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What Does California Consider to be Community Property?
Community property is anything that could be considered marital assets, which usually applies to items or income earned or acquired during the marriage. That includes income earned during the marriage (including interest or investment income), real estate, businesses opened or purchased, vehicles, and anything purchased with community property.
Separate property is property legally defined as belonging only to one spouse. That includes any property owned by a spouse before the marriage or things acquired and used by only one spouse during the marriage, such as an inheritance. It’s crucial to note that separate property can become community property if it is used by or benefits both spouses. For example, if one spouse owns a home before the marriage, but both spouses move into it after the marriage and contribute to its maintenance, it’s now community property. Similarly, suppose one spouse receives an inheritance during the marriage but uses it to pay off a mortgage for the shared home or other joint ventures, such as traveling or placing the funds into a joint financial account. In that case, it’s then considered community property.
How Are Retirement Accounts Viewed by California Divorce Courts?
Community property is defined as including any income earned by either spouse during the marriage. Retirement accounts fall into that category, even if they’re only in one spouse’s name. The income each spouse earns that’s used to fund the retirement account is considered a marital asset, so using it to increase retirement savings is considered marital property.
However, if one spouse opened a retirement account before getting married, it’s possible they can claim that account as separate property. This highly complex situation would benefit from working with an experienced divorce and asset division attorney who understands California’s laws.
How Can Retirement Plans Be Divided in a Divorce?
This is a multifaceted question for which there’s no quick answer. The court will likely look at the current value of any retirement accounts and try to determine which portion, if any, could be viewed as separate property belonging to one spouse. If it’s marital property, the couple may negotiate an agreement where one spouse retains the retirement account and the other receives a similar amount in value of other community assets (real estate, bank accounts, etc.).
It should be noted that if one or both spouses are military officers, their military pensions may be protected under the Uniformed Services Former Spouses Protection Act (USFSPA).
As for exactly how a retirement plan might be divided, that has much to do with what type of retirement plan it is, its current and potential future value, and how much the couple contributed to the account during their marriage. It’s important to remember that California’s status as a community property state may mean that such accounts could be divided 50/50.
Is There Any Way to Specify Retirement Accounts to be Separate Regardless of California’s Community Property Laws?
It’s possible, especially if planned. One technique for keeping a retirement account separate is to specify that in a prenuptial or postnuptial agreement. A prenuptial agreement (commonly called a prenup) is an agreement developed between the spouses before the marriage as to how some assets and property will be handled if they divorce. A postnuptial agreement is a similar document, except it’s developed once the couple is married.
To ensure retirement accounts are protected in a prenup or postnup, the agreement must be drawn up in accordance with California laws to be legally enforceable. The California Uniform Prenuptial Agreement Act (CUPAA) specifies what can and can’t be included in a prenup. Notable exclusions are requiring one spouse to engage in illegal activities or specifying that one spouse will stay home with the children. Issues of child custody and support cannot be addressed in a prenup as well.
The couple must disclose every asset or debt each has. Failure to do so can cause the agreement to be legally invalidated later. California also requires a seven-day waiting period once the final document is drawn up before both parties can sign it, have it notarized, and make it legal. It must be in writing. If one spouse waives the right to future spousal support, they must use a separate attorney to represent them while developing the document.
What Other Considerations Should be Dealt With Regarding Divorce and Retirement Accounts?
It seems like a minor matter, but it can have significant repercussions if ignored. Even if you have a prenuptial agreement that specifies your retirement accounts or pensions are separate, you likely have them listed in an estate plan or have a beneficiary named directly on the account. Once you divorce, it’s vital that you update your estate plan and redo the paperwork for the accounts to reflect a new beneficiary. If you don’t make those changes, it’s possible that if something should unexpectedly happen to you, your ex could receive those funds.
What Should I Do if I Need Help with the Division of Assets in a Divorce?
Call the Bledsoe Firm, LLC, as soon as possible at 949-889-1227 to request a consultation. Divorce is understood to be one of life’s most stressful events. Worrying about losing even some of your retirement investments can increase that stress. I’m here to help you understand what’s possible and how to develop a strategy to lead to the best possible outcomes.
