What to Know About Divorce in California

Divorce is often cited as one of the most stressful life events anyone can experience. Beyond the challenges you must deal with in the moment, you also often face an uncertain future, as separating from a spouse can greatly affect your finances. 

The good news is that things aren’t totally out of your control — the more information you gather now, the more you’ll set yourself up for post-divorce financial success.  

Below, we’ll go over what you need to know about the financial implications of divorce in California, how you can prepare for an upcoming divorce, and how to plan for a successful financial future.
  

What to Know About Divorce in California 

Before we get too into the weeds, let’s start by going over some high-level background information: 

– California Is a Community Property State 

California is one of nine community property states in the U.S., meaning that any income and any real or personal property acquired by either spouse during a marriage is considered community property. Therefore, it belongs equally to both spouses. Anything acquired before the marriage, however, is separate property. 

Knowing which property is considered community versus separate has a significant impact on your finances, so make sure to speak with a family law attorney to get a clear picture (keep in mind that most family law attorneys do charge for an initial consult). This may also affect which type of divorce you choose to pursue. 

– Taking Into Consideration The Different Types of Divorce in California 

Many individuals overlook the fact that there are various types of divorce in California. There are four main California divorce options:  

1. No-fault divorce
2. Uncontested divorce 
3. Simplified divorce
4. Limited divorce.

    

These options include contested, collaborative, mediated, and more. The best one for you will depend on your individual circumstances. Factors include your financial situation, how much transparency you have in your finances, and whether you can meet with your spouse. 

Selecting the best divorce option for you is a deeply personal choice. We recommend that you seek advice from one or more family law attorneys. 

If you have to pay an attorney for an initial consultation, consider it an investment in your future. To make the most of the meeting, prepare your questions and share an overview of your financial situation, if available. If your chosen attorney doesn’t specialize in your desired divorce type, feel free to ask for a referral. We’re here to support you throughout this journey, connecting you with the guidance you need during this challenging time.

Navigating these complexities can be overwhelming, and it’s completely natural to feel uncertain during such a significant life transition. That’s why we encourage you to reach out to a compassionate family law attorney who can provide the guidance you need. They have the experience to paint a clear picture of your situation, offering insights that can influence the path you choose for your divorce.

Division of Property in California 

Before deciding on who gets what, each party must first file a financial disclosure, listing all of their assets and debts. This will include:

• Income from all sources 
• Expenses, including your children’s expenses — this will be the most important factor in understanding your financial situation now and in the future. 
• Physical assets (e.g. homes, cars, boats, recreational vehicles, art, jewelry, etc.)
  Note: Homes and real estate should include details not just on price, but also on factors such as purchase date, down payment, and source of down payment, mortgage/refinancing history, property taxes, and renovation costs.
   
• Insurance: life insurance as well as property and casualty (including umbrella) insurance. 

• Savings & investments

  Note: Qualified plans covered under the Employee Retirement Income Security Act (ERISA) — including 401(k)s, 403(b)s, 457s, and pensions —  will likely be divided by a qualified domestic relations order, or QDRO.

  Non-qualified plans (such as IRAs) may be divided by a QDRO or detailed by specific language in the settlement agreement. Some non-qualified plans are not easily divided, and it often comes as a surprise that deferred compensation, executive bonuses, split-dollar life insurance, and group carve-out plans are not qualified. The best practice is to identify and locate all retirement plans in which spouses have an interest, whether or not they are vested. 

   

• Benefits offered by employers, whether or not they have been elected. Some may be portable and much less expensive than group policies. 
• Debts (e.g. student loan or credit card debt) 

• Social security statements for each spouse 
• Inheritances

   

Again, any assets and debts acquired during the marriage will be considered community property and divided equally between the parties. There are exceptions for inheritances and anything specified as separate property in pre- or post-nuptial agreements. 

How Is Spousal Support Calculated in California? 

Some individuals may be ordered to provide financial support to their former spouse. The exact amount is typically determined using a software program called DissoMaster, which comes up with a monthly guideline figure based on the spouses’ respective income and offsets.  

