There are dozens of different types of property. Property in a Dissolution includes both tangible property, such as a house, a car, a bank account, stocks, retirement accounts, etc and intangible property such intellectual Property for example. In a Divorce the term property means both assets and liabilities, and property division signifies the division of assets and liabilities of each side. Specifically we go through four steps: a) identifying the property type, b) characterizing it as community property, separate property, or mixed/hybrid property, c) estimating the value the property through the appropriate method (example if it is intellectual property you will an IP expert to value it, if it is a car we can us Kelley Blue Book, an actuary for retirements accounts, etc…), and d) dividing the property. Sometimes a division can be neither side gets it, the property is put up for sale and the parties divide the proceeds of the sale between themselves.
In many cases there can be substantial property tied up in divorce proceedings and, as a result, this can be a very contentious topic. Whether one spouse wants to maintain ownership of the property or both would like the property liquidated and the assets divided, these can be difficult issues to navigate. No matter which you choose, the decisions made in a property division case can significantly impact your financial future. You deserve an attorney who recognizes the seriousness of this matter, and at Moshtael Family Law we’re dedicated to ensuring that a fair and reasonable resolution is met.
Division of Property (Extended)
In a Divorce property could mean Assets or Liability.
Before dividing any property it must identify, characterize, and value.
Certain types of property may have a different methodology for valuation. For example if there is a business its valuation will be done by a forensic accountant or a business appraiser. You may also have real estate in which case an appraiser would need to come in and value the property.
Identification of assets is done through a process of both parties disclosing the each other what they each own and owe, and also through the process of Discovery. Discovery is important because one or both parties could decide to hide assets during their Divorce.
The characterization follows some standardized rules which are Date of Acquisition, Date of Separation, Title Presumption and more. For example if an asset was purchased during marriage we presume that it is Community Property subject to a rebuttable presumption. If an asset was purchased after the Date of Separation or prior to the date of marriage we would presume that it is a Separate Property asset.
Title Presumption looks at the manner in which titles are held. An asset may have been purchased during the marriage and be presumptively considered community property. However the title to that asset may be held only in the name of one spouse. For example let’s take a building that was purchased during the marriage with the title held in the wife’s name only. The title presumption would rebutte the community property presumption.
Then we go beyond characterization because some asset are a mixture of community and separate property, they are hybrid. For example you can have a separate property asset with community interest in it. They could also be a community asset with a separate property right of reimbursement to that property. Let’s take a home that was purchased during the marriage. When it comes down to dividing it, let’s assume that the husband has proof that during the purchase he took separate property money he earned before the marriage and deposited it as the down payment. Under that scenario if the husband can trace the funds to his separate property source he has a Family Code Section 2640 Reimbursement to a community property asset. Under this example even though the asset is community it does not mean necessarily the equity in that asset will be divided 50/50. If his down payment was for example $100,000. He will get reimbursed this amount from the top with no interest and everything that remains will be divided between him and his wife.
Another common case is the division of a business that were acquired/started before the Date of Marriage. It is presumptively considered Separate Property. Let’s assume further that no title change occurred during the marriage so it remained Separate Property the whole time. Not withstanding that, it is possible that the community will have an interest in this business if its value has increased during the marriage.
This is known as Equitable Portion. We use different Accounting formulas to determine how much of that business is community interest.
When it comes to valuing the asset, the general rule in Family Law is to try to value the asset as close as possible to the time of trial so we are looking at present value. However, there are circumstances under which you can file for a motion to use an alternate valuation on a date other than the one as close as possible to the time of trial. For example what if there is a community property business that one spouse has been running and after the date of separation they continue running the business. Let’s say you can prove that this spouse has been committing waste to the business intentionally. The business is now suffering not because of the economy or market forces, but because this person has sabotaged the business. In this case it would not be fair to value the business at current value. We can argue their goal is to get the valuation down as low as possible to pay out less to the other spouse. In that case it would make sense to value the business as close as possible to the date of Separation to get a higher valuation because one person is responsible for reducing the value.
What if it is a business ran by one woman. For example a law practice with one attorney with a receptionist and the value of the business after the Date of Separation increases. Would it be appropriate to use the valuation at the time of the divorce? We could argue because it is a business that is driven primarily by the success of the one woman who runs it, the rise and the fall is because of the wife working extremely hard after the Date of Separation to increase the value. We can argue that all the work that has been put to increase this value is separate effort and the increase in valuation is due primarily to her time and energy.
Therefore there are several scenarios under which you can request a judge to use an alternate valuation.
Also the issues of Property Division are dealt with a the time of trial. That implies we don’t get to go to court early in the Divorce or in the middle and ask the judge to divide up properly before we settle or go to trial. For example you cannot typically file a motion to sell a house in the middle of a Divorce unless there is some form of risk to the house such as Foreclosure, Being behind on mortgage, waste being committed to the propery etc. In such cases you can ask the judge to sell the house to preserve its equity. The parties could also agree to sell early and not wait until the end of the Divorce.
Generally you cannot distribute community property prior to the trial unless the parties agree to it. However You can do a Bifurcation, i.e. you can ask the judge to deal with an issue of property prior to the ultimate trial. Therefore rather than having one large trial that goes into every asset and property, you may convince the judge to have a mini trial earlier in the case on one or more pivotal issues. The argument is “Your honor if you resolve this issue for us the rest of the case will be settled. This is the biggest issue we are fighting about and if you fix it for us we think we can work everything else out.” For example someone entered into a premarital agreement and now they are getting a divorce. Who is going to get what? It makes sense in this case to have a biforcated trial on the validaty of the agreement instead of waiting until the end of the case to divide up the property because once the judge decides the agreement is valid or not it immediately dictates who gets what pursuant to that agreement.
That is another way to deal with the character of an asset. That is if you have a contract with your spouse that dictates whether something is Community vs. Separate it means you have opted out of the standard rules. As long as their agreement are not against public policy, spouses can agree/contract out of the standardize rules. By the same token a post marital agreement can be entered between a husband and a wife to control how everything will be divided during a divorce.