Understanding Divorce Settlements: A Lawyer’s Explanation

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If you have decided to divorce your spouse, you likely have heard painful stories of intense emotional strain, psychological stress on children, acrimonious court proceedings, and—mainly if you have accumulated some wealth—financial mistakes. Fortunately, you can minimize the pain of your divorce with a timely, carefully negotiated divorce settlement. 

In California, divorces most commonly are resolved with a negotiated settlement. A divorce settlement offers both spouses significant advantages:

  • Speed — With good faith from both parties and their lawyers, a settlement can be reached quickly (though the divorce itself cannot be finalized sooner than six months and one day after the petition is served). 
  • Financial savings — The more complicated and drawn-out the divorce, the more work it takes for the lawyers and the more significant the cost to you and your spouse.
  • Limited engagement with your spouse — Reduced communication between spouses generally results in less anger and emotional pain. 
  • Less stress on the children — Seeing their parents working together and completing a settlement can help protect children from the strain of a prolonged divorce.

Your first step should be hiring a lawyer to help prepare you for the challenges that lie ahead. If you are divorcing in the Monterey, California, area, the experienced divorce lawyers at Giuliano Law can help make the legal process as transparent as possible, guide you around many potential pitfalls, and make your divorce less painful than you may have imagined.

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Asset Division in Divorce

Types of assets

You and your spouse have accumulated assets, also called property and debt, in many cases significantly more than you may think. Your property includes anything you can buy or sell, or that has value, such as:

  • Real estate
  • Bank accounts
  • Retirement accounts
  • Stocks, bonds, crypto, and other similar investments
  • Motor vehicles
  • Artwork
  • Furniture

Debts include anything you owe currently or in the future, such as:

  • Mortgages
  • Car loans
  • Credit card debt
  • Student loans
  • Personal loans

How property is divided

Most divorce settlements will likely focus on dividing property and debt. In general, property division will be based on four factors:

  1. Community property versus separate property
    1. Community property refers to anything you and your spouse own together. Community property is owned equally and would include:
      1. Anything you and/or your spouse earned while married
      2. Anything you or your spouse bought with money earned while married
      3. Any debt you and/or your spouse incurred while married
    2. Separate property refers to anything you or your spouse owned or debt you incurred before you were married or after you were separated, as well as any gifts or inheritance.
    3. Note that some property is comingled; some are considered part community and separate.
  2. The value of all property
    1. Either the two parties will agree on the total value of all their assets, or the court will assign a value.
    2. Under California law, the value must be split equally, although the division of individual assets will not be identical. For example, if you own a year-round home and a vacation home, you may take one of the homes, with the spouse taking the more expensive house and the spouse taking the less expensive home sufficiently to equalize the value.
  3. Calculating accumulated debt
    1. Since a settlement agreement or divorce order is not binding on creditors, they will continue to collect on any jointly owned debt. The best practice is to resolve all community debts (mortgages, credit card debt, auto loans, etc.) before or when the divorce is finalized. 
    2. If only one party is responsible for a debt you both own, a lien can be placed to ensure repayment.
  4. Transmutation of property 
    1. Sometimes, property can change from community to separate or vice versa. Such change is known as transmutation. For example:
      1. Property is transferred from one party to another as a gift.
      2. Both parties reached an agreement on transmutation.
      3. Marital and separate properties change to commingling properties.
      4. A property is titled jointly in the names of each party.

Prenuptial agreements

 Prenuptial agreements can often help avoid arguments over property division during a divorce. Most people think of a prenup as a way for a wealthy person to protect their wealth from their spouse in case of divorce. However, many reasons exist for signing a prenup, including:

  • Clarifying what separate property each spouse brings to the marriage,
  • Protection from responsibility for a spouse’s debts,
  • Determining how assets are passed on,
  • Stipulating how property, assets, and income acquired during the marriage will be owned and
  • Providing a framework for exactly how you and your spouse’s finances will be handled. 

The terms of an existing prenup will help shape property division in a divorce.

An experienced divorce lawyer can help guide you through the complicated property division process. In Monterey, the lawyers at Giuliano Law can help ensure your property is divided somewhat and your rights are protected.

Financial Negotiations and Considerations

In negotiating your divorce settlement, three main financial areas will have to be addressed: alimony/spousal support, child support and custody, and tax implications of the settlement.

Alimony/spousal support

Spousal support, synonymous with alimony in California, is intended to help provide a spouse with a significantly lower income than the other spouse with funds to cover their living expenses until they can be self-supporting. You and your spouse may agree on the period and amount of spousal support in a prenuptial or settlement agreement. However, if the two of you cannot compromise on this issue, you must have it resolved by a court.

