Property Division Attorney in Irvine & Costa Mesa
Divorce, separations, and dissolution cases inherently carry a number of challenges. Whether contested or uncontested, matters like custody, support, and division of property must be addressed. The latter can be particularly difficult to deal with when the two parties have a large number of assets or cannot agree on the rightful owner. Or in many cases parties may not have a large number of assets, but the assets that they do have might not be easily divided, such as a small business, pension or investment property. At Wilkinson & Finkbeiner, we offer legal assistance for those dealing with the division of marital property in Orange County.
Call us today at (949) 955-9155 to schedule a free consultation to discuss property division.
What is Property?
The first question most people have is: “What does the law consider property?” While there are countless types of property, the following are commonly divided property in divorce cases:
- Real estate. Any real estate or family residence purchased during the marriage is considered property. This includes undeveloped land, houses, apartments, and rental units. Many times, this is the most valuable asset owned by the typical American family. It is essential to have a qualified attorney and real estate professionals, if applicable, handle the division of such an asset. Whether it is to be sold or “purchased” by one party, the transaction must be handled accordingly.
- Personal property. Personal property and collectible items like antiques, coin collections, furniture, electronics, and other items with considerable worth are considered property.
- Business ventures. Any type of business venture, including S-corporations and closely-held businesses, limited liability companies (LLC), partnerships, sole proprietorships, “mom and pop” shops, real estate investment portfolios, and professional corporations, is considered property.
- Retirement plans. Pensions, IRA accounts, 401(k) accounts, PERS, STERS, and other retirement plans are included under the heading of property. (For information about joinder of pension plans, click here.)
- Insurance policies, claims, and proceeds are property.
- Stock options. In most cases, deferred compensation, pensions, and stock options are considered property.
- Restricted Stock Units (RSUs). These are another type of deferred compensation. There is a very detailed guide below for RSUs, please scroll down.
- While they can be separate, inheritances, gifts, and devises can be property.
The question of what is considered property is very important to divorce cases because all assets and debts must be disclosed on a party’s Schedule of Assets and Debts. If an asset is not disclosed on the appropriate disclosure, there might be serious consequences for the non-disclosing spouse. For more information about divorce financial disclosures, click here.
The most important part is not what is considered property, but which assets the court determines to be community property and which are separate property. This is where the experience and skill of an attorney is necessary.
Classifying or “Characterizing” Property
Even the simplest cases require property to be classified and categorized. An attorney can help answer your pertinent questions and will provide a clear understanding of your legal entitlements and responsibilities. The characterization of property is an essential component of any divorce case, and it is extremely important. Property is legally only characterized in three ways in California and include (1) COMMUNITY PROPERTY; (2) QUASI-COMMUNITY PROPERTY; or (3) SEPARATE PROPERTY.
Dividing Separate Property in California
Separate property is property that is acquired before marriage, after the date of separation, or by gift, bequest, devise, or inheritance, and all appreciation and income derived from separate property.
Dividing Community Property and Quasi-Community Property in California
Community property is all property acquired by either party during marriage that is not separate property. Quasi-community property simply means property acquired outside of California that would otherwise be community property had it been acquired within the borders of California. Community property and quasi-community property are treated nearly exactly the same in California divorce cases.
You and your divorce attorney will need to discuss factors such as any existing premarital agreements, whether post-nuptial agreements that address community property were drafted, existing titles and how they are held, if any deeded property was obtained, if contract breaches occurred, and if community property was used to purchase separate property. The characterization of property can be extremely complex.
Mixed Character Property Division in California
There might not be a “bright line” characterization for some property that is at issue in a California divorce case. For example, many times one party to a marriage brings a separate property home into the marriage and pays down the loan using community property. Perhaps the parties make improvements with some community property. The character of the property may be a mix between separate and community. Likewise, if business interests are brought into the marriage and work is done for the business during marriage, the characterization of the asset will not be easy to ascertain.
Factors Considered in the Division of Property
When determining the distribution of community property, courts will take into account some of the following factors:
- Which party owns title to the asset and whether there may be a claim that the asset is not community in nature.
- The income production of the property.
- Any written agreements made before or during the marriage.
- The current and future value of property.
- The tax consequences for property ownership and distribution.
- Current debts and liabilities associated with the asset.
The trial court is bound to equally divide community property between the parties. Divorcing couples are permitted to agree to whatever they want and therefore can agree to an unequal division of their property (for example, if spousal support is adjusted to compensate for an unequal division.) If the parties do not agree, the courts must perfectly divide property. The court can order property to be sold or liquidated, or it can order an “in kind” division wherein different property is awarded to each spouse so long as the values are equal.
