Marriage is a uniquely complex contract. When you married your partner, you accepted legal, medical, and financial rights and responsibilities toward your spouse. A divorce must address these rights and obligations to effectively dissolve the marriage. For many couples, the most time-consuming element of this process is dividing the marital assets they have accumulated during their relationship.
In California, there are strict laws regarding the division of assets. If a couple doesn’t have a prenuptial or postnuptial agreement, these laws dictate how assets will be divided in a divorce. Below, we explain California’s asset division laws and the complications of certain complex asset classes.
California Law and Marital Assets
When a couple gets married, with a few exceptions, they are agreeing to share ownership of all property acquired during their marriage. These assets are known as marital property. As long as their marriage continues, both spouses have the right to use and make decisions about marital property.
When dissolving a marriage, marital property must be divided between the spouses. The laws regarding asset division vary by state, and a couple is subject to the laws of the state that has jurisdiction over their divorce. California is a “community property” state, which means that state law grants both spouses equal ownership over all marital assets in a divorce unless the couple signed a contract agreeing to different terms.
Community property laws mean neither spouse is entitled to a greater share of the joint assets even if they contributed more to the marriage financially. California laws assume that both spouses contribute equally to a marriage, though these contributions may not be financial. Regardless of where they got married, any couple that gets divorced in California is held to these laws.
Under community property laws, only assets acquired after the wedding date are eligible for division. The property the parties brought into the marriage remains separate and ineligible for division unless it is commingled with marital assets and the origin of the funds cannot be traced. For example, if one spouse brought an investment account into the marriage, that account and any gains it accrued would remain separate property unless that partner invested marital funds in it.
The Impact of Date of Separation on Asset Division
The date of separation is defined in Section 70(a) of the California Family Code as “the date that a complete and final break in the marital relationship has occurred.” This is evidenced by at least one partner informing the other that they want a divorce and behaving consistently with their intent to no longer be married.
This date is crucial to asset division. Income earned by either spouse after that date is separate property and ineligible for asset division, including salary, bonuses, and other employment compensation. Anything purchased with these funds is considered separate as well. However, the separation date does not affect interest or investment gains on marital assets or property bought with marital assets.
Dividing Complex Assets
Monetary and tangible property are not the only assets divided in divorces. Other asset classes may pose unique complications during a divorce and require experienced and knowledgeable legal counsel to resolve.
Equity compensation is defined as “non-cash pay” provided to employees. Instead of providing an employee with a higher salary or bonus, some companies opt to offer equity in the company instead. Examples of equity compensation include:
- Restricted stock units (RSUs): Shares granted to employees that do not accrue monetary value until they vest.
- Incentive Stock Options (ISO): Stock options that allow employees to purchase stock at a discount and with a tax break.
- Non-Qualified Stock Options (NSOs): Stock options that allow employees to buy stock in their company at a set price, usually at a discount.
- Employee Stock Purchase Plans (ESPPs): Plans that permit employees to purchase stocks through payroll deductions at a discount.
These forms of compensation are valuable, but if the spouse earning these benefits leaves their job, they may have no monetary value. Some couples negotiate to award the non-employee spouse a greater share of other assets and grant the employee spouse the right to equity compensation.
If either partner acquires or creates a company in whole or part while married, ownership of that business must be divided during a divorce. Couples must consider details such as the company’s current actual value, projected profits, and how a change in ownership may affect these details when determining how to divide it.
There are many ways to address a business in a divorce. A couple may choose to sell the company and divide the sales profits. They may split ownership and continue to own and manage the business. One party may grant their spouse the right to half the profits but retain control over business decisions. Other couples use other marital assets to buy out one spouse’s ownership interest in the business. An experienced divorce attorney can help determine the best solution for each couple based on their specific circumstances.
Inheritances are unique under California law. In most cases, inheritances are considered separate property, even if they are received while a person is married. As long as an inheritance is kept separate from marital assets, it is not usually eligible for division in a divorce.
The exception is if the inheritance is commingled with marital assets. If you deposit a cash inheritance into a joint bank account, it may no longer be considered your separate property. In that case, the entire amount added to the joint account may be considered part of your marital assets and eligible for division.
Pursue Just Property Division With Flicker, Kerin, Kruger & Bissada LLP
Asset division is necessary to finalize your divorce, but it can be complicated. It is in your best interest to work with a knowledgeable divorce lawyer to ensure your property rights are protected throughout your divorce. At Flicker, Kerin, Kruger & Bissada LLP, our experienced attorneys can assist you with dividing assets of all types. We can help determine which assets are community property and the value of such. We will advocate on your behalf to help you retain what matters to you. You can learn more about how we are prepared to support you during your divorce by scheduling your consultation today.