When California residents get a divorce, they may only think about separating their physical belongings when they begin to divide their property. However, it is just as important to divide finances, especially as this may be more complicated.
People in California who are married and make the tough choice to get divorced might wonder how the state's laws about community property might impact their divorce. Some may feel this could be a good thing for them as it means assets obtained during the marriage might be equally owned by and divided between both spouses. While this may be true, it is also true that the debts incurred during the divorce may be viewed as equally owned and thereby divided equally between both spouses.
Your retirement accounts are not all yours when it comes to California divorce law. If you or your spouse have a significant 401(k) or IRA investment, it would probably be divided. This is one of the most frequent sources of contention between divorcing spouses, but it does not have to be that way for you.
Whether you are currently going through a divorce or just thinking about starting the process, there are many factors to consider. Property division may be one of the most difficult issues to tackle, as it can be hard to part with property and possessions that you have accumulated throughout years of marriage. Although both parties are required to disclose all property and assets amassed during the divorce, one party may be tempted to hide marital property in order to get full access to it once the divorce is finalized.
When you file for divorce in California, there are a number of issues that must be negotiated when drafting the final divorce settlement. One of the most difficult may be that of property division and determining who gets what after the divorce is finalized. California is a community property state, meaning all marital property is divided equally in half between the parties. Yet, not all property is considered community. There may be some property and assets that stay in the possession of the original owner in the settlement. This is referred to as separate property.
California is a community property state, meaning that, during your divorce, the judge will split all assets and income equally between you and your spouse, regardless of who purchased an asset or earned the income. Like personal property, real estate, income and other assets, the judge who presides over your case will split all retirement accounts fairly between you and your spouse. Splitting retirement accounts can be a complex and drawn-out process, as each different type of retirement account has unique tax requirements. A qualified domestic relations order can help simplify the process and ensure that the judge distributes the funds in yours and your spouse's retirement accounts correctly.
If you and your spouse are a high-asset couple headed for a California divorce, your property settlement agreement may become one of your biggest bones of contention. At the very least, you will need to determine the value of your various marital assets before you can establish the value of each spouse’s 50 percent ownership interest as required by California’s community property laws.
As you probably know, California is a community property state. This means that if and when you and your spouse divorce, each of you is entitled to 50 percent of your marital assets. How you go about dividing up those assets, however, and the manner in which you do it, could have negative tax consequences for one or both of you.
If you face an impending California divorce, you may wish to familiarize yourself with the acceptance of benefits doctrine. Why? Because it could impact if and to what extent you may be able to modify your court-approved property settlement agreement after your divorce.
When you divorce in California, the pensions that you and your spouse own can be more valuable than all the other assets you acquired during your marriage. As Reuters reports, dividing up these retirement accounts is tricky at best. If you fail to do it properly, you and/or your spouse could face thousands of dollars in taxes and penalties.