Basic Community and Separate Property Rules
There are three types of property classifications for married couples in California: community property, quasi-community property, and separate property.
In California, ALL property acquired during the marriage is presumed to be community property, which means that spouses have equal ownership interest in the assets. The income earned by either party, retirement accounts, real estate, bank accounts, and debts (credit card, tax, loans) are considered community property.
This means that unless a spouse can provide specific evidence to show that the property is separate, the law in California assumes that all assets belonging to a married couple are community assets. The idea behind this is that joint ownership is recognized by the presumption of equal contributions by both parties during a marriage.
A quasi-community property is property acquired by married couples during the marriage while living outside of California.
For purposes of division, California law treats quasi-community property as community property.
A separate property is a property acquired before the marriage or after separation or acquired during the marriage by gift to that party alone or by inheritance. The income, dividends and rents of an asset acquired through gift and inheritance or acquired before or after the marriage is also considered separate property.
During a divorce, a party may claim that an asset is his or her separate property. The party making this claim has the burden to prove that the asset is in fact separate. The party must be able to trace the source of funds used to acquire the property. This process may involve producing receipts for purchases, purchase contracts, financial statements and other documents that establish a claim of separate ownership. As the years go by, it can be time consuming and costly to accurately trace the origin of some assets. However, spouses who hold onto the original documents may be able to accurately trace the source of funds and therefore will not be obligated to divide the separate property assets equally upon divorce.
Often a spouse will claim that the property is his or her separate property because title is in his or her name only. Holding title to property in one’s name alone is not sufficient enough to overcome the presumption that all assets acquired during the marriage are community. The spouse must show that the other spouse waived his or her community interest through a writing expressly declaring to give up his or her interest.
In most cases, especially in long term marriages, parties will inevitably mix their separate property with the community property. One way that separate property can become community property is by comingling or transmutation.
When a separate property is mixed with community property, the separate property is commingled with the community asset. An example of this is when a spouse inherits a property and then transfers the deed to the property to both partners names in joint ownership or deposits funds from inheritance into a joint bank account. Although comingling assets is not enough to change the property’s identity, the party claiming separate interest must trace the funds using direct or exhaustive tracing or other methods.
Often it is difficult to distinguish separate property assets from community property assets and even more difficult to show a paper trail tracing the origin of the separate property assets. Such as when a property owned prior to the date of marriage is sold and the sale proceeds are placed into a joint bank account and then used to purchase the new property during the marriage.
During a divorce, the question that arises often is who will get the house or the cars and the bank accounts. Family Code Section 2581, tells us that in California assets are divided equally among the spouses. If one spouse wants to keep a community asset over the other spouse, they must buy out their partner’s interest, either outright using separate funds, make equalizing payments until the balance is paid in full, or must be willing to offer up an asset of equal value in trade. The same rules apply for community acquired debts. All debts incurred during marriage will be divided equally.
If a divorcing couple cannot agree on division of community property assets or debts, the courts will decide for them. This is done by placing a monetary value on each item of value using appraisals and fair market value calculations. Once a value has been assigned a property, divorcing couples can either agree to divide the asset themselves or ask the court to do it for them.
Dividing assets such as a home, vehicles, securities, valuable collectibles, retirement benefits, and household items, or debts are where couples run into considerable difficulties. If you are going through divorce and need assistance on this matter or any other, it is always a good idea to consult with an experienced attorney who can assist in the legal process of your divorce.
The views expressed in this article do not contain legal advice, may not be current and is subject to change without notice. The information contained herein is provided for general information and educational purposes only and is not a substitute for professional advice. Should you need legal advice, contact Simon Law directly and request to speak to an attorney regarding your case.