Apportionment of Assets- San Diego Divorce Lawyer

Apportionment of assets owned by husband and wife San Diego Divorce Lawyer

Apportionment – In a divorce case, the court will divide  equally the property owned as husband and wife.  This is a relatively simple task when considering an asset such as a bank account which was opened during the marriage.  It gets more complicated when considering an asset such as a residence which itself is not subject to being divided in half.  It gets even more complicated when an asset was acquired by one spouse before the marriage, but community property money was contributed to the asset.

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Examples of apportionment include the following:

-When one spouse owns a home before the marriage, but during the marriage, the parties live in the residence and the earnings of the husband and wife are used to make the mortgage payments;

-When one spouse owns a rental home as separate property, but after the marriage, community property funds are used to improve the separate property rental home;

-When one spouse has an IRA or other retirement account (such as a 401(k)) funded with separate property earnings prior to the marriage, but with continued funding from community property earnings during the marriage.

-When one spouse earns stock options and/or restricted stock units

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Apportionment of REAL ESTATE

In a divorce case, it does not matter if real estate owned prior to marriage becomes the marital residence or if it is a rental home or even if it is commercial real estate.  The issue is whether the property remains separate property, or whether community property money (or labor) is applied in any fashion to one spouse’s separate property.

If, for example, a separate property is refinanced during the marriage.  The method of refinancing will determine whether the community acquires an interest in the property.  If, on the one hand, the new funding is loaned based upon the separate property estate of one spouse, without the lender looking to the community for repayment, then the community will not acquire an interest in the property.  However, if the new loan becomes a community debt, then the community stands in a position both to gain an interest in the property and to be liable for repayment of the loan.  “Loan proceeds acquired during the marriage are preemptively community property; however, this presumption may be overcome by showing the lender intended to rely solely upon a spouse’s separate property and in fact do so.  Without satisfactory evidence of the lender’s intent, the general presumption prevails.”  (Marriage of Grinius)

If a party uses his or her own separate property funds to purchase a community property residence, that party is entitled to a dollar-for-dollar (no prorated share of the increase in equity over time) reimbursement for that down payment according to the Family Code.  If the husband and wife sell that property during the marriage, then use the proceeds to purchase a new residence, the new loan will (most likely) be a community liability, but a portion of the equity will remain the separate property of the spouse who contributed the separate property to the original residence.  Likewise, the proportion of that separate property share will be based on the percentage of the equity in the residence at the time the new financing is obtained.

Apportionment of STOCK OPTIONS AND RSUs

Stock options are frequently granted to employees as compensation.  They have value, but usually only to the employee him or herself.  They often require a certain period of time to elapse before they vest.  At that time, the employee has the right to purchase stock at a stated price, called a strike price, at any time up until the option expires.  If a spouse is granted stock options as deferred compensation by, for example, a cash-poor start up company in lieu of a paycheck in order recruit the spouse to work for the company, the court will likely determine that the options were earned, in part, from the date of employment.  The community may be awarded a portion of the value of these stock options in the divorce.

If, however, a company grants stock options not to attract prospective employees but to compensate or give a “bonus” for actual prior service to the company, the receiving spouse will be treated differently.  The relevant period of time will likely be the period following each grant instead of the period from the date of employment forward.

Restricted stock units are shares of stock which are granted to the employee, but unlike the shares which an employee obtains by exercising stock options, these shares are subject to forfeiture.  The community’s interest in these shares is limited to the period after the date upon which the shares became fully vested.

Apportionment of RETIREMENT PLANS San Diego Divorce Lawyer

Defined benefit plans, also known as pension plans, pay the retiree based on a formula which includes the number of years of service to the company, the employee’s highest compensation during that time, and the age of the employee at retirement.  The monthly payout in such a plan is more or less constant.  The value to the employee is not dependent upon the value of the assets in the plan.  The “time rule” is used to calculate how much of the proceeds of the plan are community property and how much are separate property; that is, the proportion of the years of service while the employee is married in relation to the total years the employee is employed by the company is the share to which the community is entitled, and which is divided equally in a divorce.

In a defined contribution plan, such as a 401(k), the value of the plan is exactly the value of the assets in the spouse’s account.  Contributions made to the account before marriage and after the date of separation create a separate property interest in some of the account, and unlike the interest created by a separate property down payment on a marital residence, the spouse is entitled to a portion of the growth on those contributions.  Contributions made during the marriage create a community property interest.  Unlike defined benefit plans, time is not a factor, but the dollar amounts contributed are.

In divorce cases, the name on a property or an account does not by itself determine who owns an asset.  The mere timing of the acquisition of an asset also does not settle ownership.  The funding history of assets in divorce cases determines who and in what proportion a husband or wife owns an asset.

 

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If you are considering a divorce in San Diego and needing help with understanding community property, you should seek the advice of a divorce attorney.  The San Diego Divorce Attorney at the Law Office of Michael C. MacNeil have many years of divorce law experience and will competently represent you.  Please call for a no-cost divorce attorney consultation at (858)922-7098. We look forward to helping you with any of your questions about divorce in San Diego.

This blog post is not intended as legal advice and should be considered general information only.

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