The Date of Separation in CA Divorce

There are many misnomers about the date of separation in Californian divorces. Often the couples have a misunderstanding that the property (assets including investments, real property, personal property, and retirement assets) are all valued at the date of separation value.

 While the date of separation plays an important role in the division of assets, it does not affect the valuation of all assets that need to be divided.

 The date of separation applies to the readily available cash on hand assets such as funds in a checking account and savings account. These are typically divided as of date of separation because it is easy to determine their value at the time and the asset does not appreciate nor depreciate (if not added to or withdrawn), unlike all other assets.

 In fact, with the Automatic Temporary Restraining Orders (ATROS) which go into place when the petitioner serves the respondent, all assets are essentially frozen. Neither party is able to withdraw any portion of assets or sell any asset without the consent of the other party.

 The award points and mileage that accrued up until the date of separation becomes the amount available for characterization as community property. Anything accrued after the date of separation is considered separate property.

 Accrued vacation time is, of course, valued at the date of separation. Any time that is considered earned and accrued during the marriage would be considered divisible in the asset division during divorce. While the days themselves are not divisible, an offset for the value of the those vacation hours is typically provided from the employee spouse to the other spouse via an offset of funds as part of the division of assets. If both spouses are working and earning approximately the same per hour, the vacation time/valuations may offset each other.

The date of separation also plays a role in the valuation of any restricted stock options, employee stock purchase plans, H.S.A. accounts, the characterization of what is community and separate property in retirement accounts if contributions are still being made with every paycheck and in some calculations of real property as community versus separate property if owned prior to the date of marriage.

 Regarding retirement assets, the date of separation is important in valuation of the other spouse’s interest in the pension. It usually determines the end of the community interest in the pension and is used in the pension valuation calculations. Typically, this is referred to as the “coverture fraction” calculation in which the number of years of contribution during the marriage is taken as a fraction of the number of years of actual contribution, both before and after the marriage.  This is a complicated subject and varies depending upon the actual pension plan formulas and what the plan makes available to ex-spouses. For instance, some pension plans may include options for accruing interest in portions of the pension until the actual retirement.

With restricted stock options (RSUs), the date of separation is incorporated into the formula to determine the community interest. Spouses will still have an interest in unvested RSUs at the date of separation. These RSUs will vest after the date of separation, yet the ex-spouse will still retain an interest in the stock options during the remainder of the years.

 Often, spouses continue to purchase their employer’s stock through the employee stock purchase plan (ESPP) as a deduction from their paycheck. If they continue to do so after the date of separation, those purchases would be considered their sole and separate property. But this is also tricky, depending upon how they are managing any support obligations during the pendency of divorce. If they are pooling and sharing income and expenses, there may be a case for an interest in these purchases.

 However, in most cases, the date of separation will be important in determining which funds were contributed to the ESPP purchase (separate or community earnings) and based on the timing of the actual purchase, whether there is a community interest in the shares.

 The main overarching consideration, however, is that the value of community property in divorce cases is determined as of the “date of trial” in California.

 While most, over 90% of divorces, do not go to trial, the implementation of this statute regarding valuation means that the assets may appreciate or depreciate during the pendency of divorce.

 House appraisals at date of separation for a 100% community owned marital home does not typically apply during asset division. Instead, it is recommended to obtain an appraisal or broker’s price opinion that is close as possible to the settlement date (unless both parties agree on a date for valuation of all assets).

 Often, the equity that builds in the home after the date of separation is not allocated to the person making the principal payments. However, there is case law that could allow for reimbursement of these principal payments, interest, taxes and insurance. Again, the complexities of division of assets is nuanced with statutory and case law guidelines that affect the actual amount received and when.

Collectibles as personal property may have the same issue with valuation. An appraiser should be engaged to appraise any high value personal assets such as art collections, classic cars, jewelry, wine collections, etc. and that appraisal then would be used for valuation purposes. Getting an appraisal 18 months to two years in advance of the actual date of divorce may be unwise as collectibles may appreciate in value considerably. It is important to time the appraisal as close as possible to the expected date of settlement.

 Similarly, investments may be subject to stock market volatility and their fluctuation in value has major implications for the division of assets and the timing of that division. It is often wise to divide assets in kind for this reason because determining the other’s party’s interest in the property and transferring “cash” may be tricky to implement if there is a significant amount of volatility which affects the valuations.  More shares of stock may have to be sold to meet the amount that is attributable to a spouse’s interest if the market declines. Instead, parties may decide to value all or some of their assets on a targeted date and implement the division of assets as of the value on that date regardless of what happens to the stock prices going forward.

 Valuation of closely held businesses are also determined as close as possible to the date of trial, or settlement date. Of course, once again, a business appraisal is typically warranted and that value is not usually changed even if circumstances have changed since the date of separation. However, there are instances where the business has grown due to extra time a spouse now has to put efforts into the business entity, or devalued due to dissipation of assets by the owner spouse. In these cases, a party may petition the court to consider a re-valuation of the entity closer to the date of separation due to the circumstances.  Again, the nuances and circumstances of each case may cause unique issues that should be considered in valuation for division of assets.

 Just as assets are divided accordingly, liabilities or community debts are divided as of the amount incurred by the community as of date of separation. However, once again, there is a caveat for pooling and sharing of income and expenses post-date of separation.  It is very important to protect one’s credit during divorce as creditors will not abide by a date of separation in seeking to recover the funds, often putting the other party in jeopardy of a reduced credit rating and liability for additional expenses.

 While the date of separation plays an important role in the division of assets in California, it is not always the valuation date used for all community asset valuations.

 This article does NOT constitute legal advice and is for general information purposes ONLY. Prior to making any decisions, seek legal counsel from a licensed attorney.