How the Marital Home is Divided
One of the largest assets almost all couples own is their home, which in divorce is referred to as the “marital residence” or similar phrase. The family home is often at the center of disputes between parties for a number of reasons. Parties often want to remain in the family home for children. Some parties want to sell the home quickly to cash out the equity and move on. Other parties owned the house prior to marriage to their current spouse and want to retain the house for the future.
Parties to dissolution of marriage cases can agree to how the house is divided in their divorce, which is usually the best alternative. If the court is to make the decision of how a marital residence will be divided, the most common method of division is to order the home sold. The family court does have wide discretionary powers and it permitted to “equitably” divide the home by allowing one party to retain the home in divorce. If there is equity, that party will have to “buy out” the other party’s equity.
Do you want to retain your marital residence in divorce but your spouse doesn’t agree? Be prepared to prove in court that you are capable of refinancing the marital home (i.e. obtain a loan pre-approval among other evidence). Provide the court with various proposals that will help the court fashion an order in your benefit, such as providing various ways that your spouse’s interest can be paid by other community property assets.
Often parties that agree to allow one party to retain the marital home in the division of property will set deadlines for that party to refinance the home in their name alone. Very specific settlement terms should be carefully composed in the parties’ agreement to try and ensure both parties are protected in the event the spouse cannot refinance.
California law allows one party to request a deferred sale of the family residence upon dissolution of marriage, when it would be in the best interests of one or more children of the marriage that the court defer the sale and allow the children to stay. The facts of a particular case will govern whether the court would even entertain the suggestion. The court would then consider the age of the children, the amount of equity involved, whether the party remaining in the home can pay all the associated obligations like the mortgage. The court will also consider exactly why the reason for a deferred sale, because the parent not remaining in the home will likely have equity tied up in the home and possibly on the hook for the home’s mortgage.
How Personal Property is Divided
Personal property includes electronics, personal clothes and similar items, furniture and furnishings, antiques, collectibles, toys, vehicles, and other tangible items.
Technically, bank accounts, cash, investments, stocks and other financial accounts are also “personal property”. Financial assets are divided equally if they are community property in nature.
In fact, all items that are classified as “community property” are required to be divided equally. The value of an item of personal property is determined by the current fair market value of the item less any debts owed for that property. It is important to note the word “current” in the preceding sentence. Many litigants argue that they purchased a certain asset for some specific dollar amount, but that is not the standard. The court values tangible items on their value as of the date it is determined by the court. If an alternate valuation date is warranted, you have to file a motion and request that the court consider the alternate date.
Most litigants wonder how items in their home will be divided. We almost always employ a simple solution to resolve this issue, including:
- Make a list and agree on the division.
- Each party takes a turn picking an item to keep.
- Value all items and one party can “buy” the item for that price from the other party.
- Bid on each disputed item.
If you cannot agree, the court can order a “special master” to inventory and value items of personal property. Often in our high-asset divorce cases we will employ the use of a special master to inventory valuable antiques, artwork, jewelry, or other similar items.
How to Determine an Equalization Payment
An equalization payment is a payment made by one party to the other in a divorce settlement where the party making the equalization payment receives a higher amount of the marital assets. There are a number of ways to determine the amount of an equalization payment, which completely depends on the facts involved in a particular case.
Parties to dissolution of marriage cases are free to reach an agreement on the amount of an equalization payment from one party to the other. Generally speaking, equalization payments are made by one party that received more of the marital assets than the other. Usually cash assets are transferred to the party that is not receiving real property assets in the division.
If the parties do not agree, the court may order an equalization payment to be paid if the marital community property cannot be split exactly equally.
Taxation of Equalization Payments
Generally, equalization payments between divorcing spouses do not create a “taxable event” and therefore are non-taxable. However, parties dividing assets must be cautious to consult a tax professional because tax may be owed in the future on certain assets received by a party in divorce. For example, suppose a couple bought a house 30 years ago for $100,000. This year, the parties divorced when the house was worth $800,000 and the wife received the house in the division of assets by agreement between the parties. The wife paid the husband one-half of the total equity in the home (suppose $400,000). The problem in this scenario is that the wife may suffer the full amount of capital gains tax for the increase in value on the property, and not just one-half of the equity. Thus, the wife may have to pay the husband’s share of capital gains taxes for the marital home.
How does the Court divide Restricted Stock Units (RSU’s)?
