One of the most important distinctions in California divorce cases is that it uses a community property model when determining how to divide spouses’ property. This is different than the equitable distribution or common law model that is used in 41 other states. This distinction can have a significant impact on how a couple’s property is ultimately divided at divorce or upon separation. Having a clear understanding of property division laws in California can help a person make important decisions during the divorce process.
Classification of Property
In California, there are generally two types of property: separate property and community property. Generally, a court in California will only make decisions regarding the community property. However, the separate property may impact the court’s decisions. Property may include such assets as:
- Real property
- Personal belongings
- Financial accounts
- Retirement accounts
- Pension plans
- 401(k) plans
- Stocks and bonds
- Stock options
- A business
- Intellectual property
This property can be completely separate, community property or a portion of separate and a portion community property.
Separate property in California is defined in the California Family Code as any of the following:
- Property owned by the individual before the marriage
- Rents and other profits derived from separate property
- Property acquired during the marriage by gift or inheritance
A person in California is free to gift or bequeath his or her own separate property without the other spouse’s consent. Additionally, a couple’s property may be disposed of in a different manner without implicating community property rules if they enter into a valid agreement to this effect, such as a prenuptial agreement.
Community property is considered property that is acquired during the marriage while domiciled in the state. This includes earnings of each spouse, even if he or she is the only spouse working outside the home. There is a presumption that the property a married couple owns is community property that each spouse has an interest in. To refute this presumption, the spouse wanting to claim the property as separate has to prove that it is indeed separate property. Courts in California generally split community property 50/50. The community property statute provides certain exceptions that can impact the classification of property. In some cases, a piece of separate property may have a community property interest in it. For example, if a spouse purchased a home prior to the marriage but mortgage payments were made on the property during the marriage out of community property funds and the home appreciates during the marriage, a community property interest may have arisen. Determining the classification of property is often left up to courts when spouses are not able to agree on an arrangement to divide their property at the time of separation or divorce.
Quasi Community Property
In addition to community and separate property, California recognizes quasi community property. Quasi community property is that which was acquired during the marriage but in another state that does not have a community property system like California. If the married couple gets divorced in California, the property in another state is still treated as community property even though it was purchased in a non-community state.
Property during Separation
Section 771 of the Family Code states that when a couple is separated and living apart, the earnings and property that each acquires is considered separate property. Additionally, if a legal separation is granted, these earnings and accumulations are also considered the separate property of the spouse who makes or earns them.
Debts are divided during the process of divorce in a similar manner as marital property. There may be separate debt or community debt. When determining how to divide debt, the court is considered with an equitable division, meaning a fair division but not necessarily an equal one. For example, a higher earning spouse may be given more of the debt due to his or her increased ability to pay off the debt.
Generally, the spouse who takes an asset also takes any debt associated with it. For example, if a spouse receives a vehicle, he or she may also take the car note. There may be additional provisions in the divorce decree requiring a spouse to refinance a loan so that the non-owner spouse will no longer be on the hook for an asset that he or she no longer owns. Debt can also be used to offset the higher value of property that one spouse may have.
How Assets and Debts Are Divided
A couple may be able to work out their asset and debt division in a number of ways. For example, they may reach an agreement on their own. However, for this agreement to be official, a judge must sign off on it as part of the legal separation process or as part of their divorce decree. A couple may reach this agreement on their own or through negotiations with their respective attorneys. Another option may be for them to reach an agreement as part of family mediation. Mediation involves a third party neutral who helps guide the parties toward the resolution of their legal dispute.
When a couple comes to an agreement regarding their property, they must take care to make the agreement fair to both parties. They should consider the economic value of property and divide it so that each spouse walks away with an almost equal amount of value to each party. Dividing property does not require the spouses to split every asset equally. For example, if the spouses have a checking account and savings account, they do not need to split the balance evenly between each other. Instead, the couple may agree for each spouse to keep one account. Alternatively, they may decide for one spouse to keep the furniture and the other spouse to keep the two accounts. Additionally, the couple does not need to sell off all of their property and split the proceeds down the middle. The aggregate effect should be to provide both spouses with about an equal amount of the value of the marital estate.
For spouses who are able to reach an agreement regarding their marital property and debt, a good place to start is by making a list of all of the couple’s community property and the value of the property. If a couple does not know the value of the property, an appraiser or other professional may be used to determine the value of certain property, such as real estate, collectables, businesses or future interests. During the divorce process, the couple will exchange forms regarding their assets and debts with each other.
If the couple is not able to reach an agreement regarding the division of their property and debt, then the case may be litigated. In this situation, the family court judge hears testimony and makes decisions regarding the division of the couple’s property and debts, as well as other legal issues, such as child custody and support issues. The court may hear testimony about the origin of certain property if this information is in dispute, as well as testimony from professionals regarding the value of property when the spouses do not agree on this matter.