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San Diego Divorce & Family Law Resources

Divorce Financial Checklist: What you Need to Know

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Going through a divorce can feel overwhelming and complicated. There are so many things to consider when it comes to divorce, especially when you think about finances and dividing property. You might be worried about what will happen to your money and how joint and separate bank accounts come into play during the divorce process. There are a few things you should do before and during the divorce process to protect yourself and your assets. Here is everything you need to know about bank accounts during divorce and what you should do about them.

Preparing finances before a divorce

If you think you are heading for divorce, it is important to prepare. Start investigating and find out what all is entirely owned by you or is split with your spouse. Some things to consider are your paycheck, your car, and your retirement account. Make a list of all your assets and debts, their value, and whether each item is solely yours, solely your spouse’s, or community property.  Run your credit report as well to see what shows up…it can sometimes be surprising to learn of accounts opened that you knew nothing about.

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Community Property

The term “community property” is used to describe assets that are owned by both spouses in a marriage. California is a community property state, which means that any property obtained once you are legally married is equally owned by both spouses, unless it was specifically designated as separate property (i.e. gift, inheritance, or through a Premarital Agreement). Any income received by either spouse during the marriage is community property.  Any real or personal property acquired with income earned during the marriage is community property. This includes vehicles, homes, investments, businesses, furniture, appliances and luxury items. For example, if either party establishes a bank account after the marriage began, it will be presumed that the money deposited into that account will be split equally between both spouses, regardless of whose name is or is not on the account. Likewise, any debts incurred during the marriage are also presumptively considered community property debts and will have to be divided between both spouses evenly.

Separate Property

Separate property refers to any property that belongs to only one of the spouses in a marriage. If one spouse came into the marriage with previously owned property, it solely belongs to them and is considered separate property. Similarly, if one spouse receives money as part of a gift or inheritance, and they keep it in a separate account, then it is typically separate property and remains with the spouse that acquired it.  Also, property obtained by a spouse after the date of separation (note: this is not the same as a “legal separation”) will be that spouses separate property.

Further, pre-marriage debts remain separate property. For example, educational loans acquired before a marriage wouldn't become community property.

But it is important to note that separate property can “transmute” (i.e. change its form) into community property. For example, if a spouse who owns property before the marriage adds the new spouse's name to the deed, that home would presumptively become community property.

Marital Waste

One exception to joint property and assets being considered community property may be if one spouse can prove that the other one participated in marital waste or, more breached their fiduciary duties to the other spouse. This can occur when one spouse in a marriage begins to excessively spend money, damages property, sells off assets, or incurs substantial debt to the detriment of the community without the consent of the other party or approval from the courts. Many courts will consider significant money spent on an affair to be a breach of a spouse’s fiduciary duties. Buying gifts with marital funds or spending large amounts  on a vacation with a paramour would certainly be grounds for a breach of fiduciary duties.  Excessive gambling may also be deemed a breach of fiduciary duties.  If the breach is egregious enough, the offending spouse could be forced to cough up to their soon-to-be ex-spouse as much as 100% of the community property spent on the affair or gambling.

We often see one spouse participate in marital waste when they are resentful or spiteful and want to dissipate the amount of money left in the accounts they may have to divvy up with the other spouse.. In California, both parties have to provide a complete list of assets and debts.. If you notice a large increase in spending just prior to the divorce is filed or if your ex didn’t include all the assets and debts on their paperwork, you will want to investigate the discrepancies.  You might have a case for marital waste. If you suspect marital waste, it is important to speak with your lawyer and get the courts involved right away.

It is important to consider ordinary expenses are not considered marital waste. Disagreeing with a spouses routine spending habits may be cause for a severe marital rift, but it is not likely to rise to the level of marital waste.  You will need to speak with a knowledgeable and experienced family law attorney to evaluate your claims to make sure you are pursuing those which are viable and make financial sense in your specific case.

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Establish Your Financial Identity

You should open your own banking account that solely has your name on it before you actually get divorced. Consider withdrawing half the money from your joint accounts (or a reasonable sum in view of your needs) and place that in your own checking account to preserve it, and to make sure you have enough funds to live separately from your spouse for several months without support As noted, above, you should also run a credit report to see where you stand and ensure that you recognize the open accounts under your name.  If not, you will need to investigate and address these in the divorce. . Be sure to look at your own finances and determine a budget that seems reasonable for your current situation. Settling into single life can be difficult, but by organizing your financial obligations and budgeting for them, you are setting yourself up for the best possible outcome.

Cancel Joint Credit Cards

Unfortunately, this isn’t as simple as just removing your name from the joint credit cards. Typically, you will need to pay off the debt or have one party reapply and refinance the existing card in their name only. Removing yourself from any joint credit cards or canceling them altogether is very helpful when trying to protect your credit score. Keep in mind that if your ex decides to go on a shopping spree and avoid the bills, it will have a major effect on your credit score as long as your name is still on that account. You should consider cancelling or remove yourself from those accounts with your spouse as soon as possible.

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Close Joint Banking Accounts

Once you and your spouse agree on what is community and separate property, now it is time to close your joint banking accounts. Make sure to discuss any outstanding bills and joint payments before divvying up the money. If your divorce is amicable, it is best to have both people go to the bank to close the account together. However, if you and your spouse are unable to come up with an agreement on the division of your assets, you can protect yourself by working with a trusted family law attorney who can help address these accounts while the divorce is being pursued and logistics are being worked out. Do not keep your joint bank account open just so you don’t look spiteful to your ex. This is a mistake many divorcing people make - your ex might not be as considerate as you and if they spend all the money or don’t pay bills, it will negatively affect you.

Retirement and Investment Accounts

Retirement plans and investment accounts are considered community property and will be treated as such. It is important to discuss with your financial planner or CPA to go over your best options as there could be serious tax implications.

There are many things to consider when getting divorced, and finances are a very important issue to deal with right away. If you are preparing for divorce and have any questions about the process or would like to discuss your options, give us a call! We are trusted San Diego family law attorneys and would love to set up your free consultation to help you get through this difficult time and move on easier.