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How the Court Divides Assets in a California Divorce

Since California is a community property state, many people assume they know how property will be divided in divorce. However, there are many more factors that play into the process than most people realize.

To protect your interests, it is important to understand your rights when it comes to separate and community property. While you and your spouse are free to develop your own plans for dividing assets and debts, it is helpful to know what the court would do and use that as a starting point for negotiations.

First Things First:  Addressing Property Classification

Before considering how property will be divided in a California divorce, it is essential to understand how property will be classified. Property treated as separate property will not be subject to division at all. The spouse who owns assets as their separate property gets to walk away with those assets free and clear. Property classified as marital or community property, on the other hand, will be divided during the divorce process.

It is in your best interests to locate evidence demonstrating why certain property should be considered solely yours as separate property. Your attorney can help you gather evidence, which may require the assistance of a forensic accountant or other professionals.

What is Separate Property in California?

In general, property that individuals own before they get married is their separate property. Additionally, property that a spouse acquires as a gift (from someone other than their spouse) or through an inheritance or bequest is also considered separate property. So if you want to prove that certain property should not be divided in divorce, it is helpful to look for records proving you owned it before the wedding or that it was given to you individually as a gift or inheritance.

Unfortunately, even that evidence may not be enough to allow you to keep that property without dividing it. That’s because separate property can transform into marital community property during the marriage. If you don’t take specific steps to keep your property separate, then at least some of the value of that property could belong to your spouse.

You can keep property separate by various means such as:

  • Executing a pre- or postnuptial agreement specifying that the property will be kept as your separate property
  • Keeping separate funds in an individual bank account and not using funds for any marital purposes
  • If the property requires upkeep, such as a vehicle or home, avoid using marital funds to pay for maintenance, taxes, insurance, or other expenses

Your attorney can help you develop a plan to maintain the separate nature of your individual property during the marriage. If you don’t take steps to keep the property separate, then a court could determine that any increase in value, at least, is marital community property. If your spouse contributed to the property in some way or if marital funds were mingled with separate funds, you may have to work very hard to separate your share. Without the right arguments and evidence, a court might simply conclude that all of an account or item of property should be treated as marital property.

Marital Property is Divided Evenly in Divorce in California

Anything acquired during the marriage—and any separate property that has transformed into marital property—is considered community property that must be divided between spouses in divorce. In California, marital property is divided equally in a 50/50 split. This includes property such as retirement benefits earned by one spouse.

Marital debts are also divided equally unless you have a written agreement specifying otherwise.

In many cases, you do not actually divide every single asset in half. You can assess the value of all assets and develop a plan to ensure that each spouse receives assets worth an equal value.

All asset division plans can become complicated, particularly when there are assets that may be difficult to value objectively. It is important to work with an attorney who understands the complexities of asset division. If assets include a business, unique real estate, executive compensation, or other intricate property interests, you may want to bring in valuation experts or other specialists to ensure that your interests are fully protected.

Holstrom, Block & Parke, APLC Helps You Obtain Advantageous Results in Property Division

As a team of Certified Family Law Specialists and associates, the attorneys at Holstrom, Block & Parke, APLC have years of experience working to ensure that clients receive the right allocation of property and debts in their divorce. In fact, we have over 300 years of collective experience to put to work on your behalf. We invite you to schedule a confidential consultation to learn more about the ways we can help you achieve your goals in divorce.

How Long Does a Divorce Take in California

While it may feel like a divorce drags on forever, in California, most couples don’t have to wait quite that long until their divorce is finalized. However, there are four major stages to get through, as well as a built in waiting period.

After your divorce attorney has a good idea of what will be involved in your case, your legal advisor should be able to give you a reasonable estimate of the time your divorce will take to conclude. Factors that will impact the length of the process include the degree of conflict involved, the complexity of assets to be divided, the number of complicating issues to be addressed (such as custody, child support and alimony), the need to fulfill residency requirements, and the degree to which each spouse is organized in producing and sharing financial data and other information.

Four Stages to Complete

Couples who are divorcing in California, as well as those who are ending a domestic partnership and obtaining a legal separation, must complete four stages as part of the divorce process. These four stages do not include pre-divorce counseling, which is an excellent way for a spouse to understand what to expect and get a jump start on preparation.

  • Initiating the Process

One spouse starts the divorce process by preparing a Petition for Divorce and other required paperwork and filing the documents with the court in the county where they have lived for at least three months. Then that spouse has the Summons legally served on the other spouse, and the other spouse will have 30 days to file a response. Either spouse may ask the court for a temporary order addressing issues such as alimony and custody.

  • Sharing Financial Information:

In the next stage, both spouses are expected to compile information about what they earn, how much they spend, how much debt they have, and how much property they own. Some spouses are ready to provide this information quickly while others drag their feet either due to lack of organization or because they want to make the process difficult. Sometimes, spouses attempt to hide assets or unrealistically inflate their expenses, particularly if they own their own business. If this is a potential concern, it is important to work with an attorney who understands how to use forensic accounting and other techniques to discern hidden property.

Initial disclosures are supposed to be due within 60 days of filing the petition and response, but parties may request an extension and may also need to prepare another declaration later.

  • Reaching Decisions

Once each spouse has information, then they need to make decisions about issues such as how property is classified and divided, parenting plans for custody and visitation, whether one spouse will pay alimony, amounts of child support, and other matters. Couples can negotiate their own arrangements through various processes with the help of an attorney.

When a couple cannot agree on some or all issues involved in the divorce, they will need to take the issues to trial and have the judge make the decision. This makes the process take considerably longer.

  • Finalizing the Divorce

At the end, all the agreements reached, earlier court orders, and other documents are submitted to the court. A judge will review all the paperwork to ensure it is legally acceptable. If there are no problems, the judge will sign a judgment that specifies the date the marriage will come to an end.

