Ask Debra—In this series, Family Law Specialist Debra Schoenberg answers your most pressing divorce-related questions.
Today, the second article in our 2-part series on asset division.
In case you missed it, here’s Part 1, which explains community property, the basis of asset division in California.
10 FAQ about Property Division in a California Divorce (Part 2)
- How does the date of separation affect asset division?
The community estate opens on the date of marriage and closes on the date of separation. All assets accumulated in this period are characterized as community property with the exception of inheritances and outside gifts. Therefore, the date of separation is an important date as it defines the end of the community estate.
The determination of the date of separation has evolved legally. As of January 1, 2017, according to California Family Code §70, the “Date of separation” refers to “the date that a complete and final break in the marital relationship has occurred.”
Two criteria must BOTH be met to establish the date of separation:
- One spouse has expressed to the other an intent to end the marriage
- Their actions demonstrate clear evidence of that intention
It’s essential to note that moving out (such as for a trial separation) does not, in itself, establish a date of separation; conversely, some couples (often due to financial or family reasons) may still be living under one roof after the date of separation.
- Am I entitled to half of my spouse’s retirement or pension?
Retirement accounts, pensions, 401(k)s, etc, are subject to community property principles. In general, retirement benefits accrued during the marriage, even if not yet vested when you divorce, are considered community property to be divided equally. Retirement benefits accumulated prior to the marriage, and/or after the date of separation, are separate property. Note that IRAs and savings accounts can be divided without a court order, but a pension or 401K requires a Qualified Domestic Retirement Order (QDRO) in order for the transfer to be deemed a non-taxable transaction pursuant to IRS code section 1041. The process can be pretty complex, and any mistake could have enormous, long-term financial and tax consequences, so be sure to work with an experienced attorney.
- Do I have to share my inheritance with my ex?
In California, an inheritance is one of the few exceptions to the community property rule. Generally, an inheritance is considered separate property and is protected as such by law. In that case, you do not need to share inherited assets with your ex in a divorce, even if you received them while you were married.
However, certain circumstances can impact the classification of an inheritance. It’s important to understand how inherited wealth can become community property, or an asset that must be shared in divorce. This happens in two main ways:
Commingling – Inherited assets or funds become combined with shared assets (for example, purchasing a house together using inherited money, or renovating an inherited home with marital funds).
Support – Inherited assets remain separate property but are factored into support calculations and orders (especially if the inheritance significantly improves the inheritor’s financial position).
When inherited assets or property are disputed, the burden of proof lies with the party claiming it is separate property; thorough documentation is therefore crucial. A prenuptial (or post-nuptial) agreement is one of the most effective ways to protect your inheritance in case the marriage does not last.
- Will my spouse get part of my business?
A business, even if owned by only one spouse, is generally considered community property — and therefore subject to equal division — if it was founded during the marriage; or if it was started before the marriage, but significantly grown or supported with joint marital resources.
However, businesses are complex assets, and their characterization, valuation, and division depend on numerous factors specific to a particular situation.
The court will consider not only when the business was started, but also how it grew, evaluating the contributions of each spouse. Note that significant spousal involvement is not always financial; a spouse may have helped grow the business in other ways (ex: decision-making, labor).
Two landmark court cases were instrumental in determining how businesses are divided in divorce, resulting in two formulas now used by the court. Van Camp assists in calculations when a business is classified as separate property, and when it has increased primarily due to factors other than the efforts of the owner-spouse (such as market conditions); Pereira may be applied when the business is considered community property because it was launched during the marriage and grown with the work, skill, and management of one or both spouses.
Reaching an accurate appraisal of a business is crucial. It may require a business valuation expert who will examine not only financial records, income, profit, and debts, but also tangible and intangible (brand, IP) assets, market conditions, and more.
For many reasons, dividing a business may not be healthy for the company, and that could have negative consequences for both spouses. Therefore, strategic solutions, such as buyouts or creative co-ownership arrangements, may be necessary again.
Divorcing spouses who can work together to reach a settlement agreement regarding the business can submit it to the court for approval. The judge will likely sign off on it as long as it does not violate any law.
- How are high-asset divorces different? What are the specific challenges?
In the most straightforward divorces, under community property law, couples simply split their modest assets 50/50. Even these relatively simple cases can be challenging and stressful! But marital estates vary enormously, and California is home to many affluent couples who have complex financial portfolios, multiple income streams, and diverse investments; they may be business owners, executives, professionals, or spouses of high earners. These high-asset divorces can be especially complicated and contentious.
In California, a high-net-worth divorce typically means that at least one party has assets exceeding $10 million. While the overall dissolution process remains essentially the same as in any other divorce, finding a way to split the estate equally may prove very challenging. The valuation and division of property can be intricate, time-consuming, and heated in these cases. There may be disagreement over what constitutes community property versus separate property, or the value of certain assets. Additionally, property division, sale of assets, and spousal support arrangements can have tax implications that must be considered in the settlement. The stakes are high, and creative solutions are often necessary.
At SFLG, we believe it is almost always in everyone’s best interest to work together to reach an amicable and equitable settlement. We help clients establish priorities, choose their battles, and secure their fair share of the marital estate. We’re experienced in handling challenging, contentious, high-assets cases — helping clients achieve outcomes they feel good about.
