This is the first post in a four-part series about preparing for the financial strain of the California divorce process.
Going through a divorce can take an emotional toll on anyone. Although this may seem obvious, just as no two relationships are the same, no two divorces are either. Each divorce has its own set of emotional, familial, and financial complexities that need to be addressed. While a good lawyer can help you navigate this process, when it comes to untangling your finances from your spouse’s, there are often many simple steps a person can take early in the separation and divorce process that can result in long-term savings – not just in the form of cost- and time-savings, but also in the form of reduced stress and improved mental well-being.
California is a community property state. Generally, this means all earnings and property acquired during marriage by either spouse will be divided equally between the spouses upon separation. Conversely, a spouse’s earnings before marriage and after the date of separation, and any property that spouse acquires with those earnings, are that spouse’s respective separate property.
Determining the “date of separation” is an important concept that is beyond the scope of this post. For more information about date of separation, please see Determining Your Date of Separation) or contact our office to set up an initial consultation with one of our California family law attorneys. As with everything in law, there are a myriad of exceptions to this rule; but for purposes here, it is fine to think of the equal division of community property as the general rule. The assumption that everything will be split 50/50 often causes someone contemplating divorce to overlook the importance of taking stock of his or her own financial situation. It is also quite common for someone going through a separation to pay little mind to how their marital estate will actually be divided, particularly if that someone was not responsible for managing the day-to-day finances of the marriage.
Managing the finances of the marriage does not simply mean ensuring the bills get paid on time. It can mean knowing account numbers, login information for bank websites, keeping financial records, or preparing taxes. Managing finances can range from making strategic marital investments to allocating the use of frequent flyer miles. For someone going through a separation with little to no experience managing such things, being thrust into this role can be quite daunting. Even though assessing and taking control of your financial situation may very well be the last thing you want to do, devote some time to it. Why? Because (a) you will have to do it eventually; (b) it will likely save you attorney’s fees; and (c) it can prevent future headaches down the road as you navigate the divorce process.
Untangling Your Marital Estate During Divorce: You will have to do it eventually
Shortly after a divorce proceeding commences, California Family Code Section 2104 requires each spouse to exchange a preliminary declaration of disclosure. Among other things, Section 2104 requires each spouse to provide a list of all assets and debts in which the community or either spouse has or may have an interest. For each asset and debt listed, supporting documentation and information must also be provided. This includes, but is not limited to, account balances, dates of acquisition or incurrence (for debts/liabilities), account statements, title documents, property deeds, and so on.
Compiling a list of the above assets, debts, and documentation is often one of the first things a family law attorney will ask of a new client going through a divorce. Not only are these disclosures statutorily mandated, courts will not enter a judgment of dissolution unless these disclosures have been exchanged, subject to a few exceptions. So, since you are going to have to gather all of this information eventually, why not start sooner rather than later?
Start by creating a list of all your personal and joint accounts, assets, and debts. Include all bank accounts, retirement accounts, brokerage accounts, loans, credit cards, real property, valuable personal property (jewelry, furniture, art, etc.), vehicles, etc.
When applicable, next to each line item you should identify the nature of the asset/debt (joint vs. personal), account balances, estimated values, and dates acquired/opened. If you can gather supporting banks statements and title documents, all the better. If you do not know how to access certain account information (e.g., via logging in through a bank’s web portal), note that as well.
Often it can be helpful to review your credit report and tax returns if you are uncertain as to the existence of certain assets and/or debts. Since you will need to provide copies of your most recent tax returns as part of the disclosure process, you should look them over once you believe separation is imminent.
For further discussion on the disclosure process, please contact our California family law attorneys at Johnston, Kinney & Zulaica LLP, and stay tuned for the second part of our series on Financial Preparedness Before Navigating Divorce.
By: Matt Jennings
Attorney at Johnston, Kinney & Zulaica LLP