Six Months is the Minimum

Even if everything proceeds with lightning speed, a divorce in California will take at least six months because there is a six month waiting period after the filing of the divorce petition. This waiting period cannot be waived. (There is no waiting period for a legal separation, which is why some couples choose this option instead.)

During the six-month waiting period, the spouses can work through the process of sharing information and settling the terms of the divorce so that they are ready to file final paperwork at the time the waiting period is up. As a practical matter, the process rarely concludes this quickly. The average time to complete a no-fault divorce is approximately 15 months. When issues are hotly contested and the court must make most of the decisions, the process can last for years.

The Right Divorce Attorney Can Help You Streamline the Divorce Process

At Holstrom, Block & Parke, APLC, we protect our clients’ interests and keep mindful of their priorities all throughout the divorce process. If your goal is to conclude the process without delay, we can ensure that you are prepared to complete each step and employ strategies to keep your former partner on schedule as well. Our Certified Family Law Specialists and associates know where the process can be maximized to keep your waiting to a minimum. To learn more about how we can help you streamline your divorce, schedule a consultation with our team today.

How You Can Split Assets in Divorce in California

Just because California is a community property state does not mean that you are obligated to follow the state’s plan for asset division in divorce. The law gives you considerable flexibility in developing your own plans for asset division.
It is a good idea to understand how a judge would classify and divide assets under the law, but you can use that position as the starting point for negotiations and devise your own arrangements for property division.

An attorney can advise you of your rights and advocate on your behalf in negotiating a property settlement with your former partner. In addition, a lawyer trained in mediation could also work with you to help you find common ground and create a mutually agreeable plan for dividing assets in a California divorce.

Do You Have a Prenuptial or Postnuptial Agreement?

The first consideration when determining how to divide property is whether you executed a prenuptial agreement before the wedding or a postnuptial agreement during the marriage. If you followed the rules when creating the agreement, then the terms of your agreement will override any provisions of state law and they will establish each partner’s legal right to property in divorce. So it is important to consider your earlier agreements when developing your plans now.

If both spouses agree, you can classify and divide property differently than the terms you set earlier. If one spouse wants to abide by the agreement, however, then both will be bound by it.

Decide How You Want to Classify Various Assets

Even if you plan to develop your own plan for asset division, it is a good idea to agree on how your property should be classified as marital or separate. Marital property is divided in the divorce and separate property is kept by one spouse.

Generally, property one spouse owned before the wedding is considered their separate property while assets earned during the marriage are jointly owned by both spouses, even if one spouse did all the work to acquire that property. It does not matter if only one spouse’s name is on the title—it is generally the time of acquisition that determines whether property is marital or separate. The exception is property received by one spouse as an inheritance. Even when the inheritance is acquired during the marriage, the property received is considered separate property.

However, it is important to understand that separate property can be converted into marital community property very easily. For instance, if one spouse owns a house or car at the time of the marriage but they use marital funds to pay the mortgage or make repairs, then at least some of the value of that asset is marital property.

So if you are developing a plan to divide assets, it is helpful to first establish which property you agree should be classified as separate, which property is marital, and which property is a mixture of both and in what percentage. An attorney can help with the classification process.

Decided How Assets and Debts Will Be Allocated

Divorcing spouses in California are generally free to draw up their own agreement determining how assets and debts will be divided, and that plan does not need to follow the even 50/50 split for community property that is used by the court. However, it is important to understand that the court must approve the arrangement.

If the judge believes that one spouse is cheating the other such as by hiding assets or coercing the other into accepting an unconscionable settlement, then the court might not approve a couple’s plan for property division. When you work with an experienced attorney during the process, your lawyer can work to ensure that your arrangement meets the requirements of California law.

Remember that your arrangement should classify and divide debts as well as assets. This process requires both spouses to provide detailed financial information so that decisions are made on the basis of accurate information.

Experienced Guidance Can Protect Your Interests When Dividing Your Property in Divorce

Developing your own plan for asset division instead of leaving issues to the court can provide an arrangement that satisfies both spouses. However, the process of developing the right plan requires considerable investigation and negotiation.

The attorneys at Holstrom, Block & Parke have over 300 years of combined experience protecting the interests of clients when it comes to dividing complex assets in a variety of situations. Whether you  plan to resolve terms of your divorce settlement through mediation, collaborative divorce, or negotiation prior to litigation, our team can help you achieve your goals. Schedule a consultation today to get started.

What You Need to Know About Retirement Benefits in a California Divorce

Because of California’s community property laws, many people believe the process of dividing marital property will be simple and straightforward. After all, the law generally splits these assets equally. So couples often assume that they will not need to expend much effort or thought on the process of dividing marital assets.

However, this assumption fails to take account of the fact that the process of classifying property as marital or separate can be complicated and contentious. Moreover, once they have determined the portion of assets that will be treated as marital, the logistics involved in dividing those assets are often complex and filled with regulatory requirements.

Dividing retirement benefits is one of the most complicated tasks in asset division in California. Because these assets usually represent a significant portion of a couple’s property and the assets have significant emotional value and such a tremendous impact on the future, the process of dividing retirement benefits can cause painful conflict and lead to dissatisfaction. The more you know about the process going in, the better prepared you will be to move forward with the right plan for the future.

Community Property Laws

It is well-known that California is a community property state when it comes to divorce. However, many people misunderstand the meaning of the term. They also forget that federal law often comes into play and that federal law overrides state laws.

In general terms, California community property laws specify that assets and debts acquired between the start date of marriage to the date of separation will be divided equally upon divorce. This is true even if it is property earned through only one spouse’s employment. But as with every general rule, there are exceptions.

Pensions are Complicated in Divorce

In many high-asset California divorces, employment compensation packages and retirement benefits form one of if not the most valuable set of assets at issue in the division of property. An employee may receive many types of benefits that could all potentially be treated as marital property, and pensions are among the most complicated to value and divide in divorce.

