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How does the court divide property?

Sep 25, 2013

The court characterizes property in essentially two ways: Community Property, which is treated the same way as Jointly Held Property, and Separate Property.  Generally, the presumption is that all of the property acquired after date of marriage but before an action for dissolution is filed and served is Community Property. Any property owned by a spouse before the marriage or acquired during the marriage by gift or inheritance along with any increase in value, rents, profits or proceeds in that property is Separate Property. Community Property is nearly always divided equally between the parties at dissolution. With a few very limited exceptions Separate Property is awarded to the owner spouse.

Seems simple enough, but issues arise where the two types of property are mixed together in some fashion. For an example, if husband has been working at Intel for 20 years and has been contributing to a 401(k) during that entire period, but has only been married for 10 of those years, some of the money in the 401(k) is premarital and as a result Separate Property and some would be post marital and as a result Community Property. Ordinarily an attorney, perhaps a specialist in dividing retirement accounts would look at the statements from date of marriage and determine the premarital portion as well as the earnings, or increases in value on that portion. That would be Separate Property. Any contributions made to the 401(k) either by husband or by his employer after date of marriage but before the date of service would be characterized as Community Property and generally divided equally. Since taxes have not been paid on the 401(k) contributions, the amounts would not be divided in cash but instead the non-earning spouse’s share would be rolled over into some type of retirement vehicle such as an IRA. In our example, she would be free to take the money out of the newly created IRA but would pay any taxes and penalties associated with the withdrawal.

Generally, most other types of property such as bank accounts or other non-retirement investment accounts are looked at the same basic way. Premarital Contributions or contributions from gift or inheritance during the marriage are Separate Property while contributions during the marriage are deemed Community. Personal property would be treated the same way. If you brought your dog into the marriage, it’s yours after the divorce. Homes are a little different. If you own a home prior to the marriage, no mortgage payments are paid on the property and no improvements are done during the marriage, then the home is the separate property of the owning spouse. If payments are made on the mortgage during the marriage or improvements are made on the home during the marriage, there may be what we call a Community Lien against the separate residence. The amount of the Community Lien would be divided equally. An experienced attorney can calculate the Community Lien using a moderately complicated formula and present an understandable case to the court. Assets such as stock options and bonuses awarded but paid out in the future are much more complicated, and whether they are community or separate depend upon a number of factors far too numerous to mention here. Again the term we use is called comingling of assets which can be difficult to unravel for laymen but not that difficult for an experienced attorney to sort out in the settlement process or at trial.

An even more complicated issue is dividing a business. The party that operated the business generally gets the business and the other party gets one-half of the value.  Every business has a value.  It may be one dollar or it may be $10 million. If it was started after the marriage and is not the product of gift or inheritance, it would be characterized as community and divided equally. Even if the business was started before the marriage, there may be growth in the business that is community that must be valued and divided. Valuing a business is complicated. There are a number of different cases that discuss different methodologies in valuation and why one may be preferred over others. Seminars covering hours and even days are put on every year to discuss the nuances of business valuations. If you are dividing a few items of furniture, save yourself a bunch of money and download the forms available at the Superior Court Self-Help Center. If you are dividing a business that needs to be valued, hire an attorney experienced in issues of business valuation. The difference between the values provided by two different business appraisers may differ by literally a thousand percent. If you have a heart attack, don’t scrimp on a heart surgeon. If you have business valuation issues, don’t scrimp on an attorney.


Practice areas


High-Tech Industry Divorces

Post Decree Modification
Spousal Maintenance
Child Issues: Support/Decision Making/ Parenting Time
Business Valuations
Separate vs Community Property


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