Part of the mediation process includes a division of all your property/assets and debts/liabilities. If the property was acquired during the marriage, it is community property unless it is separate property as defined by statute. Separate property is generally that which one party had prior to the marriage, property which was inherited by a party, or gifted to a party or property designated separate by a written agreement between the spouses.
Likewise, community debts are those which were incurred during the marriage and separate debts are those incurred prior to the marriage, unless they fall under the definition of separate debt, which will be defined below.
Community Property. Community property will be divided equally during the divorce process. This means all retirement accounts, your bank accounts, your cars, your house, your household furnishings, etc. However, not everything can literally be divided in half, so most, if not all the property will be equalized. This means that all your property will be valued using current values and then divided by two. If party A has a car with a value of $20,000 and a loan amount of $10,000 (equity of $10,000) and party B has a car with a value of $30,000 and no loan (equity of $30,000), party B will owe party A $10,000. Party A has $10,000 and party B has $30,000. The community estate value is $40,000 divided by 2 leaves each party $20,000. Party A $10,000 less than that and party B has $10,000 more than that, hence the transfer from B to A.
What if the deed of the house, states one party waived his interest in the house? Just because one party signed a Sole and Separate Agreement does not mean that the purchasing party will be awarded the home. A deed stating such is a rebuttable presumption, but it is easily rebuttable. A home purchased during the marriage will almost always be treated as community property and divided equally. A person cannot give away their interest in community property simply by signing a piece of paper. There must be clear and convincing evidence that the party intended to have no interest in the house.
It will work the same way with bank, investment and retirement accounts. If party A has $100,000 in investment accounts and party B has $200,000 in investment accounts, then the community has $300,000. Each party is entitled to one-half, or $150,000 so party B owes party A $50,000. If a party has a pension, you can obtain a valuation of the pension by hiring an accountant specializing in such valuations, otherwise the community portion of the pension will be divided equally and any separate portion awarded to the party who earned it.
The process works the same way with respect to your home. In mediation, you can agree to sell the home, you can agree to both retain the home as tenants in common or you can agree that one party will retain the home. If the home is valued at $300,000 with a loan of $100,000, the equity is $200,000. Each party should have $100,000, or one-half of the equity. If party A wants to keep the home, she owes party B $100,000, which is half the equity. Parties often want to reduce a home’s value if repairs need to be made or reduce equity by deducting the cost of sale. Appraisals will usually value a house taking into account major repairs. A court will generally not include the cost of sale in reducing the value of a home awarded to one party or the other. If the party retaining the home must refinance, to pay equity to the other party, that can be subtracted. Remember that a house MUST be refinanced in order to remove the second party’s name from the mortgage. Signing a quit claim deed will not be enough.
Complications arise when there are separate interests in any of these community assets. If party A had her retirement account prior to the marriage, but continued to contribute to it during marriage, the portion earned prior to the marriage is separate property and will not be divided, but the portion earned during the marriage will be divided equally. Generally, the separate portion is also entitled to gains it earned during the marriage. Such can be difficult to determine, but that doesn’t mean it should be ignored.
If party A used separate retirement money to make the down payment on the house purchased during the marriage, the house itself is community property because it was acquired during the marriage, however, party A has a separate lien in the amount of the down payment plus gains on that amount. Party A should be awarded that amount and the remaining equity should be divided equally between the parties.
Community debt. Debt is treated similarly to property. Debt incurred prior to the marriage is separate and therefore borne solely by the person incurring that debt. Debt incurred during the marriage is community and shared equally. The applies even if a credit card was never in one party’s name or if only one party ever used the card.
There are exceptions. Gambling debt incurred during the marriage is separate if you can prove it. ATM withdrawals at casinos are hard to prove as separate debt, but loans taken to pay off gambling debt will always be treated as separate debt. Also, unreasonable debt incurred during the marriage is separate, although that can be really difficult to prove. It must be incurred while the parties were separated and it must not have benefitted the non-incurring party in any way. Student loans are generally the separate debt of the party incurring the student loan IF the funds were used to pay tuition or books or was incurred prior to the marriage. However, if party A took the student loan in order to support the family while attending school, that is generally treated as community debt.
Dividing assets and liabilities during the divorce process can be difficult and overwhelming if handled alone. And divorce attorneys are expensive. Using a family law mediator is the best way to ensure your debts and assets are divided properly and fairly. Michelle Cortez practiced family law for 27 years before becoming a full-time mediator. She brings substantial experience as well as an extensive knowledge of the law.