex-wife tried to overturn the premarital agreement. The court ultimately ruled in favor of Mr. McCourt, because the agreement was:
- Voluntary: Ms. McCourt had full access to the team’s financial records, and Mr. McCourt turned over about 220,000 pages of documents.
- Fair: Even though the premarital agreement left Ms. McCourt about $900 million short of a 50-50 split, the agreement was not unconscionable when it was made, which is what the law requires.
Ms. McCourt lost the case and also had to pay her ex-husband’s $1.9 million legal bill.
Under California law, any property not acquired before the marriage or by gift is presumptively community property and subject to equal division; the party contesting such classification must present clear and convincing evidence that the property is separate. In some cases, especially if there is evidence of dissipation (waste of community assets), the judge may order an unequal division. For example, if Wife spent $10,000 of community property on gifts for a boyfriend, the judge may give Husband a larger share of the community estate.
A similar situation frequently arises in long marriage, because property becomes commingled; for example, if Husband makes the payments on a car he had before the marriage (separate property) with money from his paycheck (community property). Typically, the separate estate must reimburse the community estate. So, if Husband paid $10,000 on the car loan, he would have to give Wife $5,000, to make up for her half of the lost community property funds.
Frequently, the parent who receives custody of the children wants to keep the marital residence, because it is normally in the children’s best interest for them to remain in the house and neighborhood where they currently reside. There are several ways to divide the equity:
- Cash-Out: If there is little or no equity, one spouse often pays the other spouse his or her share of the equity in cash, and the matter is concluded.
- Offset: In medium equity scenarios, one spouse often gives up property of equal value, such as a share of a retirement account, and keeps all the home equity.
- Lien: If Wife keeps the house and it has $150,000 in equity, she may give Husband a lien for $75,000, and the lien is paid when the house is sold.
Divorce transfers the deed but does not affect the note, so if the spouses jointly purchased the house, they both remain financially responsible unless the note is refinanced.
If the custodial parent keeps the house, the arrangement must be financially sustainable, and this need is one of the factors in the amount and duration of alimony payments. California courts can award:
- Temporary alimony, which is designed to help obligee spouses pay attorneys’ fees, living expenses, and other short term needs, and/or
- Permanent alimony, which is designed to permanently equalize the standard of living between the ex-spouses, at least to some extent.
“Permanent” alimony is hardly ever permanent. If the marriage lasted less than ten years, alimony ends at half the length of the marriage (e.g. three years for a six-year relationship); if the marriage lasted more than ten years, the judge normally matches the duration of alimony payments with the amount of time the obligee spouse needs to become self-sufficient.
An IRA, 401(k), pension plan, or other “nest egg” is often the largest marital asset, and it is community property, because although the owner spouse may have made the financial contributions, the nonowner spouse provided noneconomic support.
Typically, each spouse is entitled to half the value that accumulated during the marriage, so if Wife’s 401(k) contained $100,000 on the date of marriage and $120,000 on the date of divorce, Husband would receive $10,000. Normally, the nonowner spouse may elect a lump sum payout, roll over their shares into new retirement accounts, or do nothing and receive a proportional share of future payouts.
Military retirement accounts work a bit differently, because they are normally divided based on the amount of contributions, length of service, and length of the marriage.
You may want to discuss the possibility of a pre-nuptial agreement with your attorney to protect your property interests in the future. Unlike child custody, for which you cannot make a prior arrangement, the court does allow you decide future property division in the event of a divorce.
About the Author: Steven Fernandez is the co-founder and partner at Fernandez & Karney, a Los Angeles, CA family law firm. Mr. Fernandez is a Certified Family Law Specialist and has over 27 years experience.