Understanding the Financial Impact of Divorce: Part I
Divorce affects everything. It is an emotional challenge, a psychological challenge, and a financial challenge. Somehow, all rolled into one. Many going through a divorce are simultaneously balancing concerns around maintaining important family relationships, getting through the day to day, and planning for a future that suddenly feels less certain and defined. This is largely due to the division of assets that is normally required in the course of a California divorce.
The process of ending a marriage usually has a profound impact on both spouses’ financial situations. In this first installment of our two-part post, we will begin to explore some of the key financial considerations that you should expect to come with divorce. We will also provide some insight on tips to help manage key financial items in the midst of a divorce.
Asset Division: Why You Should Care
The division of assets is one of the most important pieces of a divorce. It is important that you protect your interests, and ensure you will be on stable financial footing as you move forward into your future.
In California, the default division of property is along the lines of community property and separate property. Assets or monies that are collected during the course of the marriage and prior to the date of separation and subject to equal division.
This means that the paycheck of one spouse is split between both spouses. If one spouse earns 10,000 dollars a year and the other 500,000 a year – under the rules of community property distribution, both spouses would be entitled to half – a split of 255,000 each. If one spouse is awarded a bonus on July 1 and the separation is reported as beginning the next day, each spouse is entitled to half of the bonus.
Community Property and Separate Property
Classifying marital property vs separate property is incredibly important when you are processing a California divorce. Marital property subject to community property division will include most assets acquired during the course of the marriage. Separate property is, generally, assets owned prior to the start of the marriage. There are some very important caveats and exceptions to this that it is important to understand. Inheritances and gifts, for instance, can receive different treatment. It is wise to consult with an experienced attorney to fully understand your situation.
Not every state follows the community property rules. This is why it is important to speak with California attorneys concerning California marriage separations and divorces. While some states follow the rules of equitable property distribution, California does not. Individuals entering a marriage in California are wise to consider whether pursuing a pre-marital agreement is to their benefit. Even post-marital agreements exist which can work to separate and shield some specific assets. An experienced property division attorney can help advise you further.
Retirement Accounts: Yes, Your Retirement Will Likely Be Divided.
When thinking through big-ticket items to be divided in a divorce, many do not think about their retirement accounts. However, often these are among a couple’s largest assets to be divided. Pensions, 401(k)s, and IRAs are often split in divorces. Unfortunately, this can trigger unintended tax consequences as early withdrawals often come with steep penalties.
Contact Cardwell, Steigerwald Young
To learn more about additional financial impacts to be aware of in divorce, continue on to part two of this article – and contact the experienced team of San Francisco asset & debt division and divorce attorneys at Cardwell, Steigerwald Young.
Sources:
selfhelp.courts.ca.gov/divorce/date-separation
people.com/jennifer-lopez-ben-affleck-reportedly-no-prenup-whats-at-stake-divorce-8699296
