In California divorce proceedings, especially in high net worth, increased assets, or executive divorce cases, property division can become one of the most hotly debated and complicated issues.
Many married couples have complex assets, such as financial investments, retirement accounts, state or government pensions, and stocks and bonds.
Frequently, once argumentative divorcing spouses discover how a California family court judge will typically divide their financial investments in the divorce process, they quickly have a change of heart and decide to work together on a marital settlement agreement civilly.
Why? California is a community property state, which means all marital property is divided fairly or equitably. Simply put, you are forcing the court to decide without a mutual agreement on how to divide financial investments.
The family law courts will only deal with marital property during a divorce. Separate property will stay with their respective spouse owners. Marital property is anything acquired during marriage other than gifts and inheritance.
It can include separate property the couple commingled after the marriage, like a joint bank account, savings account, or investment account. Courts will divide all marital property, including financial investments, based on what is fair for the spouses. Financial investments are considered separate property if it:
- Was listed in a prenuptial or postnuptial agreement,
- Was owned by one spouse before the marriage
- Were gifted or inherited by a spouse before or during the marriage
- Were purchased with proceeds of one spouse's separate property.
Financial investments could be excluded from division in a divorce if another arrangement was made in a prenuptial or postnuptial agreement or if the investments are a spouse's separate property. Our California divorce and family law lawyers will examine this further below.
What Are the Common Types of Assets in a Divorce?
In some divorces, dividing financial investments can be challenging. Step one is to determine whether the investment is community or separate property.
Some of the most common assets that may be divided in divorce include:
- Stocks and bonds,
- Employee stock options,
- Vested and unvested stock rights,
- 401(k),
- Roth IRA,
- Retirement account,
- Pension plan,
- Mutual funds.
Stocks can be considered community and separate property, depending on the date it vests. Social Security benefits are not subjected to division in a divorce. Judges typically divide financial investments like other property types in a divorce case.
They will examine each spouse's financial contributions to the marriage and their current financial situation to divide the investments fairly. If one spouse acquired the financial investment before marriage, then only a portion of it would be subjected to division.
A common issue when dividing financial investments is the appreciation of their value. For example, if an asset is appreciated during the marriage, both spouses will split the profit, but exceptions exist.
What About Dividing Stock Options During Divorce?
California family courts divide vested and unvested stock rights similarly, but they could be both community and separate property simultaneously. Here are some common questions:
- What if one spouse was granted a stock right that didn't vest until later?
- What if the stock option is vested in small increments over several years?
- What if the couple decided to separate before all the granted stock rights were vested?
In that case, the stock options would be assigned to the community and the spouse's separate estate that earned the stock right.
The primary methods of dividing stock rights to the community and separate estates are the Nelson and Hug formulas, but there are other formulas.
Investments made after the date of separation are usually separate property if it was used to fund the investment. The date of separation is based on several factors, including when one spouse decides to end their marriage and if their conduct generally reflects that decision.
Should You Just Let the Family Court Decide?
No. You risk an unexpected outcome when you force a judge to divide your financial investments in a divorce. Judges are seeking a fair split of the assets.
It's almost always better to work out an agreement with your spouse on how to divide financial investments and then have the court approve the settlement.
Specific investments will sustain tax implications if split. Retirement accounts and pensions typically require the pension administrator to draft a Qualified Domestic Relations Order (QDRO) before distributing funds between spouses.
Spouses can decide to divide their marital estate equally, with one spouse taking assets and other real property and items of equal value. Family court judges are strangers and don't know the value you may place on specific investments or property. Please don't force them to decide, as you lose all control over the outcome.
Can You Reach a Settlement with Your Spouse?
Yes. It would help if you worked with a lawyer on a complicated property division issue in divorce. In most cases, it's possible to avoid the court deciding on dividing financial investments.
This means negotiating a marital settlement agreement with your spouse and the judge just signing off the paperwork. You need to find a way to agree with your spouse on dividing property, assets, and debts, which will help you avoid an expensive trial that may not turn out in your favor.
Your lawyer can also coordinate communication and compromises with your spouse during mediation or arbitration. If a settlement is impossible, you must prepare for the trial process.
Dividing investments can get complicated quickly. Thus, it's highly recommended that you seek legal advice from an experienced California family law lawyer.
Regardless of what route you have decided to take, having any agreement reviewed by a legal professional for errors is in your best interest.
All marital assets, including financial investments, must be identified and valued before a divorce settlement or trial. All complex and high-end asset divorce cases require a seasoned lawyer who knows how to protect your legal rights and interest.
Furman & Zavatsky are Los Angeles divorce and family law attorneys that provide legal representation across California. We offer a free case consultation via phone or the contact form.
