Asset Division and Prenuptial Agreements
Asset analysis and division is probably the most complex and costly aspect of the divorce process. The process can be so difficult and the costs of small mistakes are so high that the court of California’s own website recommends consulting with a lawyer before even filing paperwork.
To break it down into digestible chunks, we can explain what comprises assets, how they are distributed during a typical divorce proceeding, and a type of property agreement that can alter the distribution called a prenuptial agreement.
Assets – Property And Debts
Everything a couple owns can be put into one of two categories – assets and debts. Assets make up anything that can be bought or sold and anything that has tangible value. Houses, cars, furniture, jewelry, bank accounts, 401(k) plans, stocks, businesses, patents, and even cryptocurrencies can all be considered legal property.
Debts are typically legally binding agreements that represent financial liabilities or obligations that one party owes another. Mortgages, car loans, credit card debt, and many other types of bank loans are all examples of debts that a couple as a legal community can own.
California is a community property state, which means that a marriage between two people creates a singular legal community. This means that all assets/property the couple purchases, creates or acquires during their marriage is considered community property that is subject to division if the couple decides to end their legal relationship. Similarly, all debts created during the marriage are considered community debts and are given the same consideration.
California is a communal property state, which means that any assets and income gained during the partnership are considered jointly owned by both parties. Legally, this means that all community assets and debts are split 50-50 upon dissolution of the marriage.
This 50-50 split is not as cut and dry as just dividing everything in half, however – it’s not exactly possible to split a home in half and have each part owned by one party. This is where the ‘fair and equitable consideration comes into play, where the court uses its own discretion to determine what constitutes a fair division of assets during a split.
These considerations can be complex and can lead to a division that one party or the other does not agree is either fair or equitable. This is a primary driver in the breakdown in relations in an otherwise amicable divorce, which can lead to further legal battles and a family colored by deeply embittered feelings.
In order to avoid this, couples can utilize the services of a divorce mediator to help them reach a collaborative resolution to the fair distribution of assets. Mediators act as a neutral third party and guide the couple during the negotiation process, ensuring that each party is both fairly represented and has an expert resource to turn to during deliberations.
If a couple wants to avoid some of the complications involved in the process of asset division in the event of a divorce, they can agree to a property agreement called a prenuptial agreement, or prenup for short. Prenuptial agreements typically list out the property each party owns and what rules will be adhered to regarding their property rights in the event their marriage ends.
Prenuptial agreements need to be drawn up and agreed to by both parties before the marriage license is signed and filed with the county recorder’s office. Typically, you want the agreement to be finalized and signed well before the marriage date, or it can be invalidated by the courts due to the added level of pressure during the final months of the engagement. California requires that the prenuptial agreement be fully executed by both parties no less than seven days prior to the date of marriage.
For states that have community property laws like California, prenuptial agreements essentially allow couples to create their own rulebook for asset division rather than using the ‘default rules’ defined by state law. Essentially, prenuptial agreements let couples determine for themselves how they want their property to be distributed in advance, rather than letting the courts decide for them.
As with any part of the divorce process, drawing up a prenuptial agreement can be complicated and have disastrous consequences if mistakes are made. It’s highly recommended that you work with an attorney-mediator that specializes in the ins and outs of family law to draft your agreements and make sure that it is unlikely the courts will decide to invalidate all or a portion of the agreement if the marriage does come to an end.