California is a community property state, which means the law presumes that all property acquired during the marriage is owned equally by both spouses. Upon divorce, a couple’s assets are divided to ensure that each spouse receives one-half of the community estate.
In theory, it seems simple enough to add up the value of a couple’s community estate and then split the number in half. In practice, however, there are several complicated legal issues involved in dividing assets and debts. For example, it is not unusual for a spouse to make payments on a separate property asset (acquired before the marriage) with community property income (earned during the marriage). In such an instance, the community should still receive an interest in the asset, even if the asset is deemed “separate property.” In fact, if community funds were used to pay for a large portion of the asset, the community interest could be significantly higher than the acquiring spouse’s interest in his or her own “separate property.”
What is community property?
Community property is all property acquired during the marriage, excluding property acquired by gift or inheritance. In California, married spouses own an equal 50% interest in all community property. This means that upon divorce, each spouse receives a one-half share of the community estate during the asset division process. Community property includes, but is not limited to:
- Houses and rental properties (even if only one spouse holds title)
- Bank and investment accounts
- Furnishings, jewelry, art, antiques, gems, cars
- Retirement or pension plans
- Businesses or professional practices
- Tax shelter investments
- Cash value of insurance policies
- Stocks and stock options
Along with sharing community property, couples share community debts. Community debts are all debts and liabilities incurred during the marriage by either spouse. This is true regardless if only one spouse incurred the debt. For instance, if your spouse obtained a credit card during the marriage in his or her name alone, you will likely be responsible for fifty percent of the debt.
There are limited exceptions to this rule, however, if the debt was not incurred for “community” expenses or to otherwise benefit the community. As a rule of thumb, most any expense or purchase made during the marriage will be deemed a “community” expense, unless it was paid toward a separate property asset. For example, if one spouse receives a loan to remodel an investment property he or she purchased before the marriage, the other spouse should not be responsible for half the debt incurred to benefit the opposing party’s separate property asset.
California law recognizes that married individuals have a right to own separate property, which is generally not subject to asset division in a divorce. Such property includes:
- Property acquired before marriage or after the date of separation
- Property acquired through inheritance
- Property received by one spouse as a gift
- Any rents, profits, or interest earned on a separate property asset
The Date of Separation
California law holds that property or debt acquired after separation, but before the court enters the final divorce decree, is the separate property of the acquiring spouse. This makes pinpointing the date of separation a vital part of the process. The law no longer requires that the couple live apart for the date of separation to take effect. The date of separation now takes effect on the date one party communicates his or her intent to end the marriage, and then acts consistently with that intent. This means that there must be some sort of demonstrable evidence that at least one spouse actually followed through with the breakup, perhaps by no longer sleeping in the same bed, refraining from performing household chores or cooking meals for the other spouse, or attending social events or business gatherings without the other spouse.
There are cases in which this issue becomes a point of contention, if, for example, one spouse earns a large bonus during the murky period between the date of separation and the date the divorce is finalized. If your date of separation might be contested, you will need to assess whether fighting for your intended date is worth the cost of litigation. The legal team at MacKay & Martin, LLP, will help you assess your date of separation and protect any community or separate property interests that may result.
Methods of Asset Division
Before dividing assets, all assets and debts must be characterized as community or separate property.
There are several options for dividing assets and debts: an asset or debt can be assigned to one spouse in exchange for assets or debts of equal value, one spouse can “buy out” the other spouse’s share in an asset, or the couple can sell assets and split the profits. A typical divorce involves a combination of these and other methods.
Our attorneys will directly negotiate with your spouse’s attorney to protect your rights to marital assets; or, if an agreement cannot be reached, we will persuasively argue your position in court.
Prenups, Postnups, and Other Signed Documents
If both spouses signed a prenuptial or postnuptial agreement, that agreement will often supersede other rules for division of community property. It is also possible to change, or “transmute” the nature of an asset from community to separate property, and vice versa.