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Navigating California’s Community Property Laws: Dividing Pensions, Investments and Federal Benefits

Divorce is a challenging and emotional process that often involves the division of assets acquired during the marriage. Our last blog post discussed the basics of California Community Property laws and how marital assets are divided, which you can read more about here. Marital assets can include pensions, retirement benefits, corporate investments like stocks, and federal benefit plans. In this blog post, we will explore how California's Community Property law affects the division of these assets in divorce, as well as the impact of preemptive federal law on federal benefits.

Division of Pensions and Retirement Benefits

A significant financial aspect of divorce is the division of pensions and retirement benefits. California is a Community Property state, which means that assets acquired by either spouse during the marriage are generally considered community property and subject to equal division upon divorce. This includes retirement accounts such as 401(k)s and pension plans.


For an account that was acquired before marriage, the value of the account before marriage would be considered the separate property of the account holder spouse. However, increases in an account’s value that occurred during the marriage is considered community property, meaning that, any increase in an accounts value that occurred during marriage is subject to a 50/50 split between spouses, but any value that an account already had before the marriage is not subject to a 50/50 split.

It is important to note that property that is subject to a 50/50 split does not mean that it is automatically split in such a way. There are several ways in which an account may be split. One of the ways an account may be split is through a process known as a Qualified Domestic Relations Order (QDRO). A QDRO is a legal order that outlines how the retirement benefits will be split between the divorcing spouses. It is crucial to consult with a qualified attorney who specializes in family law and understands the intricacies of QDROs to ensure a fair and equitable distribution.


Division of Corporate Investments

In California, corporate investments such as stocks acquired during the marriage are also considered community property subject to division in divorce. However, if investments were made using separate property, returns on those investments could also be separate property. Therefore, determining just how these investments should be divided can be a complex task, especially if these investments were made with a mix of community and separate property funds. The court may consider various factors when making decisions about stock division, including:

  • The date of acquisition of the stock.

  • The source of funds used to purchase the stock.

  • Any agreements or arrangements made between the spouses regarding the stock.

  • The overall financial situation and needs of each spouse.

To arrive at an equitable distribution of corporate investments, it is essential to work with financial experts such as forensic accountants and legal professionals who can help assess the value of these assets accurately and ensure a fair division.


Preemptive Federal Law and Federal Benefits

While California's Community Property law governs the division of most assets in divorce, it's important to note that certain federal benefits are subject to federal law and regulations. This is known as federal preemption and under this idea, federal laws supersede state laws when it comes to the division of federal benefits.

The issue of federal preemption arises when property division involves things such as federal savings bonds, military insurance policies, federal employee benefits, social security benefits, veteran’s disability benefits and ERISA pensions.


Generally, if such property is in the name of only one spouse, it is not subject to community property because of federal preemption. However, even if the issue of federal preemption arises, it does not automatically mean that federal law will completely replace state law. State law regarding the division of property is only overridden if its application would “do major damage to clear and substantial federal interests.” Hisquierdo v. Hisquierdo (1979) 439 US 572, 581.


The federal government has strict rules about dividing certain federal benefits. It's crucial to understand how these benefits will be affected by divorce and how to best protect your interests.


Protecting Your Assets

Divorce is a complex and emotionally charged process, especially when it involves the division of assets such as pensions, retirement benefits, corporate investments, and federal benefits. Understanding how California's Community Property law applies to these assets and the impact of preemptive federal law on federal benefits is essential to ensure a fair and equitable division.

Seeking the guidance of experienced attorneys who specialize in divorce and family law can help you navigate these complexities and protect your financial interests during this challenging time. At Harris & McKeown, our team of Certified Family Law Specialists have been assisting clients throughout Southern California for over 10 years.

If you are located in Orange County, Riverside County, San Bernardino County, or Los Angeles County and are currently navigating the division of property in a divorce, schedule a free consultation appointment here or by calling (949) 297-6529.


With the right support and knowledge, you can move forward with confidence and begin the next chapter of your life.


**DISCLAIMER**


THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.

EVERY CASE IS DIFFERENT AND THIS GUIDE SHOULD NOT BE CONSTRUED AS

LEGAL ADVICE. THIS ARTICLE DOES NOT CREATE AN ATTORNEY CLIENT

RELATIONSHIP BETWEEN THE READER AND ITS AUTHOR. IF YOU HAVE LEGAL QUESTIONS, CONSULT WITH A FAMILY LAW ATTORNEY.


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