In divorce, legal separation, and domestic partnership dissolution actions, parties are required to disclose the existence of all assets, regardless of whether each is characterized as community property (i.e. jointly owned), separate property, or a hybrid of both community and separate property. Each party owes the other a fiduciary duty of good faith and fair dealing. That duty makes it imperative that “all material facts” relating to each and every known asset is formally disclosed using mandatory Judicial Council forms.
The primary purpose for the disclosure requirement is to enable each party to ascertain the size and extent of the community estate. After all, it is almost impossible to equally divide an estate when some of the details of that estate are unknown. When assets are concealed, either accidentally or purposefully, one party will inevitably end up with more than their one-half share of the community estate, at least in the short run. The reality is that the Court retains jurisdiction over “omitted assets,” and has the ability to value and divide those assets at any time in the future upon request from either party, but that’s a topic for another day.
In my experience, there are a handful of assets which parties and their lawyers too often overlook in the disclosure process. The following is the list of the five most commonly forgotten assets:
- First Post-Separation Paycheck. During the parties’ marriage or domestic partnership, the earnings of each party are generally considered community property. After separation, the earnings of each party are his or her separate property. However, because most people are paid for their work after the fact, there is usually one paycheck which is received after separation but earned, at least in part, prior to separation. The portion of any post-separation paycheck which was earned prior to separation is a community property asset and should be divided evenly.
- Paid Time Off (PTO). Generally, unused paid time off (e.g. vacation leave, personal leave, etc.) which has been accumulated prior to the parties’ separation and exists on the date of separation is a community property asset. It is important to document the amount of unused paid time off a party has as of the date of separation. Generally, the value of paid time off is ascertained by multiplying the employee-spouse’s payrate at the time of settlement or trial (not at separation) by the amount of unused time. That amount is awarded to the employee-spouse and an equalization payment is due to the other spouse.
- Credit Card Rewards. Nowadays it seems like most credit card companies offer some type of reward system to their account holders, whether it be cash back, points, miles, or some other benefit. It is important to document, disclose, value, and divide these rewards in the legal separation or dissolution process. While sometimes the value of these rewards is nominal, in some instances they can be worth thousands of dollars.
- Mortgage Impound Accounts. Mortgage impound accounts are the holding place for borrowers’ property tax payments and insurance premiums. Depending on the situation, such an account can have several thousands of dollars in it when parties separate. The account balance at the date of separation is generally a community property asset. If one party is going to keep the home associated with the mortgage, and thus the associated impound account, it is important to ensure that the other party receives his/her share of the community property on deposit as of the date of separation.
- Certain Retirement Accounts. In my experience, the two retirement accounts which are most commonly overlooked are those afforded to military members and those afforded to California educators.
Military members can qualify for a longevity retirement benefit provided they serve for a minimum of twenty years. No prorated benefit is provided to a servicemember who serves for less than twenty years. It is an all or nothing proposition. Often, members of the armed forces and their spouses fail to disclose the potential military retirement in their family law actions, but that is a mistake. Although the servicemember may still have fifteen or more years to go before reaching the required minimum number of years of service, it is important to address the community’s interest in any future benefits based upon the number of years of service during the marriage before separation.
California educators generally are entitled to California State Teachers’ Retirement System (CalSTRS) benefits. Many, however, overlook or forget that most, if not all, CalSTRS members have a secondary CalSTRS retirement account called Defined Benefit Supplement. These accounts can be worth tens of thousands of dollars, if not more. If either party is an educator and has a CalSTRS pension, be sure to look for, disclose, value, and divide the Defined Benefit Supplement too.
Experienced and detail-oriented family law attorneys will help find all community property assets and ensure that their clients receive all to which they are entitled. That skill alone can more than pay for the cost of the attorney’s services. While on the surface, self-represented parties and those who hire low quality or budget attorneys may appear to save money, failing to identify and divide all community assets can cost them way more in the long run.
