Reviewing Your Spouse's Disclosure

As I mentioned, receiving your spouse's Preliminary Declaration of Disclosure gives you the first real look at the areas in which you and your spouse agree and disagree. But it may also tell you other things. Aside from noting the differences you may have in valuation, you must pay particular attention to what their disclosure does not say. If assets or debts are omitted, you must find out why. If the Disclosure claims a community asset as separate property, you must find out the basis for the opposing party's claim of separate property. As well, sometimes the opposing party may make a claim of separate property contribution towards a community asset. That means your spouse is claiming a portion of a community asset is their separate property, perhaps because they made payments from a separate source, or they used separate funds for a down payment or improvements.

Remember, community property is all assets and obligations acquired between the date of marriage and the date of separation, except for gifts or inheritance which is separate property unless it has been commingled with community property. But an asset acquired during marriage may have a separate property 'contribution'. The party claiming the separate property component has the burden of proving the separate contribution. That usually means the party claiming the separate property contribution has the burden of producing a paper trail, usually banking records, that demonstrates the funds came from a separate source and were contributed to the community asset.

When we divide assets and debts in a divorce, California law requires there be an equitable division of the marital estate. That means each party should be awarded marital property in equal values, but the court is not required to divide each asset in half. For instance, the automobile you typically drive should be awarded to you with the obligation on the vehicle, if any. If the vehicle has a fair market value of $15,000, and there is an outstanding loan balance on the vehicle of $10,000, the vehicle will be awarded to you at a net value of $5,000.

 The values of assets are determined by various methods. A house should be formally appraised if you are going to trial and the parties do not agree on a value. But you may start the process by getting comparable sales from a realtor. Try to resist obtaining property values from online real estate valuation websites. They are not accurate and judges do not rely on them. An appraisal is the best method of valuation, and comparable sales are the next best method. Vehicles can be valued by utilizing private party (not retail or wholesale) values from Kelly Blue Book or other auto valuation web site. Finally, other assets such as household furniture, furnishings and appliances are simply valued at what you could get for the item if you put an ad in the paper and sold it.

This leaves a lot of room for disagreement on items that are not formally appraised. The courts typically will not spend much time entertaining the parties' arguments regarding valuation of household items. If one spouse thinks a TV is worth $1,000, and the other thinks it is worth $400, the court may simply award the TV to the spouse who believes it is worth $1,000. In the alternative, the judge may simply order that all such property for which the parties are unable to agree on a value be sold with the net proceeds split equally. This is where you and your spouse need to each to do some compromising on values to reach an agreement.

Another difficult situation is what to do with an asset that both parties want. Does the flat screen Television with surround sound go to the husband or the wife? Husband may argue the television was a Christmas gift from wife, but wife testifies it was a gift to the family. Who is the judge to believe? Again, if husband believes the television is worth more than wife does, the court may simply award it to husband at the higher price, or the judge may order the item sold with the proceeds split so no decision has to be made as to who gets the television.

 The lesson here is to be very careful when valuing assets in a dissolution. Often the spouse who does not have the asset will value it higher than the spouse that has possession, because he or she wants the other spouse to be charged a higher value for purposes of calculating an equal division of the marital property. This tactic can backfire on the spouse with the higher value if they do not want the asset and the court awards it to them at their higher (inflated) value. On the other hand, if the other party has an asset that you want, one tactic to take at trial is that you will take it at a higher value than the party who has possession. 

There are more issues with property valuation and division in a dissolution that I will discuss later. In particular, the decline in property values has created a different dilemma with many houses now worth less than what is owed on them. It is not uncommon now for neither spouse in a divorce to want the house. Check back for how divorce can mean the loss of a house and your credit.