Pension benefits are a form of deferred compensation for services rendered during a spouse’s employment, or credits towards future income, to put it more simply. The employment contract will determine when an employee begins to earn those credits. Some employees start to start credit right at the start of employment while others must work a certain period to start accruing credits. The employee may earn credits but not have the right to take them until they become fully vested in the program. This could be a gradual process.

Pensions are different from an IRA or 401(K) plan or other defined contribution plan. In those types of plans, money contributed to the account by the employer or employee can be immediately accessed for borrowing or early withdrawal. With a pension, there is no money in an account. The monthly payments are based on the credits earned and are distributed upon retirement. They are often referred to as defined benefit plans in contrast with the defined contribution plans.

Courts have held that if the right to a retirement benefit accrues at least in part during the marriage (i.e. before separation,) then that benefit is community property and both spouses own an interest in it. The service that earned the benefit was provided during the marriage, thus earning the benefit during the marriage even though will not be paid out until years later.

Social Security Benefits are Governed by Federal Law

Like pension benefits, Social Security retirement and disability benefits are earned through work credit over time and paid out later as periodic payments when an employee reaches retirement age. However, these benefits are subject to federal law rather than California law. Federal law treats Social Security retirement benefits and disability benefits as an employee’s separate property rather than marital property. Social Security benefits are not transferable, nor can they be assigned by the wage earner. A divorcing spouse has no interest in the other spouse’s Social Security benefits.

However, the federal government will allow a divorced spouse to claim derivative benefits if:

  • The spouse who earned the benefits is eligible to claim retirement or disability benefits
  • The marriage lasted at least 10 years
  • The divorced spouse claiming benefits has not remarried
  • The divorced spouse claiming benefits is at least 62-years-old
  • The benefits the divorced spouse would receive based on their own work history are less than what they would receive through their derivative rights

If a worker’s former spouse receives benefits based on their work history, that will not reduce or in any way impact the benefits that the worker—or the worker’s new spouse—is eligible to receive. Both current and former spouses can receive derivative benefits equal to up to 50% of the worker’s benefit amount.

An Example Showing How Retirement Benefits Can Create an Imbalance in a Divorce

In the landmark case In re Marriage of Peterson, the California Supreme Court ruled that courts must divide community property according to state law and therefore split a wife’s pension even though they could not divide the husband’s social security. The court did note that the parties could have reached their own agreement that would have provided a more equitable outcome, so divorcing spouses need to be aware of any potential inequalities under the law and prepare to negotiate appropriately to protect their interests.

In the Peterson divorce, the difference between the state laws governing pensions and federal laws governing Social Security resulted in an imbalance against Annette Peterson. As a Deputy District Attorney for the county of Los Angeles, Annette was prohibited from contributing to Social Security because, as a county employee, she was a member of the Los Angeles County Employees Retirement Association (LACERA) Plan E, a defined-benefit retirement plan that paid a pension similar to Social Security.

In the LACERA plans, contributions came from the employer rather than the employees. So instead of contributing to Social Security, Annette kept her income and her employer contributed to her LACERA plan. The amount of benefits paid under the LACERA plan was based on the member’s age at retirement, amount of service credits earned, and the amount of final compensation.

At the time of the divorce, Annette had accumulated more than 14 years of service credits with a value estimated between $200,000 and $216,000. (Because the value is based on the estimate of what would be paid out during her retirement years, the value could not be established exactly because there was no way to predict how long she would remain alive collecting benefits.)

Based on Social Security calculations, the value of John’s Social Security benefits totaled $228,000. Annette argued that the laws governing LACERA pensions and the laws governing Social Security created an imbalance because while the spouses would split her retirement benefits evenly, her husband would receive all of his Social Security retirement benefits and she would receive none. She argued that this gave him 150% of the retirement benefits in the marriage and left her with only 50%.

The trial court ruled in the husband’s favor, so Annette asked the California Supreme Court to correct the imbalance. She suggested several options for creating an equitable solution, including awarding John less than 50% of her LACERA benefits. The Supreme Court affirmed the trial court’s ruling, citing the requirement under California law that community assets be divided equally in a divorce. Since Social Security is separate rather than community property, the court held it could not be divided but that the court was bound to divide property legally considered community property even though it created an unequal division overall.

The Supreme Court then reminded the parties that they were free to develop a more equitable solution not based on strict application of the law which the Court was bound to uphold.

Although since this ruling there have been some adjustments made to the laws to limit this type of imbalance in divorce, spouses and their attorneys need to be aware of the potential for inequitable results so they can strategize accordingly. Depending on the amounts paid into Social Security and the amount of the pension benefit, even with these adjustments, the Peterson case would have resulted in a similar outcome.

Keep the Balance in Mind When You Address Retirement Benefits in a California Divorce

Working with an experienced and savvy divorce attorney or family law mediator in California offers you an opportunity to create balance when the law does not. Both spouses lose when a case becomes contentious--even the spouse who appears to come out ahead in an equitable pension arrangement, as the husband appeared to do in the Peterson case.

Here’s why. The Petersons separated on February 17, 2010 and filed for divorce around that time. They agreed on all aspects of their divorce, including custody, child support, and the division of their other assets and debts. They could have resolved the divorce terms very quickly were it not for the disagreement over the division of the pension.

The issue was tried at the Superior Court (county level) and then appealed to the California Supreme Court. That Supreme Court Ruling was filed January 11, 2016. The Petersons endured nearly six years of uncertainty, court battles, and legal fees.

Because their case had to be tried, not once, but twice because of the appeal, the spouses probably spent well over $50,000 each in legal fees, in addition to other expenses. They had to deal with the stress of a court battle for nearly six years. Was it worth it?

