Division of Assets-Community vs. Separate Property
In California, all assets acquired during marriage or domestic partnership (unless excluded by agreement or received by gift or inheritance) are generally community property assets. Similarly, all debts accumulated during marriage, are community debts. Debts accumulated after date of separation may be either assigned to the person that incurred them or to either party depending on needs if the money was spent on life necessities.
Separate property generally includes all property acquired before marriage (generally with all of the profits and rents received from such property), all property acquired by gift or inheritance during marriage, and all property designed separate property by the terms of a pre-nuptial agreement. All earnings and accumulations post-separation (unless acquired with community funds) are separate property of each spouse.
Parties have great flexibility in deciding how to divide their assets and debts. If, however, the parties cannot agree and the court has to decide the issue of division of the family home, retirement accounts, bank accounts, personal property etc., the court must apply California law and divide the assets and debts equally. Equal division does not mean that each asset must be split in half. The court has discretion to award one asset to one party if it is offset by another asset received by the other party so that the balance sheet shows an even property distribution.
The court has no discretion to order a buy out by one party of the other party's interest. So, if you want the house and there are no other major assets available now, you should find a way to come to a settlement. If there is a disagreement about who should take the house (house being the only major asset besides retirement accounts), an order for sale of the house is likely. In some cases, it is possible to defer the sale of the residence if it is in the best interest of the child(ren) but the analysis is quite strict and requires a showing of economical feasibility. When the children no longer live in the residence, it is ultimately sold and equity is divided.
Sometimes it is not economically feasible for one spouse to keep the residence. Many divorcing women make a decision to keep the home no matter what. The decision to keep or sell the house should be grounded in economics not emotions. Children adjust if they are properly supported.
If parties cannot agree on the value of the residence, a joint or separate appraiser may offer help in establishing fair market value. Each party is also qualified to testify on the value of the house. The court decides the ultimate value. Valuation of an asset includes establishing fair market value and subtracting all encumbrances.
If separate property funds were contributed to the purchase of the residence or its maintenance, the party that contributed such funds may have 2640 reimbursements (Family Code section 2640). If the flip side, community funds were used to pay down a separate property of one spouse, there may be a Moore/Marsden interest in the house for the non-title holder.
All interest in a retirement account, pension, profit-sharing or other employee benefit plan acquired during marriage and until date of separation is community property.
Retirement accounts 403(b) plans and qualified plans such as 401(k) accounts are generally split by way of Qualified Domestic Relations Orders (QDROs). If the spouse is not yet retired, the QDRO (as it is commonly known) is prepared before or after the judgment and the funds are generally received as the owner spouse retires. A Gilmore motion can be made at the time the spouse first becomes eligible for retirement but continues working thereafter, so that the non-owner spouse can start receiving his/her share.
IRAs are usually split by way of a transfer incident to divorce, which if properly labeled in the the agreement does not trigger any taxes. So, if an IRA account is split in half, a each spouse will most likely have to pay taxes on distributions from the account but not on funds received (asset transferred). If, however, transfer is not properly identified, spouses will pay taxes on the transfer and an early withdrawal penalty, if applicable, on the entire amount transferred.
If you are divorcing while nearing the age of retirement (50's), you should be very careful when dividing your retirement assets . There are many pitfalls. Careful analysis of the retirement funds must be conducted to properly separate community from separate interests (if any) and to adequately value the accounts. QDROs must be in place sooner rather than later. If a spouse dies before a QDRO is accepted by the administrator, it can cause a total loss of funds for the surviving spouse. Also, many pension administrators will outright reject QDROs that direct them to pay out lump sum payouts. Most will only pay monthly benefit. A QDRO expert should be hired early on to assist in settlement negotiations and prepare the QDRO once settlement is reached.
Personal Property/Vehicles/Furniture i.e. the Stuff
Many divorcing couples decide to keep the vehicle they drove during marriage, sometimes with an offset (if one vehicle was more valuable than the other) and sometimes without. Once the petition for dissolution of marriage is served, Automatic Temporary Restraining Orders (ATROs) become effective and spouses no longer can sell, encumber, dispose, etc. of any assets or change any beneficiary forms (retirement, accounts, life insurance, health insurance, car insurance) without consent of the other spouse. So, if both souses were on the same vehicle insurance, there should be an express agreement for one or both to obtain new coverage, as well as, for one of both to pay for vehicle insurance for any teenage children (unless they pay for it themselves).
Personal property such as clothing and small personal items are usually kept by each respective spouse. Jewelry can become subject to court division if there is no agreement. Each piece has to be valued (resale not purchase price) and characterized as either community or separate. It is best to agree on division of jewelry as it can be costly to litigate it. Many women want to keep their engagement and wedding rings without offsets. Unless it makes financial sense to do so, learning to let go during the divorce process will make it less costly both financially and emotionally.
Same with furniture, art, boats...it is always best to agree on the division. You can either value each piece (resale value not purchase price) and create a balance sheet putting item by item on each side of the line (his/her's). You can also sell it all on an auction or estate sale and divide the proceeds. Some couples make deals to exchange certain items for others if one likes x and the other prefers y. Some couples use that to hurt one another. Ultimately, the stuff is just that...stuff. It is replaceable and usually not worth the attorney fees that couples end up paying for arguing about diving it.
All property items brought into the marriage or received during marriage through inheritance are considered separate property and should be kept by the spouse to whom they belonged. So, the china women had from their mothers or grandmothers should be awarded to them.
Family memorabilia such as children's artwork, pictures, etc. often become subject to contentious arguments. In today's world of high quality reproductions, anything can be duplicated, copied, preserved. If something cannot be copied, it can usually be preserved like children's artwork. Whatever it is, it should not add fuel to the fire. Your children would surely not want their preschool art or fave teddy bear become subject of parental conflict. Let it go.