When it comes to the division of marital property, California follows a unique legal framework known as community property law. Community property law can have a significant impact on your assets and liabilities once you enter into a marriage or domestic partnership. This post delves into the basics of California community property law, including what it means to be a community property state, and the key differences between community property and separate property.
Community Property Law
In the United States, community property laws govern the distribution of assets and liabilities acquired during a marriage or domestic partnership. California is one of a handful of states that adhere to this principle. But what exactly does this mean?
Community Property Principle
Under community property law, there are three general categories of property:
Community Property- Community property is all property and debt acquired by either spouse during marriage by labor or earnings while in California or another community property state. This can encompass everything from earnings, real estate, and personal property to debts like credit card balances and mortgages.
Separate Property- Separate property, on the other hand, consists of assets and debts acquired before the marriage or domestic partnership, gifts and inheritances received during the marriage (but kept separate), and property obtained with separate funds. This property remains the sole possession of the individual who acquired it and is not subject to equal division during divorce.
Quasi-Community Property- Quasi-community property is property that was acquired by either spouse outside of California or outside of another community property state that would have been considered community property had the couple acquired the property in California or another community property state. Other community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. During a divorce or dissolution of a domestic partnership, quasi-community property is treated similarly to actual community property. This means it's subject to equal division between the spouses, as if it were acquired within California's borders.
For the purposes of this post, we will focus on community property and separate property.
Closer Look At Community Property
In California, all property and debt acquired by a married couple during their marriage or domestic partnership is presumed to be community property. The phrase “during marriage” encompasses the date of marriage until the date of separation. The cornerstone of community property is the notion of equal ownership. In practical terms, this means that each spouse is entitled to an equal share of the assets and debts accumulated during the marriage, no matter who contributed more financially.
Some examples of property acquired during marriage that are considered community property are:
Growth of a spouse’s business aka Business Goodwill (whether the business was started before or during marriage). To learn more about business goodwill and how it is valued in a dissolution proceeding, click here.
Disability benefits that replace marital earnings
Severance pay that replaces marital earnings
Life insurance
Stock options
Retirement benefits
The following are also examples of community property, but are preempted by federal law meaning that if a California community property law conflicts with the federal law on how certain property is divided, federal law will trump California law:
Civil and foreign service retirement benefits
Veterans benefits
The above are just some examples of property acquired during marriage that are subject to the community property principal of equal ownership. However, not all property a spouse has a stake in is considered to be community property and therefore, spouses are not considered to have equal ownership over what is called separate property.
Closer Look At Separate Property
Separate property is property that was acquired by any one spouse before the date of marriage. Separate property is also property acquired by any one spouse during the marriage by gifts or inheritance, or any profits or assets stemming therefrom, that are kept separate from the community assets.
Some examples of separate property include:
Investment accounts, personal belongings, or real estate that one spouse acquired before marriage
Financial accounts, money, gifts, or personal belongings such as an heirloom inherited by one spouse before or during the marriage
Property such as a motor vehicle, collectors item, or antique that was purchased using only separate property
The above are some examples of separate property that is not subject to equal division during a divorce. However, it is important to note that the distinction between community property and separate property is not cut and dry. Many variables come into play and change how any given property is categorized and divided, especially when community property and separate property are commingled.
When Community Property and Separate Property Mix
Commingling of community property and separate property occurs when the two are combined. Commingling of the two can often make it challenging to distinguish what is community property and what is separate property and often requires tracing the source of funds to determine the character of the property.
The following are some instances in which the issue of commingling arises:
Taking assets in joint or separate title
Using community property to improve separate property and vice versa
Using community property to pay off a separate property debt or purchase
Separate property that increases in value during the marriage
To ensure the integrity of separate property, it's essential to keep careful records and avoid commingling funds. Any assets or debts that parties intend to remain separate should be clearly identified and not intermingled with community property.
Getting Your Fair Share
Understanding the intricacies of California’s community property law is essential for couples contemplating marriage, domestic partnership, or divorce. In summary, community property in California presumes equal ownership of assets and debts acquired during marriage or domestic partnership, while separate property remains individually owned. However, the categorization of community property and separate property is not as black and white as it may seem, which is why navigating California’s community property laws requires careful planning and expert guidance.
Whether you're getting married or contemplating divorce, consulting with a qualified attorney can help you make informed decisions regarding your assets and financial future. At Harris & McKeown, our team of Certified Family Law Specialists has been assisting clients throughout Southern California for over 10 years.
If you are located in Orange County, Riverside County, San Bernardino County, or Los Angeles County and you want to discuss how California’s community property laws may affect you, schedule a free consultation appointment here or by calling (949) 297-6529.
**DISCLAIMER**
THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
EVERY CASE IS DIFFERENT AND THIS GUIDE SHOULD NOT BE CONSTRUED AS
LEGAL ADVICE. THIS ARTICLE DOES NOT CREATE AN ATTORNEY CLIENT
RELATIONSHIP BETWEEN THE READER AND ITS AUTHOR. IF YOU HAVE LEGAL QUESTIONS, CONSULT WITH A FAMILY LAW ATTORNEY.