Finding efficient solutions is often more valuable than the costs of fighting for what you feel is right and taking the gamble that it will all be worth it in the end, especially when there are children or grandchildren involved. Often, couples have enough resources to share, particularly in a high-net-worth divorce. The struggle emerges when the emotions or the law create a sense of unfairness.

No one should want to spend $100,000 or more on a divorce, but conflict can drag a case out, sometimes over retirement assets or other property worth less than the legal fees.

Fighting for “legal entitlements” and “the principle of the situation” can make any divorce more damaging than it needs to be. Limiting those damages by working towards a “win-win” agreement can have future rewards in the form of a faster divorce recovery for co-parents, other affected family members, business partners, and even future relationships. Mediation, negotiation, or the collaborative divorce process can help parties develop a cost-effective solution that divides retirement assets quickly and fairly.

Special Handling for Retirement Plans

While retirement assets in 401(k) and similar plans may be easier to value than pension plans, these assets still require special handling during a divorce and parties must be aware of potential tax consequences to keep the division equitable. Often these plans are funded with earnings contribution prior to taxation, so the tax will need to be paid when funds are distributed. The tax liability can be further deferred if the assets are handled properly but if not, one or both spouses could face a substantial tax bill after the divorce.

In addition, it is often necessary to prepare a qualified domestic relations order or QDRO in order to obtain a distribution from a retirement plan. This is a judicial order that is usually drafted by a team with specialized experience and presented to the court for approval. The QDRO will include the terms of the division that is part of the divorce so that the retirement plan administrators will be authorized to distribute funds to someone other than the employee who earned the benefits. The process of obtaining the distribution can take considerable time. Afterward, the spouse receiving the distribution may need to have a plan to roll over all or part of the funds to avoid paying taxes on those funds immediately.

Because of the complexity in distribution and the potential tax issues, it is important to work with a divorce attorney who can provide the advice and assistance you need to avoid delays, penalties, and problems.

Holstrom, Block & Parke Protects Your Interest in Retirement Benefits in a California Divorce

The bottom line is that even with the “50/50” community property division laws in California, the process of dividing assets can be very complicated, and you can be stuck with an inequitable result if you are not careful. Advice and representation from an experienced divorce attorney can make all the difference both during and after the divorce process.

At Holstrom, Block & Parke, APLC, our Certified Family Law Specialists and associates have over 300 years of collective experience helping clients reach the best outcomes in divorce and other family law challenges. Schedule a consultation with our team today to learn how we can protect your interests in retirement benefits and other aspects of your divorce.

Navigating Mortgages and California Property Taxes in a High Asset Divorce

When couples own expensive real estate and other complex assets, divorce takes on an added level of stress and complexity. Before negotiating any settlements or turning over matters to the judge, it is essential for both spouses to understand the realities regarding mortgages, property taxes, and other issues that can affect their living arrangements and financial situation in the short and long term.

An attorney experienced in handling high net worth divorces should be aware of the issues, but you need to ensure that your attorney is willing to take the time to review those critical details with you so that you can make the right informed decisions for your future.

Be Prepared for Buyout Arrangements

In many divorce situations, both spouses want to keep the family home or a beloved vacation property. They may become so adamant that it can be difficult if not impossible to have a rational discussion on the subject. This is understandable because properties like these carry intense emotional value as well as financial value.

However, when a quick resolution is forced by a judge or the need to finalize the divorce, parties often make decisions without considering the practical consequences. Often, they agree that one spouse will buy out the other’s interest in the property without reviewing the logistics of the arrangement. Even when parties have substantial wealth, the transaction can be very difficult, particularly when one spouse earns less income than the other.

Be Aware of Income Requirements to Qualify for a Loan

Whether you are in a contested divorce or you are working together in a mediation or collaborative divorce process, if you own real property and both spouses are on the mortgage, odds are that at least one spouse will need to qualify for a new loan. This might involve refinancing to remove the other spouse from the loan and paying them their share of equity interest, or it could involve taking out a loan to purchase a new home.

Many divorce judgments require the spouse keeping the home to refinance the loan within a specific period of time—30 days, three months, six months—or sell the property. These orders often do not address the reality of qualifying for a new loan.

Lenders generally require proof of six consecutive months of income in order to establish eligibility for a new mortgage—and a refinance situation establishes just that. To qualify for the mortgage on a jumbo loan, a homeowner may need to demonstrate 12 consecutive months of income, depending on the lender. Conforming loan limits vary from county to county across California.

How Alimony Affect Loan Applications

The loan application is very likely to be denied if a spouse is using spousal support (aka alimony) to qualify for the loan and the spouse paying support has ever missed or fallen short on a payment. Also, when a borrower is relying on alimony to meet income requirements for a mortgage, the borrower must usually present an agreement signed by both spouses, and some lenders require the judge’s signature as well. When a spouse obligated to pay support applies for a mortgage, those obligations must be factored into their mortgage situation as well.

Establishing Arrangements Early Can Make the Process Easier Later

At the early stages of a contested case, when a spouse puts in a request for alimony, it is very common for a judge to “reserve” on ordering spousal support. This means that the court does not yet have enough information to make a decision so the ruling will be postponed to a later date.

In a collaborative divorce or mediation process, couples often agree to have the spouse with higher income to continue paying the bills, maintaining the status quo during the divorce proceedings instead of paying support. This can be a costly mistake. It is better for both spouses to have an order for support established early on because it will make it easier for the spouse receiving support to qualify for a mortgage, and that will get the other spouse’s name off the mortgage obligation sooner.

Important Property Tax Considerations in a Divorce

Whether a divorce is contested or congenial, both spouses need to understand how California tax laws figure into property values and how tax obligations will affect them going forward. For instance, Proposition 13 protects homeowners against escalating property taxes as the value of their property increases. Base year values cannot increase more than 2% annually, keeping the tax increase at a manageable level. Propositions 60 and 90 allow qualifying older sellers to carry their Proposition 13 tax base with them when purchasing a new property of equal or lesser value. Proposition 60 applies to properties within the same county while Proposition 90 is for properties across counties in California.

