If you are divorcing here in California, you are subject to the state’s community property laws that state each spouse is entitled to 50% of the marital assets. Along with matters concerning the custody of any minor children, property division causes the most headaches for divorcing couples.
While these aspects of the divorce may be unpleasant to hammer out, they still must be done. What is most important now is to understand the true value of all of the community property assets. To that end, the following information may prove helpful.
The current dollar value is not your bottom line
Depending on when you divorce, an asset’s current value may not be the best indicator of its long-term worth. For instance, a 401k may dip precipitously during a fiscal crisis, but over time as the financial markets even out, will prove to be a valuable asset. The same can be said for the family home, which could be a liability in a buyer’s market but still has a strong value to the parties.
Active and passive appreciation can affect value of assets
Separate property generally remains owned by the person who brought the asset into the marriage. But there are caveats, such as when the asset grew in value during the marriage in whole or part because of the non-owner spouse’s efforts or actions.
For instance, if you already owned a small business when you got married, but it doubled in size after the marriage, your spouse could credibly claim that it was able to expand because of their help streamlining the distribution process or even because their attention to the home and children allowed you extra time to devote to your business. That is an example of active appreciation that could affect your property settlement.
Passive appreciation is different, but related, and can involve elements like inflation and supply and demand. Suppose that you inherited land, which was your separate property. Each year, you used the marital tax refund to improve this property and pay its tax bill. That could turn a portion of the value of your separate property into community property.
Consider what you need when choosing assets
Suppose you are trying to choose whether to pursue a portion of the retirement assets or the country club membership in the divorce. On the surface, it might appear to be a no-brainer — go for the pension.
But taking a closer look, the better choice might be to seek the club membership if you are young enough to be able to rebuild your retirement fund over decades. The club membership offers golf, swimming and tennis opportunities for you and your children and allows you to continue socializing with the same group of people that often make referrals to you as a realtor. Over time, this could actually prove more lucrative for a young, divorced parent than the pension fund.
Get input from your attorney and financial adviser
Now is when it is most important to seek solid advice from the professionals you pay for their knowledge and experience. Making snap judgments based on emotional attachments will cost you a great deal more in the long run.