Increasingly we are encountering the issue of dividing RSUs in dissolution cases. This is a guide for how the Newport Beach / Orange County Court treats the division of RSU’s in a divorce.
RSUs are grants valued in terms of company stock, but company stock is not issued at the time of the grant. After the recipient of a unit satisfies the vesting requirement, the company distributes shares, or the cash equivalent of the number of shares used to value the unit. An RSU usually vests when the employee has worked a certain amount of time for the company.
RSU’s may be community property
California law allows RSUs to be divided between the spouses if any of the RSUs are determined to be community property. While no reported case deals specifically with division of RSUs, Orange County courts usually treat RSUs like stock options, another form of employee compensation. The Court will apply one of two formulas to ascertain the community interest in the employee spouse’s RSUs. One formula, called the Hug formula after the case Marriage of Hug, is applied in cases where the purpose of granting the RSUs is to reward for past services. The community estate usually receives a higher share of the RSUs under the Hug formula under the rationale that the employee was devoting his or her services during marriage to earn the RSUs.
On the other hand, if the award of RSUs was meant to incentivize the employee to stay with the company by compensating future performance, then the Court will more likely apply the Nelson formula after the case of the same name. The result will be that the employee’s separate property interest in the RSUs will be higher because the compensation is intended to reward the spouse for future services.
What information does the Court need to divide RSUs?
When we learn that RSUs are an issue in the case, we gather the following information:
-The employee’s date of hire
-The parties’ date of separation
-The date of vesting for each RSU
-The value of each RSU
Once we have the above, then either the Hug or Nelson formula can be applied to determine the proportion of community and separate property interests in each RSU. Prior to the division of the community estate, the parties may find it wise to ask the court to appoint a 730 evaluator, or court-appointed expert, to prepare a report which divides the RSUs. If the parties are confident in the accuracy of the 730 evaluator’s report, then they can decide how the non-employee spouse will be compensated for the values of the RSUs. One option is to award the non-employee spouse another asset of equivalent value in exchange for waiving his or her rights to the RSUs. Another possibility is to transfer the appropriate number of RSUs to the non-employee spouse.
What if the employee spouse forfeits RSUs that were granted during the marriage, but vest after the date of separation?
We have seen cases where the employee spouse will quit his or job after the date of separation with the result being a massive forfeiture of RSUs granted during marriage. Recall from above that RSUs may vest when the employee reaches a certain amount of time with the company. However, if the spouse quits, the RSUs are forfeited. But does the community still have an interest in forfeited RSUs that were granted during marriage? Again, no reported cases encounter this issue. In our experience, the court considers whether the decision to quit was a breach of fiduciary duty.
Pursuant to Family Code §1101(a):
A spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse’s present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse’s undivided one-half interest in the community estate.
The main inquiry is whether the termination of employment was truly voluntary. Although quitting implies volition, the court will look to the circumstances of the employee’s decision. The Court will be less likely to find a breach of fiduciary duty where he or she can prove that the employer was having financial difficulties and where the employee found another job at or near the level of compensation of the old job in a reasonable time. However, where a spouse decides to “retire” early (before age 65), the Court will be more inclined to find a breach. If the Court finds a breach, the Court may award the other spouse the entire community interest in the forfeited RSUs under Family Code §1101(g).
At trial the employee spouse will defend his or her decision to quit and will likely argue that the RSUs have no value because no money was received from the forfeited RSUs. To contest this point, the non-employee spouse should hire an accountant as to the value of the community interest forfeited, i.e. what the community would have been entitled to had the employee continued working.
Finally, keep in mind that this area of the law is evolving. We will keep watching for a reported case that could give us some more guidance on the conundrum of dividing RSUs.
Orange County Division of Marital Property Lawyers
It is obvious that the division of marital property is a complicated process requiring an intricate understanding of how Orange County law works. Without an attorney, it’s easy to misinterpret readings, underestimate the need for documentation, or become overwhelmed or lost with the different facets of the case. A lawyer with expertise in marital property can remove this burden and allow you to focus on the things that really matter.
Wilkinson & Finkbeiner, LLP
At Wilkinson & Finkbeiner, we understand marriages often end in conflict and strife. When pre nuptial and post nuptial agreements are not involved, it’s often a challenge to determine the rightful owner of martial property.
For high quality legal representation, consider teaming up with one of our experienced Orange County property division attorneys. We guarantee professional service that is both compassionate and aggressive. For more information and a free confidential consultation, please contact us today! We are conveniently located in Irvine and offer free, easy access parking. You have nothing to lose by calling us today.