California is a community property state. Thus, when a couple divorces, the court must divide the community property equally. Divide by two, what could possibly be any easier? Why then is it that many cases drag on and require hundreds of thousands of dollars of effort to “divide by two”?
The answer seems to lie in the complexity of determining what something is really worth. Perhaps there is a bank account with $100,000, an investment account with $100,000, and a real estate equity of $100,000. Easy, each spouse gets $150,000 of assets. Now add the element of time.
The money in the bank is still just about $100,000, the investment account is now $150,000 and the equity in the real estate is now $200,000. Well, unless the assets were all valued and divided at the time of valuation, there can be a significant disparity if one spouse took the bank account and accepted $50,000 pay out for the real estate equity. In addition to being careful about the timing of division, one must also consider what, if any, tax consequences may arise.
Interspousal transfers are tax free, so are transfers “incident to divorce”. What tax issues? Consider the bank account, investment account and real estate. The bank funds are likely already taxed and use of them is free and without tax consequences. But the investment account and the real estate are assets that might have included a gain that has not yet been taxed. Can you then calculate what that tax would be and reduce the true value of the asset? Absent agreement, no you cannot because exactly if, when or how much the tax will be is speculative until you have a sale, a price, a tax rate etc. To “calculate” the taxes up front is nothing more than speculation.
For these reasons, the general rule of law is that all assets are valued as close as practical to the date of trial. That’s the general rule so, of course, there are exceptions. A party can ask the court for an alternate valuation date. An alternate date may be available when acts of the parties post separation (separate effort) impact the value of an asset, such as the deliberate trashing of a business or, on the other hand, employing more diligence and ingenuity in the business where it grows in value.
Other delays may be incurred due to these very-hard-to-value assets, such as copyrights and other intellectual property.
So the next time you wonder why a friend’s divorce is taking so much time, it may have little to do with their failure to cooperate and more to do with the complexity of the assets they hold.
For more information about support and other family law matters, contact the Reape-Rickett Law Firm at 661-288-1000. They are located at 25152 Springfield Court, Suite 100 in Valencia.