To understand the effect these provisions can have on a divorce situation, it is helpful to review how the rules apply to a couple who are remaining married compared with a couple who are divorcing.

Example A – Empty Nesters Who Want to Downsize

Couple A wants to sell their five-bedroom home on a large lot now that their children have grown up and moved away. They have lived in their current home for many years and the Proposition 13 base year value of $40,000 has only grown to $66,000. Their property tax bill is approximately $700 per year.

They found a townhouse with two bedrooms and no yard for a price is a little less than the value of their home. However, under Proposition 13, the change of home would establish a new base year value, and their tax bill would jump from $700 to approximately $3,700 per year. They do not want to pay an additional $3,000 per year in taxes. Fortunately, Propositions 60 and 90 permit people over age 55 to sell one home and take the Proposition 13 base value with them so long as they purchase a home of equal or lesser value within two years . Now Couple A can move to the townhouse and continue to pay only $700 per year in property taxes with increases no greater than 2% in the coming years.

Example B – Empty Nesters Who Want to Divorce

Couple B owns a home that has appreciated in value but retained the same tax obligations as Couple A. They agree to sell the house and divide the equity equally. However, one spouse buys a new home before the other and uses the provisions of Propositions 60 and 90 to transfer the property tax to the new home. That spouse continues to pay property taxes of only $700 per year. When the second spouse buys a home, the transfer opportunity has been used up, so that spouse must pay property taxes of $3,700 per year.

California Property Tax Issues are Often Overlooked in Divorce

The transfer permitted under Propositions 60 and 90 can be used only once. Moreover, the opportunity and resulting benefit cannot be divided between the spouses. This can lead to tremendous inequality following a divorce, but it is an issue frequently overlooked by couples, their attorneys, and the courts.

It is rare for a judge to ask about, or make orders allocating, the tax base transfer. Perhaps this issue rarely came up in years past because many divorcing couples did not meet the age qualification. However, in recent years, California has seen a sharp increase in “gray divorces” among people who are in their 50s or older. With the steep increase in property values, the tax base carryover available to those 55 and over can be of significant value in high asset divorces.

What Happens If You Don’t Discuss Propositions 60 and 90 During a Divorce?

If the tax transfer benefit offered in Propositions 60 and 90 is not resolved or even discussed in your divorce, then the first person to apply for the tax base transfer will get to use this benefit. It can take several months before the county updates the tax records to reflect a reduced/carried over tax base.

Oftentimes a divorced individual will not know that their former spouse filed the application first until the end of the year, or when they receive the rejection notice from their own transfer application.

The Details Matter When it Comes to Real Estate in a California Divorce

If you fail to plan properly, you could end up unable to buy a home or facing tens of thousands in extra property tax in the future. The details that lead to these consequences are missed far too often, especially in high conflict, protracted divorce situations where the spouses just want to be done or don’t quite understand all the complexities of the situation.

When you work with a knowledgeable divorce attorney, they can consult lenders, loan brokers, real estate agents, and other professionals to ensure that you will emerge from the divorce positioned to move forward and not backward.

Check with your divorce lawyer to ensure that these issues are resolved advantageously before you sign any judgment or make any requests for orders related to your real estate. Get the information from the experts to make sure your decisions are well informed and as complete as they can be. You need accurate information well before your trial date, preferably at the beginning of your divorce process. With the right planning and the right experts, you can complete your high asset divorce through a “win-win” agreement that will not lead to unpleasant surprises in the future.

Holstrom, Block & Parke, APLC Protects the Full Range of Your Interests in Divorce

When your future is at stake, it is important to work with a legal team you can trust to manage the big picture and the details that have such an impact on your future. At Holstrom, Block & Parke, APLC, our team provides the benefits of over 300 years of collective experience so that we can protect your interests throughout the divorce process. Call Holstrom, Block & Parke APLC today at 855-426-9111 or contact us online to schedule a consultation with a divorce lawyer who understands real estate issues in Southern California.

How are Marital Debts Treated During Divorce?

All too often, people who are divorcing focus all their attention on the process of dividing marital community property and forget that they also need to be concerned about marital debt. It can be a bigger issue than property for some couples.

In California, there are some general rules about dividing debt in divorce, but it is not always clear how debts should be classified and treated. A skilled and knowledgeable attorney will understand how to pose persuasive arguments to demonstrate why a debt should be classified in a way that favors your interests, so this is an issue to consider when choosing the right divorce lawyer to handle your case. For instance, at Holstrom, Block & Parke, APLC, our team has considerable experience handling complex financial situations in divorce, so we know the most effective strategies to protect our clients’ interests when it comes to debt allocation.

Community vs. Separate

The starting point for division of debts in divorce is to determine whether an obligation is a community debt shared by both spouses or a separate debt that will remain the responsibility of one spouse. Generally, debt created during the marriage is marital debt and debt established before the marriage or after the date of separation is individual debt.

It is the timing that matters rather than the parties’ involvement in the debt. In other words, even if only one spouse incurred the debt, both spouses are responsible for it. If one spouse went on a secret spending spree and bought a bunch of stuff that the other spouse didn’t want, the other spouse is still jointly responsible for the debt if it was created before the date the parties separated.

However, if that spending spree occurred after the date of separation, then the debt should be treated as that spouse’s separate responsibility. So determining the specific date of separation can be critical.

Determining the Separation Date

The date of separation is so important, in fact, that sometimes it becomes necessary to hold a separate trial just to determine the official separation date. Under Section 70 of the California Family Code, the “date of separation” is “the date that a complete and final break in the marital relationship has occurred.” The statute further explains the fact that the marriage relationship has ended is demonstrated by two signs: one spouse “expressing” to the other that they want to end the marriage and the spouse who wants to end the marriage acting in a way that is consistent with ending the marriage.