Temporary spousal support (called pendente lite in the California Family Code) is paid from the beginning of the proceedings until the divorce is final.

Long-term, or rehabilitative, spousal support is paid after the final divorce for the court-established period. Its purpose is to help lower-income spouses continue to live a reasonable standard of living until they can do so independently.

Spousal support is not mandatory. A judge may decline to provide it in very short-term marriages or when the parties’ incomes are relatively equal. Depending on the length of the marriage and other relevant circumstances, a judge may limit the duration of spousal support.

Child support 

Under California law, you and your spouse must support your children and share the financial responsibility for raising them. How much one of you pays the other for child support can be negotiated as a divorce settlement. If you cannot agree without going to court, the court will determine child support and custody. 

Child support is intended to help pay for your children’s living expenses. Most often, the parent providing the primary care receives money from the other parent.  The court order will specify each parent’s share of the financial responsibility, which can also require an employer to deduct the support directly from the paying parent’s paycheck. The duty to pay support typically ends when a child turns 18 and graduates high school. If a child remains in high school past 18 and cannot self-support, the paying parent’s responsibility terminates at graduation or when the child turns 19, whichever comes first. The responsibility also terminates when a child marries, enters a domestic partnership, joins the military, is emancipated, or dies. If a child turning 18 (19) is disabled and cannot self-support, child support may continue to be required. You and your spouse can also agree to continue receiving support.

Child custody

Until a court order is issued, you and your spouse have the same rights, including decisions about your children. If you both agree, you can formulate a parenting plan, which the court will likely accept if it is in the best interest of your child/children. A parenting plan would specify:

  • How your children will be cared for
  • Where will they live
  • When they will see each parent

Without a parenting plan, the court will determine legal and physical custody.

  • Legal custody refers to who makes important decisions about your children (education, health care, travel, sports activities, etc.)
  • Physical custody refers to the people with whom the children live most of the time.
  • Both legal and physical custody can be joint or sole
    • In joint legal custody, both parents share in the critical decisions for the children.
    • In sole legal custody, one parent makes those critical decisions.
    • The children spend substantial time living with each parent in joint physical custody.
    • In sole physical custody, the children mostly live with one parent.

A judge’s decisions on custody issues will be based on what is in the child’s best interest. The judge will consider:

  • Each parent’s ability to care for the child
  • The child’s age and health 
  • The child’s emotional connections with each parent
  • The child’s ties to home, school, and community
  • Any history of domestic violence 
  • Any consistent and continuing substance abuse by either parent

Tax implications

  • Property —
    • Most property transfers during the divorce process do not cause capital gains or losses for either spouse at the time of the divorce.
    • However, later, if the property is sold, the receiver may have to pay capital gains, as its value has increased since the time of acquisition. 
    • California has special tax rules for the sale of homes after divorce. Most often, the seller may exclude up to $250,000 in capital gains they have owned and lived in the house as a primary residence for at least two of the last five years. 
  • Spousal support — The IRS considers spousal support as income for the spouse who receives it and as a deduction for the spouse who pays it. 
  • Child support — The IRS considers child support neither taxable nor tax deductible.
  • Child exemptions —
    • A custodial parent (physical custody) can claim the child as a tax exemption.
    • A parent is considered “custodial” if the child lives with them for over half a year.
    • Parents may agree to alternate years claiming the exemption or the court may order such an arrangement in the divorce decree. 

The Role of a Lawyer in Divorce Settlements

For everyone proceeding with a divorce in California — especially if you have accumulated substantial wealth — the advice of an experienced divorce lawyer is critical. The many benefits of engaging a lawyer as soon as you decide to divorce include:

  • Individualized guidance through an emotional time and a complex legal process.
  • Objective, sensible advice that helps you make rational, informed decisions based on the law and your best interests. 
  • Negotiation to reach a fair divorce settlement that addresses all the issues critical to your children’s and yourself’s future.
  • Proper and timely handling of an enormous amount of legal paperwork and documentation.
  • Safeguarding your legal rights throughout the divorce process and for your future. An experienced California divorce lawyer can assess the value of marital assets (and sometimes uncover assets that may have been hidden), help determine child custody arrangements, and negotiate spousal support. 

Protect Your Rights

At Giuliano Law, we understand the legal and emotional implications of the divorce process. With so much at stake for yourself and your children, having our experienced guidance from when you decide to divorce and throughout the process will help you achieve a fair and reasonable divorce settlement with as little stress as possible. If you live in the Monterey area and have decided to divorce, contact us immediately through our website or at 831 372-4003.

Speak With An Experienced Divorce Attorney

Call 831.372.4003 or fill out the form below to speak with an attorney.