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Property Division: And The Balance Sheet Says …

The dissolution process involves creating an equalized division of the marital estate. The court only has jurisdiction or power to divide community property. In many cases, especially in long term marriages, people innocently transmute some of their separate property into community property without even realizing it. The transmutation process, that is, the process of changing the character of property from separate to community or vice versa, coupled with requests for reimbursements and credits, can make a relatively simple process complicated.

The trick is to think in terms of a balance sheet. When all is said and done, you want the assets and debts to be divided equally. Sometimes this means that one party needs to give the other party an equalization payment.

When people come to our office for a free consultation, the first thing we ask them is the date of marriage and the date of separation. The date of separation is an extremely important (and sometimes hotly disputed) date because it determines whether an asset or debt will be characterized as separate or community property.

Separate property is any property you brought into the marriage, or any property which can be traced back to your separate property. All property acquired after the date of separation is also your separate property.

Community property is any property acquired through your time, skill or effort expended during the marriage. This definition includes pension funds, employee stock options and tax refunds. Any property acquired during the marriage in joint form is presumed to be community property.

While each case is unique, most people acquire the following types of property during marriage:
(1) the family residence
(2) pension and retirement funds
(3) vehicles, and
(4) furniture and furnishings
The rest of this article talks about how these kinds of property can be divided.

1. The Family Residence
In any dissolution involving the division of the family residence, the parties need to ascertain the community interest. The equity in the property is determined by subtracting what is owed on the property by the fair market value of the property nearest to the time of settlement or trial. If one party has used any separate property as a down payment, he or she will be reimbursed for the entire amount with no interest.

Once the community share has been determined, the parties have several choices. They can choose to (a) sell the home and divide the community property interest. When there is a high amount of community debt, it can be a good idea to sell the home and pay off the community debt, and then divide the rest of the proceeds. Another option they have is to (b) award the home to one spouse in exchange for something worth half the community interest in the home, or (c) have one spouse refinance the property and buy out the share of the other spouse.

There are many other creative ways of handling the family residence, especially if minor children are involved. For instance, some parties choose to change title to tenants-in-common and let the custodial spouse live in the home with the children until a triggering event occurs. When the event occurs, the home must be sold and the proceeds divided. The triggering event is usually the youngest child’s graduation from high school.

2. Pension and Retirement Funds
Individual Retirement Accounts, IRS 401(k) and 403(b) plans, Tax Sheltered Annuities, Keoghs, and Employee Stock Option Plans, are all treated in similar ways. To the extent that retirement funds are contributed towards during marriage, they are community property and must be divided equally between the parties.

It is extremely important that retirement funds are valued correctly. In certain plans, most notably CalPers plans, it is often necessary to involve the specialized skill of an Certified Public Accountant to determine the community share.

There are three ways that a retirement fund can be divided, (a) the non-employee spouse may choose to waive the community interest if the community interest is worth a nominal amount, (b) the parties might negotiate a present-day trade off, where the non-employee spouse trades their share in the retirement fund for something of equal value, or (c) the retirement fund can be divided using a Qualified Domestic Relations Order or a QDRO. The QDRO awards present ownership of a share in the future right to the non-employee spouse. QDROs are usually used in long-term marriages.

3. Vehicles
The rule dividing up vehicles, boats and trailers is simply that the debt follows the vehicle. The party who is awarded the 2004 Toyota Camry, for instance, makes the payments on the Camry. If all the vehicles have been paid off, they are simply divided between the parties using an equalization payment, if necessary.

4. Furniture and Furnishings:
In most cases, furniture and furnishings can be divided up by the parties themselves. Most people realize the absurdity of paying an attorney $250.00 to $300.00 an hour to divide up the pots and pans, patio chairs and bedroom furniture. In most cases, once the parties have agreed as to who gets what, a value is placed on each share and the division is rendered equal via an equalization payment. To the extent that you brought any furniture into the marriage, it is your separate property.

This has been an extremely cursory outline of a complex subject. The act of transmutation, and acts requiring reimbursements and apportionments may have complicated the nature of your marital estate. Please do not make any agreements with your spouse or sign any Quit-Claim deeds without first consulting an attorney whose practice focuses on family law. Before taking any action, please call us for a free consultation.