Expressing a desire to end the marriage can be done through actions as well as words. If a spouse doesn’t specifically say “I want a divorce,” but that spouse moves and signs a lease on a new apartment, that can be taken as evidence that the spouse wanted the marriage relationship to end. But there are situations where spouses live separately with no intent to divorce, so evidence of this type is not always clear.

Evidence to show conduct demonstrating a continued intent to end the marriage can be even more ambiguous. Physical separation is a big part of the equation, but not as important as it used to be. A couple may continue to live in the same house but separately within that house. Establishing that a spouse has taken steps to separate finances such as opening an individual bank account and filing a separate tax return can go a long way toward establishing conduct consistent with the end of the marriage relationship.

When spouses express an intent to divorce but then later reconcile for a time before separating again, the determination of a separation date for the purpose the marital debt becomes even more complicated.

Community Debts May Be Divided Equally . . . Or They May Not Be

While debts established during the marriage are frequently divided equally as community debt, there are exceptions. If the spouses created a valid pre- or postnuptial agreement addressing debts, then the terms of that agreement will override any provisions of the law. Also, if the joint debts of the couple exceed the value of their joint assets, then the court could award a greater share of the debt to the spouse considered to be better financial shape.

There are other situations where a court might assign more debt to one spouse than the other, but it is also important to realize that even if a debt is assigned to one spouse, creditors may still try to collect from both spouses. The bottom line is that you need to work with an attorney who understands how to take every possible measure to protect your finances from debt liability.

Trust Holstrom, Block & Parke, APLC to Safeguard Your Finances in Divorce

Experience matters when it comes to complex divorce issues such as marital debt. The Certified Family Law Specialists and associates at Holstrom, Block & Parke have over 300 years of collective experience protecting the financial interests of divorcing spouses, and we are ready to put that experience to work for you. Schedule a confidential consultation today to learn more about the ways we can safeguard your future.

Is My Inheritance at Risk During Divorce?

California’s community property laws often trigger serious financial worries in divorce. We’ve all heard horror stories of people losing “everything” at the end of a marriage, so if you have or expect to receive an inheritance, you may be concerned that your legacy will be put at risk in a divorce.

The best way to protect your inheritance is to work with an experienced divorce attorney who understands the most effective strategies for achieving your goals in property division and other critical issues. While it is not always easy to predict whether an inheritance will be at risk due to divorce, here are some guidelines to keep in mind.

Understanding Community Property in California

Many people have heard that California is a community property state and they assume that means everything is split 50/50 in a divorce. However, this is not strictly true.

The law generally provides for a 50/50 split of property that is considered “community property.” However, not everything in a marriage is community property. Each spouse has their own separate property. And some property may be considered partially separate and partially community because it has been commingled together.

So, if your inheritance is considered to be community property, it will generally be split, but if it is treated as your separate property, then you get to keep all of it. If it has become hybrid property that is part community and part separate, you may need to divide part of it.

Inheritances are Generally Treated as Separate Property

Classifying property as community, separate, or hybrid can be a very complex undertaking, which is one reason it is so critical to work with a knowledgeable attorney. On general principle, anything you earned while you were married is considered community property. The same holds true for any property you purchased with money you earned during the marriage.

However, property you receive as a gift or inheritance while you were married is usually considered to be your separate property and not community property. This rule balances some competing rights. Each spouse has a general right to an equal share of assets acquired during the marriage, but families also have the right to leave an inheritance to loved ones without losing half of the legacy in divorce.

If there is a bequest made specifically to both spouses or to the family, then that property would be community property. But a bequest or inheritance in the name of one spouse will initially be treated as that spouse’s separate property that they do not have to share in divorce. Over time, however, that separate property can change.

Certain Actions Can Turn Inherited Property into Community Property That Must Be Divided

While an inheritance may start out as separate property, if it is not carefully kept separate, it can be partially or completely transformed into community property in a variety of ways. For instance:

  • Inherited funds may be placed in a joint account and commingled with community funds
  • A spouse might add their earnings (community property) to an account started with the proceeds of the inheritance
  • The spouse who inherits a vehicle or real estate might add the other spouse’s name to the title
  • The non-inheriting spouse might spend considerable time making improvements to an inherited property
  • Community funds might be invested in an inherited vehicle or real estate
  • Inherited funds might be used to buy a home lived in by the family

To protect an inheritance as separate property, it is wise to execute a pre- or postnuptial agreement specifying that the inheritance will remain the property of the spouse who inherited it. It is also wise to keep inherited property apart from community property to the greatest degree possible.

If it is too late and the property has already been commingled, attorneys might use forensic accountants to trace the separate property so that the inheriting spouse can claim the greatest possible share of it in divorce.

Holstrom, Block & Parke, APLC Understands How to Protect Your Property in Divorce

If you can take preventative steps before receiving an inheritance, you give yourself the best opportunity to protect that inheritance. However, regardless of how the inherited property has been treated, the dedicated attorneys at Holstrom, Block & Parke, APLC can still use a variety of strategies to preserve the value of your inheritance in divorce.

Call us at 855-426-9111 or contact us online to schedule a confidential consultation to learn how our team can fight to protect your inheritance in Southern California.

Qualified Retirement Plans Require Special Handling in Divorce

For many divorcing couples, the assets in retirement plans represent a significant portion of marital property. Both the process of valuing and dividing these assets can be extremely complicated.

As you develop plans for dividing assets in divorce, it is important to understand the value in current terms, the potential future value, tax consequences, and the special steps that must be taken to allow these assets to be allocated in divorce. Mistakes can lead to costly delays and unnecessary tax liability, so it is a good idea to work with legal and financial professionals who understand the special handling required for retirement assets, particularly qualified retirement plans.