Tip: In California — and especially in Silicon Valley — equity awards and bonuses are common. This income may be factored into spousal support, with the exact amounts specified by bonus tables and then paid out when the income is received on or by specified dates. 

For marriages lasting fewer than 10 years, spousal support payments must be sent for half of the number of years that the marriage lasted. For example, in the case of a couple that was married for eight years, one spouse would have to send payments to the other for four years.  

Marriages lasting longer than 10 years are considered long-term marriages. In such cases, the duration of spousal support will be determined on a case-by-case basis according to the specific circumstances. 

In some cases, alternatives may be agreed upon. For example, if a spouse who was formerly not working is in need of training or higher education to be able to re-enter the workforce, spousal support may begin higher and then diminish over time as the recipient is able to earn an income. 

How Is Child Support Calculated in California? 

As with spousal support, child support is determined using the DissoMaster software. Typically, child support payments last through the child’s 18th birthday or graduation from high school. 

It’s important to realize that parents are not legally obligated to pay for their children’s college education or trade school. This should be discussed during the divorce process and, whenever possible, put in writing. 

How to Prepare for a Divorce in California 

While divorce will never be easy, there are some steps you can take to make the process a bit smoother: 

• Ensure that you have the passwords needed to access all of your most important information, both financial and personal. 
• Pull your credit report to make sure that your credit rating has not been affected by late payments. Late mortgage, loan, and property taxes result in long-term damage to your credit rating and may severely limit your ability to obtain a reasonable mortgage interest rate. 
• Calculate or estimate how much you spent during the marriage and establish a post-divorce budget. This is where you have the most control, and it has the biggest impact on your financial situation.

   

Tip: Rather than recording your expenses manually, you can hire a bookkeeper to track your expenses, or have them set you up on some software, such as Quicken. Then, once all of the data is flowing and the reports are configured, you can maintain it yourself. Although there is an upfront cost, it can save you time and help you stay on track post-divorce.  

Planning Your Financial Future 

Working with a trusted CERTIFIED FINANCIAL PLANNER™ professional who is knowledgeable in divorce is a key component of setting yourself up for future financial success. Before obtaining your settlement, provide your advisor with your financial and personal information. 

If you have completed your disclosures, most of what you need has already been provided. If so, let your attorney know you wish to share this information with your financial advisor and sign the appropriate release. If you haven’t filled out your disclosures, your financial advisor will provide a list of all of the information needed (see division of property above). 

– Modeling the Possibilities 

Using the financial information you’ve provided, your financial advisor can help you model different settlement scenarios. While emotions and stress run high during a divorce, this will enable you to make decisions based on the short- and long-term impact of your choices rather than your emotions in the moment. 

This can help you answer questions such as:  

• Can you afford to stay in the family home, either in the short or long term? If not, your spouse could buy you out, you could sell the house together now, or you might seek to stay for a number of years and then sell the house. Modeling different housing scenarios will help you determine which alternatives work for you post-divorce. 
• Will you have to go back to work? If so, will you need additional education or training? What would the timing and cost of that education or training be? Ultimately, you should determine what level of income you need to have a successful post-divorce life. 

• Which expenses are necessary, and which are discretionary? 
• At what age will you be able to retire? 
• Do you have enough money saved up for your children’s education? What will you do if your spouse doesn’t contribute toward it? 
• When should you create or revise your estate plan? 
• What are the tax implications during and after the divorce? Your financial advisor can work closely with your tax advisor or help you a tax specialist if needed.

   

After modeling different scenarios based on your divorce settlement, along with your income (and/or spousal/child support) and expenses, you’ll be able to fine-tune your post-divorce financial strategy. The results will define your lifestyle and how much you can spend each month to stay financially sound and feel confident that your assets will last through your lifetime.

Create Your Post-Divorce Financial Plan 

Divorce is undoubtedly a difficult and unsettling time, but even though it may not feel like it now, you will eventually make it through. Working with trusted professionals who can help you plan will allow you to land in the best financial position possible. 

The staff at Team Hewins includes a number of CERTIFIED FINANCIAL PLANNER™ professionals who specialize in divorce — schedule a free consultation today to get started. 

Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.