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Division of Investment Accounts in California Divorces

Several difficult issues must be addressed regarding investment accounts when couples are divorcing.

What assets are investment assets?

Generally, any assets that have the potential to increase or decrease in value during the marriage are considered investment assets.

Sample assets that qualify as investment assets include:

  • Real estate other than the family home
  • Rental property
  • Intellectual property
  • Artwork
  • Stocks
  • Bonds
  • Pensions
  • Retirement accounts
  • Trust accounts
  • Various business investments

401(k)s, and IRAs can also be considered investments

Are the assets marital property?

Assets acquired prior to the marriage date, after the separation of the parties, or acquired by inheritance or gift are considered separate and not subject to division. Since the primary goal of investments is to produce monetary reward, it is often the case that the asset:

  • Increases in value during the marriage
  • Produces dividends during the marriage
  • Creates earnings during the marriage

Under California community property law, the interest, dividends, and earnings on the separate property remain separate.  Issues arise when the investment is paid for in part by community property earnings or if one or both of the spouses increase the asset’s value through their labor. Examples of this include wage deferrals into investment accounts, remodeling of separate property rental property, and/or using community property earnings or credit to cover mortgage payments for a rental property.

Any investment assets acquired during the marriage are also marital property and must be divided with the other party to the divorce.

What is the value of the investment asset?

The value of investment assets can be difficult to determine. The assets can be reasonably figured with the help of accountants and financial experts. These experts will look at a variety of issues such as the value of comparable items, tax returns, financial forecasts, and other items. Still, different appraisers can examine the same income asset and disagree on the value.

The amount of debts that were incurred to finance the investment must also be factored into the financial analysis.

How to divide investment assets

Under California law, community property assets must be divided equally. This can be accomplished by selling the investment asset and dividing the proceeds between the spouses or domestic partners. Sometimes, though, selling the asset is not practical or even possible:

  • There may be other parties who have an interest in the asset such as business partners
  • Some assets must be paid only to the beneficiary such as pension plans and retirement benefits
  • The investment may produce enough income to provide cash for both spouses at rates that are higher than can be made by putting the money into a bank account.
  • There may be significant tax advantages to holding onto the asset

Often, there are alternative arrangements to selling the investment asset, especially if a practical or legal problem makes the sale unwise. The spouse who owns the investment asset may wish to buy out the other spouse by paying the other spouse the present cash value of the asset. Both spouses can jointly hold the investment and jointly pay the corresponding expenses until there is a better time to sell.

Make the call to the Jarratt Martin Law, LLP to review dividing marital property including investment assets.

Our experienced counsel can help you to identify the investments and value the investments. Once we know the value of the assets, we can help you divide them in a manner that best fits the needs of your family. IFor help now, please phone 925-480-7850 to discuss your divorce and all related issues including property division.

 

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