Is Severance Pay Community Property or Separate Property in California?

How Do You Determine if Severance Pay is Community or Separate Property?

Severance pay, sometimes called termination pay, can be community or separate property, depending on the circumstances.

This article will explain this complex topic and help you better understand how California family law answers this question.


The Lehman Case: A Key Starting Point

The landmark case, Marriage of Lehman, provides a foundation for understanding how severance pay is classified. This case established that a spouse's right to benefits accrued during the marriage is noteworthy in determining whether the benefit is community property.

The Lehman case dealt with early retirement benefits, but the same logic applies to severance pay. The core principle is that if a right to payment accrues during the marriage, it might be considered community property, even if the payment was received after separation.

Vesting During the Marriage

Family courts traditionally examine whether severance pay or any lump sum benefits received post-separation were vested in whole or in part during the marriage. If the severance pay accrued during the marriage, it is more likely to be considered community property.

Vesting means the right to payment was established while the couple was still married. This could happen through years of service, specific milestones achieved, or other criteria set by the employer. The severance pay could be considered community property if these criteria were met during the marriage.

Employment During the Marriage vs. Future Compensation

Another factor is whether the severance pay is related to employment during the marriage or future compensation. If it is a result of employment during the marriage, it may be classified as community property. Conversely, it could be deemed separate property if it compensates for future earnings.

For instance, if an employee is terminated and receives severance pay that reflects their work and contributions during the marriage, that payment is more likely to be considered community property. However, if the severance is intended to compensate for future lost earnings after the marriage has ended, it is more likely to be considered separate property.

Types of Severance Pay

Severance pay can come in various forms, each potentially affecting how it is classified in a divorce. Common types of severance pay include:

  • Lump-Sum Payments: These are one-time payments given to the employee at termination.
  • Salary Continuation: This type of severance pay involves continuing to pay the employee their regular salary for a specified period after termination.
  • Benefits Continuation: Some severance packages include continuing benefits such as health insurance.
  • Stock Options and Bonuses: Severance packages may include stock options or bonuses. Treating these items as community or separate property can be complex, often requiring a detailed analysis to determine the portion attributable to the marriage.

The Determination Process

Determining whether severance pay is community property or separate property is rarely straightforward. It requires analyzing the severance pay packet, interviewing the employee/spouse, and potentially subpoenaing the employer for detailed records and communications.

This process involves looking at the nature of the severance agreement, the timing of the payment, and the reasons for the severance. Attorneys will review employment contracts, severance agreements, and other relevant documents to understand the context and intent behind the payment.

Given the complexity of classifying severance pay, consulting an experienced family law attorney is crucial. Attorneys (like those at our family law firm) can provide specific guidance based on your case's facts and ensure your legal rights are protected.

Legal advice is particularly important because severance pay classifications can significantly impact the financial outcome of a divorce.

Frequently Asked Questions

What factors do courts consider when determining if severance pay is community property?

Court considerations include when the right to severance pay accrued, the nature of the severance agreement, and whether the severance pay compensates for past work during the marriage or future earnings.

Can severance pay be partially community property and partially separate property?

Yes, severance pay can be partially community property and partially separate property. Courts may divide the severance pay based on the portion accrued during the marriage versus after separation.

How can I protect my rights regarding severance pay in a divorce?

Protecting your rights involves consulting with an experienced family law attorney, gathering all relevant documents, and understanding the nature of the severance agreement. Your attorney can provide advice tailored to your situation.

Is There a Severance Pay Issue in Your Divorce?

Understanding whether severance pay is community property or separate property in California requires a detailed examination of the severance agreement and the circumstances surrounding its accrual. Retaining a knowledgeable family law attorney can help navigate this complex area and protect your interests during divorce proceedings.

If you have questions or need legal assistance, our experienced family law attorneys are ready to help. Contact us to schedule a strategy session to discuss your specific situation.


For more information on severance pay and property division in divorce, consider these resources:

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