Dividing assets is one of the most challenging and laborious parts of going through a divorce, especially if couples aren’t in agreement about who gets what. As a community property state, California has simplified the process somewhat, assigning 50% of the assets accumulated during the marriage to each spouse.
However, that process becomes more convoluted if portions of those investments belonged to one or the other party before the marriage, the money was part of an inheritance, there was a prenuptial agreement in place protecting some portion of the investments, or when one of the spouses holds assets as part of their small or medium-sized business.
What To Expect: Dividing Investment Assets in a Divorce
We highly recommend meeting with a family law mediator if you are in any disagreement about how to divide investment assets in your divorce. In a single consultation or two, we will review your assets and explain how a judge is most likely to see the situation. This saves couples thousands of dollars and keeps the energy more focused in a neutral – rather than contentious or escalated – space.
In the meantime, here are general “rules” around how investments are divided in a divorce:
Are you legally separated?
If the splitting of assets is a charged topic, we recommend filing a legal separation with the courts as you navigate the divorce process. Without that clear line between “married” and legally separated/divorced, your spouse is entitled to the money coming in during the interim. That means that while you may have moved out, or your spouse did, they may still be entitled to your recent big bonus or lottery winnings as part of the community property laws. Your legal separation is a smart move to beginning the work of separating assets.
Investments divided prior to marriage
Any investments that were yours before the marriage are still considered yours and not part of the community property pot. If those funds were merged into a joint account along the way, you are typically entitled to your original amount, which will be subtracted from the community property portions. The courts use specific algorithms to work out interest gained/lost during that time to keep it equitable between both parties.
Inheritance money or financial gifts
Did you add money you inherited into the investment portfolio? Have you received specific financial gifts during your marriage? That money is also protected from the “community property” clause. Once you’ve shown proof of where the money originated, the courts consider it yours.
Retirement funds
Any retirement funds earned prior to your marriage remain yours. However, all pension, IRA, 401K, and other retirement funds earned during the marriage are split 50/50. In some cases, the amounts are so similar between each person, couples decide to keep their own retirement accounts without splitting anything, and that decision is legally recorded in the divorce agreement. Otherwise, the courts enforce the 50% split of each account using a Qualified Domestic Relations Order (QDRO). The order is issued to the administrator of the retirement account, who sets up accurate partial payments to each spouse when they retire, ensuring you don’t have to suffer the tax hit that would ensue if you split the accounts and drew the money out now.
Business-related Investments
Did you start a business during your marriage? There is a chance your spouse is entitled to the business investments or assets as well, depending on how you set things up. If s/he was largely involved in starting it or worked to support you as you started it, their portion of the business could be significant. Meet with a business or family law specialist ASAP to learn more about what to expect during a divorce.
Negotiating Property & Other Assets Instead of Dividing Investments
You also have the option to forgo dividing assets and swapping them for property or other liquid assets instead. Here in the Bay Area, where real estate investments arguably perform far better than the typical investment portfolio, couples often give up their portion of certain investments or retirement funds in order to keep the house and a car.
Again, using specialized algorithms, family lawyers or mediators can help you determine the fairest way to split your assets without having to file QDROs for every retirement or investment account you have.
Have Questions Regarding Assets And Investments Divided Fairly?
Are you struggling to agree on how to fairly divide your joint investments and community property assets? The Law Offices of Gerard A. Falzone are prepared to stand by you every step of the way. While we prioritize mediation whenever possible, we are also willing to go to bat for you in court to ensure you get your fair share of marital investments and assets. Contact us to schedule a free phone consultation and learn more about the process. (415) 482-7800.