Why Retirement Plans Add Complexity to Divorce

Employers frequently offer numerous types of retirement plans and compensation bonus plans as incentives to their valued employees. Some of these benefits become available right away, but others require the employee to wait until the interest is vested to attain full value. It can be quite a challenge to value and divide assets that are not fully vested. It is also difficult to ascertain the current value of a defined benefit plan that is not expected to pay benefits until a future date.

Moreover, many retirement plans are considered “qualified plans” under the federal Employee Retirement Income Security Act (ERISA) and these require special handling to avoid tax issues. Plans such as 401(k) plans, profit-sharing plans, 403(b) plans, and Keogh plans are considered qualified plans. Employers generally deduct pre-tax wages to invest in these plans, and taxation on the growth of the funds is deferred until the funds are withdrawn.

So, when assets are withdrawn to provide to a spouse in divorce, one or both spouses could be hit with a tax bill for the deferred taxes as well as a penalty for early withdrawal. However, this can be avoided with the right planning.

Using a Qualified Domestic Relations Order (QDRO)

Before the administrator of a retirement plan can release funds to a former spouse in conjunction with a divorce, they generally need a domestic relations order from the court that explicitly gives the spouse the right to receive a disbursement. If that order meets certain requirements, it is considered a Qualified Domestic Relations Order, generally known as a QDRO. When funds are withdrawn from a retirement account with a QDRO, both spouses can avoid immediate tax liability or early withdrawal penalties. However, funds received by the non-earning spouse may need to be reinvested into another retirement fund to avoid current tax liability.

A QDRO must be drafted carefully to contain elements that satisfy government requirements. A law firm or legal specialist typically prepares the order according to the terms of the divorce settlement and presents the order to the court for approval and execution. Once the court approves the order, then the spouse obtaining the distribution from the retirement plan will need to submit it to the administrator of the plan, and it may take considerable time for the plan to approve and pay out the funds. It is important to ensure that the terms of division in the divorce decree fit with the options allowed by plan administrators, or the order may need to be redrafted and distributions will be further delayed.

California law requires that in some cases, the administrator of the plan will need to be added as a party to the divorce through joinder before orders can be established. When this is necessary, it must be completed before the QDRO can be issued.

How Much of Your Retirement Plan Will You Lose in Divorce?

The amount of funds that will be removed from a retirement plan and disbursed to a spouse in divorce will depend on many factors. First, if the couple executed a pre- or postnuptial agreement that addresses retirement plan assets, the terms of that agreement will be followed over the default terms under the law.

If you don’t have an agreement, then retirement assets are subject to division as community property. The value of contributions to the plan made during the marriage and the value of appreciation during the marriage would be split equally between spouses. If your spouse also accrued retirement benefits during the marriage, you are entitled to half the value of those. So the amount you could see taken from your retirement plan will depend on how long you were married, how much value was added to the plan during the marriage, and how much your spouse may also have accrued in their own plan.

Holstrom, Block & Parke, APLC Works to Protect Your Interests in Retirement Assets

You worked hard to build up your retirement assets, and we want to help you protect your property. The experienced team at Holstrom, Block & Parke, APLC has over 300 years of combined experience safeguarding the assets of our clients in divorce, and we understand the intricate details that must be managed to secure the best outcome with respect to all assets, including retirement plans. For a confidential consultation to learn how we can protect your interests, contact our team today.

What are the Grounds for Divorce in California?

Deciding to get a divorce isn’t an easy choice, but when you understand more about the process, you give yourself a greater base of knowledge on which to form your decisions. Learning about the grounds you can use to file for divorce in California can help you determine whether divorce is appropriate in your situation. So let's delve into what California law says about acceptable grounds for divorce.

No-Fault Divorce

California is considered to have a “no-fault” divorce system. Aspects like adultery or other forms of marital misconduct generally don't have a direct impact on the eligibility to file for divorce or the granting of the divorce itself. Unlike fault-based divorce systems, where cheating or abuse can be leveraged for a more favorable settlement, California's courts usually don't consider these factors when deciding to grant a divorce.

The primary question the court considers is whether the marriage is "irretrievably broken." By eliminating the need to prove fault, the system aims to make the divorce process less adversarial and emotionally draining. Therefore, even if one spouse has committed adultery or another form of marital misconduct, it won't typically affect the court's decision about whether to dissolve the marriage.

Two Grounds for Divorce

There are only two grounds for divorce recognized by the California Family Code, and most divorces are granted on the basis of one factor. That is, most divorces are based on “ irreconcilable differences, which have caused the irremediable breakdown of the marriage.” The other legal ground on which to seek a divorce is one partner’s “permanent legal incapacity to make decisions.”

Irreconcilable Differences

The term "irreconcilable differences" offers a lot of flexibility when you're considering divorce. You don't need to pinpoint specific incidents of wrongdoing, like adultery or abuse, to justify the decision to separate. You and your spouse may simply have philosophical, emotional, or practical differences that have led you to the point where staying married isn't tenable. Filing on this ground avoids a lot of the finger-pointing and stress that can accompany divorce proceedings, making it easier and often quicker to move through the legal process.

Legal Separation Before Divorce

Legal separation can be an interim step if you and your spouse aren't entirely sure that divorce is the right option. While legally separated, you can divide assets and debts, figure out child custody arrangements, and live separately, all without legally ending the marriage.

It's a way to get a feel for what divorce would entail emotionally and financially. After a period of legal separation, if you decide that reconciliation isn't possible, transitioning from legal separation to divorce can be more straightforward since some of the agreements may already be in place.

Divorce on the Grounds of Incurable Insanity

The option to divorce on the grounds of "incurable insanity" is not commonly used in California but it is still a legally valid reason for divorce. This would require proving with medical or psychiatric evidence that one spouse is and will remain incurably insane.

