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AttyCBradford
AttyCBradford, Lawyer
Category: Family Law
Satisfied Customers: 617
Experience:  Criminal Defense and Family Law Attorney serving California Statewide
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I am getting divorced in California. To simplify the scenario,

Customer Question

I am getting divorced in California. To simplify the scenario, the main assets are a house with $600K in Equity (and no capital gains liability if it were sold), and Qualified Assets (IRA & 401-k) with a Face Value of $600K. Our attorneys have advised that the courts think that there is no difference between qualified and non-qualified money. Thus, they think if my spouse gets the house and I get the qualified assets, that that is an equitable 50/50 split. I completely disagree as there is a huge tax liability built into the Qualified Assets.

I have a hard time believing the courts are this stupid. So I am looking for some precedents to illustrate to them that this is not an apples-to-apples comparison. So any advice would be much appreciated.

I tried to offer a 50/50 split of each asset type, (half each of the qualified assets an dhalf each of the non-qualified assets) but my spouse rejected it. Do you have any idea how the courts would respond to this approach?

Thanks!
Submitted: 1 year ago.
Category: Family Law
Expert:  AttyCBradford replied 1 year ago.

AttyCBradford :

Hello I would be glad to assist you. I am a california licensed attorney who practices family law. While I completely understand your point, your attorneys have advised you correctly. The courts do not see a difference between qualified and non qualified assets. The court's generally award the house to one spouse and offset it with the rest of the community estate. If you cannot agree, I can tell you how the court is going to react, sell all the property and split the assets down the middle. That is how they split everything 50/50. I see your point that there is tax liabilities with the qualified but for example with the house, you could also be gaining a huge profit in the future or you could loose if the market goes further down. I am not sure what kind of precedent you are looking for but I don't think you will find it in a distribution of the community property. THe courts generally look to the entire estate not each piece by each piece for division

Customer:

I am sorry to hear that the courts are that clueless. What I was looking for were some precedents where the court valued the Qualified Assets at a certain percentage of their face value. In other words, some tax based factor.

Customer:

Whoops, didn't mean to hit enter. If the house had a Face Value of $800,000, but only $600,000 in equity, would they value the house at $800,000 and completely ignore the mortgage liability? That is what they are doing by ignoring the built in tax liability of the qualified assets.

AttyCBradford :

Really the only time that the courts look to the tax based favor is for Alimony. For instance one good thing is if you are paying child support and spousal to have it classified as "family support" and that is a complete tax write off to the paying party. However, it can default as well if not worded to end or be reduced at the time turns 18 since it is not technically "child support." Okay so for the house, the way it works, is they will have an appraisal done, a professional comes out and values the property. If they value it at $800,000 but you owe on the mortgage then the house would be not be looked at as an "asset" its more of a debt does that make sense

Customer:

Here's another example. One can "buy out" another persons assets in a divorce settlement. What would the courts assign as the buy out cost for $600,000 in qualified money? Anyone would jump at the chance to get $600,000 in cash (which has no tax liability associated with it), for a $600K 401-k plan. They would do it in heart beat. We have gotten out of sync. Let me answer your mortgage question separately.

AttyCBradford :

In reality your house is only worth about $600,000 and if sold that would be the value. Therefore, you would have a $300,000 interest

AttyCBradford :

again this is all in general terms without the specifics of your case

Customer:

Regarding the house. I understand exactly what you said. If the Face Value is $800K, and there is $600K in Equity and $200K in Mortgage, then we both have a $300K interest in it. So then, why doesn't a Qualified Asset with a Face Value of $600K and a future tax liability of say $200K not get assessed as having an equity of $400K? It is exactly the same thing.

AttyCBradford :

The 401k depends on the time that the money was contributed and what it was earned during the marriage. If the community value of the 401k plan is $600,000 and that one spouse wants the 401k and the other wants the house it is a wash. As for "buying out" generally, the buying out spouse has to pay the equal value of the asset that they are buying out to the other spouse

AttyCBradford :

Well I think you have an argument, I am just not aware of any case or precedent on point, but if it is the 401k that you are referring to, 401k do get treated the same way,e specially because most times if you borrow against it early you are penalized

Customer:

You hit the nail on the head. I know I am right (I'm a Financial Planner). But I'm looking for a way to get the courts to understand this. There are a million divorces a year and most people have quallified money now. So somebody must have tried to distribute qualified assets equitably before. I can't believe I'm the first one.

AttyCBradford :

Let me see if I can find something. I guess its just something most people dont' challenge but since you are in the industry you are aware of it

AttyCBradford :

give me one second

AttyCBradford :

The only thing I can think of is generally 401k and other pensions are distributed in what we call QDROs "Qualified Domestic Relations Orders" and they are done by QDRO specialists and done usually after the divorce judgment, but you are referencing is that you want your 401k and the other the house. So if I were you or your attorney I would have you lay out exactly the financial implications are point by point and have your attorney submit it to a judge

AttyCBradford :

If I have answered all your questions then please press accept and provide positive feedback, so I receive credit for my work. If not and you have additional questions please ask, and I will respond promptly. Please note: this is a PAID ANSWERING service, once your question has been answered, press accept. This conversation does not constitute an attorney-client relationship and is offered for informational purposes only. Lastly, sometimes it may take a moment to respond as I work with several customers at a time. Thank you and best of luck.

Customer:

I was looking for something new and hoping to find a precedent. If I were to look for precedents, where would I look? I agree that I really have nothing to lose by submitting a well illustrated case to a judge. But I'm sure it would help if I had something legal to support it. I feel like there is a huge disconnect between two industries that for some reason hasnt been bridged.

AttyCBradford :

I agree, half the time when I am trying to understand complicated tax returns I consult with a financial person. You can try findlaw they would have a good resource. You can also try a local law library..

Customer:

Thanks. Is there an analog to a law library on-line?

AttyCBradford :

what county are you in?

Customer:

Orange County, California

AttyCBradford :

there is a public law library in Orange that is really good. Also you can access it here: http://ocpll.org/home2.html

AttyCBradford :

If I have answered all your questions then please press accept and provide positive feedback, so I receive credit for my work. If not and you have additional questions please ask, and I will respond promptly. Please note: this is a PAID ANSWERING service, once your question has been answered, press accept. This conversation does not constitute an attorney-client relationship and is offered for informational purposes only. Lastly, sometimes it may take a moment to respond as I work with several customers at a time. Thank you and best of luck.

Customer:

Thank you C. I will let you go now. Have a nice evening...

AttyCBradford, Lawyer
Category: Family Law
Satisfied Customers: 617
Experience: Criminal Defense and Family Law Attorney serving California Statewide
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AttyCBradford
AttyCBradford
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Criminal Defense and Family Law Attorney serving California Statewide