As partners, you and are your spouse created a business, called “The Community” and worked hard throughout the life of the business in order to achieve financial goals and success.
The Community bought real estate (the family residence), acquired employees(children), purchased assets (cars, furniture, jewelry), earned income, paid into retirement, and incurred debts.
But now that the partnership is being dissolved (divorce), you have questions about how California will divide up the assets and liabilities of The Community.
As you probably know, California is a community property state, where everything is split 50-50, but you have questions of whether this applies to everything, don't know how to decipher community property vs separate property, how to untangle assets or debts that have been co-mingled during the course of your marriage and whether or not you and your spouse actually get a say in how to divide your property and debts in a fair and equitable way.
You also want to make sure that all the income you worked so hard to earn does not wind up in the pockets of divorce attorneys and on legal fees.
California is a community property state which means that any property or debts acquired by one and/or both members of the community during the marriage or domestic partnership, in theory, belongs equally to both parties. All assets and debts of our business, The Community, belong to both of us, equally.
Any property of The Community accumulated during the marriage/domestic partnership, such as cars, boats, couches, refrigerators, income, savings, 401(k)’s stocks and bonds, etc. are presumed to belong to both spouses or domestic partners.
Similarly, any mortgages, credit cards, car loans or other debts accumulated during the marriage/domestic partnership also presumably belongs to The Community,regardless of which spouse or domestic partner actually acquired the income or incurred the debt.
Unlike community property, separate property is anything the spouses can prove they owned or owed before the marriage, and continued to keep completely separate during the marriage.
The normal examples of separate property include, but are not limited to, inheritances,gifts, and assets or debts incurred before the marriage or after the date of separation. Student loans are also considered separate property.
As a married couple in California,spouses reserve the right:
1. Keep their separate property separate by not commingling it with community property;
2. Gifting separate property into community property;
3. Gifting the separate property of one spouse to the separate property of the other spouse; or
4. Transmuting community property into separate property.
It is mandatory that changing the characterization of property must be done via a written agreement, documenting and agreeing that the property changed from one form to another. This will provide evidence of the intent of the parties.
Without a written agreement, the party stating that a change in characterization occurred has the burden of showing such a change. This can be accomplished through tracing,where that party would have to prove the property went from one form to another and the property in question has been transmuted.
Most people believe that every community asset acquired, or debt incurred during a marriage will be split right down the middle during a divorce.
Likewise, any piece of separate property, or debt acquired prior to marriage,will remain with the spouse who acquired them and not be subject to division.
These are the presumptions. But like everything in divorce, resolving the issue of community property is not as simple as it might first appear.
The division of community property and debts in a California divorce does not have to be 50-50. The parties, through a mutual agreement or negotiations can agree on a division that is not 50-50. For example, one spouse can keep the family residence in exchange for giving up their interest in the other spouse’s pension plan. This is where a lawyer, skilled in family law,can negotiate a deal that works best for the parties. Most times, this avoids litigation, saving the parties money in the end.
Both parties want a fair and equal settlement. However, the definition of “fair” can have a different meaning todifferent parties.
For some, fair means 50/50. Cut everything in half and I take mine, you take yours. But to others, fair may mean I worked harder so it would be fair for me to have a 70/30 split.
Fair is in the eye of the beholder and based on perspective. It can also be fueled by why the marriage is broken, including guilt, anger, and revenge. It is often during divorce proceedings where differing opinions on what’s fair really stand out.
If you’re in a situation where the California Community Property presumption of splitting everything 50/50, giving or getting only half of your assets might not meet your own definition of fair.
To better explain the concept of differing definitions of fair, consider this example of Jim and Samantha, two friends who decide to go out for dinner. After having a great meal, the check comes:
Samantha makes 3x more money than Jim and Jim has a wife and 2 kids at home. As a result of their financial situations, Samantha is in a much better position to pay the bill without it affecting her pocketbook.
Knowing that her friend has a wife and kids to support, Samantha offers to pay the entire bill. Although they equally enjoyed their same meals, Samantha was willing to pay 100% of the bill. This does not seem fair.
“I can’t do that. We both enjoyed the meal and I don’t want to take advantage of our friendship. We can split the bill. It is only fair” Jim insisted.
“No, I just got a bonus at work. I know your wife is out of work and you have kids. I won’t miss the money while I know that you can apply that money to your household. How about you just pay the tip.” Samantha insisted.
“Thanks, Samantha. I appreciate your offer and you thinking of my family. I was prepared to share the bill equally but it would be a hardship on my finances. Thank you for being such a good friend.
It definitely was not a 50/50 equal split of the bill. But was it fair since Samantha is in a better position to pay more of the bill? Did Jim take advantage of Samantha? Does it make it more fair that both parties agreed to the division of the bill?
So as you can see, one’s definition of fair can change based on the situation. And it can be separate from a 50/50 split.
Whether you’re dividing community property and debts or a dinner bill, fair is subjective. Not only that, but your definition of fair might vary from issue-to-issue.
For example, you might think a 50-50 split of your joint checking account is fair as each of you contributed to it equally. You were in it together.
But your spouse loved fixing up old cars and filled up your garage with old car parts and tools, maxing all of the credit cards. Should you have to take on all of that credit card debt? You can’t even change your windshield wipers. That was not your passion.
As you can see, the division of community property can get complicated and it is not always black and white.
California couples often find that defining what’s fair and coming to agreements on splitting their assets is not always so easy to do.
Divorce is different for every couple. While each case has similar issues, the outcome are not the same, given what is best, what is equitable, and what is fair for the specific parties. There is no “one-size-fits-all” approach to fairly resolving the division of a couple’s marital assets and liabilities.
And as you’ve been learning, coming to agreement on what each of you feels is fair and which of your assets and liabilities are considered community vs.separate can be quite complicated.
The division of assets and liabilities is often much too complex for you to try to resolve on your own.
If you hire divorce lawyers who can’t help you and your spouse come to agreement,you’ll have no choice but to battle it out in court.
This is the last option when all negotiations have broken down. In court, a family law judge will spend a limited amount of time on your case and decide how your assets and debts will be decided.
A family law judge doesn’t care about what you think is fair. You have given up your option of choosing a fair and equitable outcome. The judge normally starts and ends with the presumption that everything should be divided 50/50.
At the Law Offices of Booker T. Burney Jr., our approach is to reach a quick, out-of-court, settlement of your case. This includes speaking or meeting with the other spouse or their attorney in an attempt to resolve the issues of the case. Our approach is that we want you to keep the power of deciding the terms of your case and reaching an agreement that works in your best interest. This is our approach all the way through the process, even on date of trial. However, if negotiations have broken down due to a difference of what is fair and equitable, the Law Offices of Booker T. Burney Jr. is also prepared to zealously litigate your case before the judge, making sure your best interests are presented and considered in court for the judge to consider. Family courts remain a court of equity and properly presenting your case will ensure that an equitable resolution is reached in court. We are there for you from beginning to end.