Because this involves bringing medical professionals into a legal proceeding, this approach can be more time-consuming and costly. It also might involve more emotional turmoil, given the serious nature of the claim. Therefore, most couples opt for the no-fault ground of "irreconcilable differences" unless the situation truly warrants a claim of incurable insanity.

What Happens to the Assets in California?

Asset distribution can be one of the most contentious parts of a divorce. In California, a community property state, any assets acquired during the marriage are typically divided equally between both parties. However, any property or assets you owned before the marriage remain yours, unless commingling of assets occurs.

While adultery or other forms of wrongdoing during the marriage do not provide grounds for divorce, they can impact the division of marital property. If one spouse’s divorce attorney demonstrates that the other spouse’s bad conduct wasted marital assets, that attorney could persuade the judge to award additional marital property to the other spouse to make up for the waste.

Residency Requirements in California

To file for divorce in California, at least one spouse must be a resident of the state for at least six months. Additionally, one spouse must have resided in the county where you plan to file for at least three months. If both parties agree to the divorce terms, they can finalize the divorce out of court, but it can be very difficult to reach an agreement on all the issues without legal assistance.

Contact Holstrom, Block & Parke, APLC

Even though it may be simple to determine the grounds for divorce in California, other aspects of the process can be quite complex. The terms of your divorce will affect your life for years to come, so it is worthwhile to invest time and resources to ensure that you receive a fair settlement.

To put our experience to work protecting your interests in divorce, call Holstrom, Block & Parke APLC, today at (844) 237-5791 or contact us online to schedule a consultation.

What Is Alimony And How Is It Determined In California?

Divorce is challenging both emotionally and financially. Among the complex financial elements to address during divorce are questions involving whether one spouse should pay alimony and if so, how much and for how long.

In this blog, we'll examine what alimony is and how decisions about alimony are determined in California. Our goal is to provide you with a clear, easy-to-understand guide that can be your first step in grasping this crucial aspect of California divorce law.

What is Alimony?

Alimony is financial support paid by one spouse to another during or after divorce proceedings. Technically, the legal term for these payments are spousal support, but most people still use the traditional term, alimony.

The primary objective of alimony is to balance the financial playing field and to ensure that the lower-earning spouse can maintain a standard of living similar to what they enjoyed during the marriage. In California, alimony isn't automatic; rather, the courts have a considerable amount of discretion when it comes to the type, amount, and duration of these payments.

Factors that Influence Alimony in California

To establish a fair alimony arrangement, California courts weigh a number of elements. These factors include but aren't limited to:

  • Length of the marriage
  • Age and health of each spouse
  • Income of each spouse
  • Property and debts of both parties
  • Earning capacities of both parties

Additionally, the court looks into the lifestyle the couple maintained during the marriage, as well as contributions from the spouse seeking alimony. For instance, the court will consider one the lower-earning spouse helped the higher-earning spouse acquire an education, advance in their career, or secure professional licenses.

Types of Alimony in California

Different types of alimony exist in California to serve various needs and situations. The most common types include temporary, rehabilitative, and permanent alimony.

Temporary alimony is designed to provide financial aid during the divorce process itself. Rehabilitative alimony aims to assist the lower-earning spouse in becoming financially independent by supporting them as they re-enter the workforce. Permanent alimony, usually applicable in long-term marriages, may last indefinitely and is designed to offer lasting support.

How Is the Amount of Alimony Calculated?

While California doesn't have a strict formula for determining alimony, many courts use software programs as guidelines for establishing a reasonable amount. But remember, these are just guidelines, not hard rules.

Judges use their discretion, taking into account the above factors and other issues, to arrive at a fair and just alimony arrangement. Both spouses have an opportunity to present their case, arguing for either a higher or lower alimony payment based on their individual needs and circumstances. That means it’s in your best interests to make certain your divorce attorney is aware of all the factors that could weigh in your favor during an alimony determination.

When Can Alimony be Modified or Terminated?

Modification of alimony is not uncommon in California, particularly if there's a significant "change in circumstances," such as either party experiencing a considerable increase or decrease in income, or reaching retirement age. Alimony termination generally occurs if the recipient remarries or if either spouse passes away. It’s essential to seek professional legal advice from an experienced California divorce lawyer if you think your alimony order may need modification or termination.

The Role of Prenuptial and Postnuptial Agreements

Prenuptial and postnuptial agreements can be pivotal in determinations of alimony in a California divorce. If an agreement was signed before or during the marriage, it should be thoroughly reviewed as part of the divorce process.

Even though such an agreement can specify alimony arrangements, the court still retains the final say. However, judges usually respect the terms of a prenup or postnup, provided it was fair and voluntarily agreed upon by both parties at the time it was executed.

Alimony and Taxes

Remember, tax laws concerning alimony have changed. Previously, alimony payments were tax-deductible for the paying spouse and were considered as taxable income for the receiving spouse.

But for divorces finalized after December 31, 2018, this is no longer the case. Now, alimony payments are neither tax-deductible for the paying spouse nor considered income for the recipient. This change has significant implications and should be kept in mind when negotiating alimony.

Important Tips for Seeking Alimony in California

If you want to seek alimony or ensure that you are not ordered to pay an unfair amount of support, it's crucial to gather pertinent documentation such as proof of income, a comprehensive list of monthly expenses, and any available information regarding your spouse's earnings.

Get the documentation to your attorney in a timely fashion. Having detailed records can strengthen your case when the court is assessing the amount of alimony to be granted. Remember, thorough preparation can be your best ally in ensuring a fair alimony arrangement.

Contact Holstrom, Block & Parke, APLC for Help with Alimony

Whether you are seeking alimony or being asked to pay spousal support, the outcome can have a tremendous impact on your financial future in both the short and long term. The experienced Certified Family Law Specialists at Holstrom, Block & Park know how to ensure that the factors that support your goals receive fair consideration during the divorce process.

To put our skills to work for you, call today at (844) 237-5791 or contact us online to schedule a consultation.

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