Here is When Severance Pay is Community Property or Separate Property

Is Severance Pay Community Property in California or Separate?

Is severance pay community property in California or is it the separate property of the receiving spouse?

The question comes up because severance pay (sometimes called termination pay) can come in different forms and can be a significant dollar number (sometimes in the six figures or more).

Whether a severance or termination pay is community property or separate property after separation is not always clear and is one area of family law where the experience and knowledge of your choice of attorneys can make a difference in whether your legal rights are protected, whether you are the employed spouse or the spouse who seeks to receive one-half of the pay.

Traditionally, family courts look to whether or not severance pay or any form of lump sum benefits received by the spouse after separation or upon termination was "vested" in whole or in part during the marriage. Another way of looking at that issue is whether the severance pay was, in some way, the result of employment during the marriage and before separation or a form of future compensation that was unrelated to marital employment.

No article will be able to answer the question for your particular set of facts and consultation and retention of an experienced divorce lawyer in California is important before you come to any answer or conclusions as to whether the severance pay in your case is community or separate property. This article should not be looked at as legal advice. It isn't. It is intended to give you some basic knowledge of the subject before you retain an experienced lawyer to assist you and look into the specific facts of your case.

Our family law firm and its attorneys are ready to consult with you.

The question of whether severance pay is community property in California starts with the Lehman case.

We first look to "when" the right to receive the benefit "accrued." We do this first based on an important case in California called Marriage of Lehman. The case stated that a spouse's right to benefits that accrued during the marriage (whether or not that accrual was in whole or in part) is the critical factor in determining whether or not the benefit or pay is community property. Note that we specifically use the word "in part". That is because severance pay doesn't have to be all or nothing. It is possible that severance pay may be partially community property and not necessarily 50/50.

The Lehman case dealt with an early retirement benefit that the employer gave the employee and which the employed spouse had not accrued at any point during the marriage. As of the date of this article, Lehman is considered one of the more important cases on this issue of severance or termination pay as well as early retirement benefits. Regardless of how the pay is labeled, you should not just make the assumption that a benefit received post separation through employment is a form of severance pay. Instead, you and your retained divorce attorney should look at both the nature of the pay or benefit as well as when it accrued.

Some examples in which California courts have held that severance pay in a California divorce are not community property and are rather the employed spouse's separate property include (1) payments intended to forgo future employment, (2) payments made because of a future loss of earnings and (3) layoff benefits as a result of an industry with declining revenue. However, do not assume that just because your case falls in any of these categories that the result would be the same for you. California case law is often specific to its facts and yours may have differences that could make a difference in the result.

Whether severance pay is community property in California or separate is rarely clear cut until a full analysis has been done

The issue of severance pay will not always be clear. You cannot simply look at the pay and presume it is community or separate property in a California divorce. In nearly every case, skilled O.C. divorce attorneys will conduct an investigation, review the severance pay or termination benefit packet from the employer, interview in detail the employee and, especially when representing the non-employee spouse, serve a subpoena on the employer for all of its records and internal communications about the payment, to determine the nature and extent of the pay and precisely what it was intended to compensate.

Our lawyers have experience, knowledge and skill when determining the issue of whether severance pay is community property in California, separate property or a combination of each.

We are here to help. We are available for a consultation at our own law office and look forward to speaking with you.

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