Any divorce involves the division of property and debts. Many divorces without attorneys fail to accomplish this thoroughly, resulting in ambiguity and problems following the divorce. The division of assets and debts is often easy but sometimes this necessary task is very complex.
Washington Has Separate and Community Property
The division process starts with identifying whether the asset or debt is “separate,” “community” or a mixture of separate and community. This is called determining the “character” of property. Often people think because Washington is a “community property state” that all property must be community. The property in a marriage could be all separate, partially separate and partially community, or all community. The misconception that everything must be community probably stems from the presumption that property acquired during the marriage is community – however, that presumption can be overcome (rebutted) or changed by agreement. Courts are required to determine the extent of community and separate property, another step that is often overlooked if attorneys are not involved and sloppily done even when attorneys are involved. Partially why attorneys do not always spend a lot of time on the issue is that both separate and community property can be divided by the court to achieve a fair and equitable division of debt.
What Is Separate Property if this is a Community Property State?
Separate property is property you owned prior to marriage, property you inherited during the marriage, property that was gifted to you, or property you and your spouse agree is separate property. Property you acquire after the date of separation, and some other rare circumstances like personal injury awards for pain and suffering, but not for lost wages, create separate property. A birthday gift to your spouse is his/her separate property. A wedding gift to both of you is community property; a wedding gift to one of you is the separate property of that spouse. It is possible that your marriage estate has no community property and just separate property, though many marriages have only community property, and many others have a mixture of community and separate property. The same principles apply to debts.
Does It Matter What is Community and Separate Property?
Sometimes it matters, and sometimes it does not. The character of property is just one of many factors the court is to consider. Often, if a fair and equitable division of assets and debts can be achieved without dipping into separate property, by focusing just on community property, then the owner of the separate property will probably get that property back. If a trial court goofs up in determining what is separate and community, the Court of Appeals will probably not overturn the property/debt division if the overall result is fair and equitable. Separate property seems to be awarded back to its owner most often when the marriage is short or the receipt of the property is recent, such as a recent inheritance. If the property is separate, but the couple have used it together for 35 years, it is probably less likely to be treated differently than community property. It is hard to generalize, but it is often worth the effort to identify what is community and separate property.
If the House is in My Husband’s Name, Isn’t it His Separate Property?
Title, or whose name property is in, is a starting point, but in the final analysis title often matters very little. If a house is purchased during marriage, and is paid for with community money, even if it is only in the name of one spouse, it is often actually community property.
How Does the Court Decide Who Gets What?
Often a client wants to know if she will get the house, or will the husband keep his car and the grandfather clock his Aunt left him in her will. It is hard to predict what a court will do about specific assets because a court does not decide the division of property and debts in a vacuum. Before deciding who gets what property, the court considers the entire financial package including a) each party’s incomes, b) each party’s financial futures, c) what other property is being received by each party, d) what maintenance and child support is involved, and many other factors. The Washington legislature has told Courts to consider the following in RCW 26.09.080:
In a proceeding for dissolution of the marriage, legal separation, declaration of invalidity, or in a proceeding for disposition of property following dissolution of the marriage by a court which lacked personal jurisdiction over the absent spouse or lacked jurisdiction to dispose of the property, the court shall, without regard to marital misconduct, make such disposition of the property and the liabilities of the parties, either community or separate, as shall appear just and equitable after considering all relevant factors including, but not limited to:
(1) The nature and extent of the community property;
(2) The nature and extent of the separate property;
(3) The duration of the marriage; and
(4) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to a spouse with whom the children reside the majority of the time.
What is Property and What Gets Divided?
All property and debts get divided. If something is missed, the court can divide it later but the court will divide everything brought to its attention. Commonly overlooked property includes:
- Airline miles
- Earned vacation and holiday pay
- Book rights
- Seat licenses to sporting events
- Goodwill or the expectation of repeat customers in a business
- Value of a celebrity’s name
- Value of a professional degree
What Complications Should I Be Worried About?
The tax impact of assets is not equal. Some assets bring bigger tax hits than other assets. It can be important to determine the tax basis in property, estimate when it will be liquidated, and carefully consider the overall tax implication of receiving an asset.
Not all assets produce the same return. At one time, you could count on at least 12% appreciation on real estate in King County – not any longer.
Some assets are easy to value and some are difficult. It can be critical that the right expert be retained to produce convincing opinions about values. You want the right experts on your side and that means starting with the right attorney.
Some spouses are dishonest. Some spouses do not put all required information into tax returns. Some spouses get scared and think they can outsmart or outrun the arm of the law. In such situations, it can be important to talk to a lawyer before necessarily letting your spouse know you are thinking about divorce. In such circumstances, you should consider court orders that secure critical information without notice to your spouse.
Bad Decisions About Investments
Wrong doing is often not relevant but bad investment decisions and other fiscal improvidences, in the right circumstances, may be considered by a court.
Separate and Community Assets
Many times clients assume that just because both names are on an account, or because Washington is a community property state, that everything is community. Often careful and detailed tracing will reveal winning evidence that clearly establishes an asset as separate property.
Sloppy Estate Planning
Sometimes people sign community property agreements that have unfortunate consequences at the time of divorce. Sometimes a spouse assumes an asset is separate property because it was purchased prior to marriage or was a gift from their family but an agreement with their spouse can nullify those facts and make the asset community property. It may still be important in such cases to establish the source of the property because the court can still consider whether the property was once separate property and you can argue that the court should give you more community property to make up for the mistakenly converted separate property.
A business is not just its equipment and accounts receivables. Often businesses and professionals such as doctors, lawyers, or dentists have valuable goodwill or the expectation of repeat business. Consultation with experts who calculate goodwill is critical to obtaining the proper information so the full value of the business, including goodwill, is fully measured.
Long Term Marriages
There is fairly new and strong authority that spouses who have been married for 25 years or more, should be placed in a position to have approximately the same financial future. Glenn recommends the use of Certified Divorce Financial Analysts in such situations to fully illustrate and consider the ramifications of the overall financial package.
Prenuptial agreements must be fair to be enforced. Establishing whether an agreement is fair or not fair often requires considering many of the complicating factors mentioned in this section in order to build thorough and persuasive arguments.
Countless misperceptions and peculiar assumptions surround property issues. Very often what you assume is true, is not anywhere near the truth. It requires familiarity with the nuances of the law and a tenacious character to search out obscure facts and to make sure important property is not missed. It takes experience and careful organization to: a) efficiently find all property b) properly determine its character c) accurately value the asset d) thoroughly consider the tax consequences and e) to properly weigh the impact of the asset in the overall financial package. Glenn has that kind of experience.
Some pensions are not what they appear. The division of some pensions require valuation of the pension into current dollars and then special language and court orders to divide the pension.
There are many wrinkles to stock options. Stock options require careful fact gathering, application of complex case law to the facts, and sometimes the hiring of the correct expert to determine values.
Art, Collections, Antiques, Tools, Etc.
Some personal property has surprising high values that should not be missed.
How Can Glenn Help Me?
Glenn has over 20 years experience sorting through all the permutations of complex property divisions. He has many times tenaciously and thoroughly traced down obscure assets, and forcefully presented evidence clearly about such complex issues in negotiations and court. Glenn knows what to look for, how to find it, how to value it, and how to make sure you get your fair share of everything.