Division of Property During Divorce - How California law views the division of property after dissolution of marriage
In California, spouses are married within community of property by default, according to the California Family Code, sections 760 and 771. That means that all property, debts, and assets that spouses acquire during their marriage will belong to them both equally, unless they have a valid marital settlement agreement, prenuptial or postnuptial agreement that states otherwise. All community property must therefore be divided equally between the two spouses on the dissolution of their marriage or domestic partnership. The same laws apply to registered domestic partnerships.
Although the community property scheme is applied by default, spouses can make use of a prenuptial agreement to agree only to certain aspects of community property. Alternatively, a postnuptial agreement can be used to transmute community property into separate property.
Although a multitude of factors determine which partner receives what assets after marriage, some basic guidelines do exist. Income earned or assets acquired while living with a spouse is defined as community property by California law. Anything that was acquired before they were married or anything a specific partner obtained by devise, gift, or bequest during or after the marriage, remains separate property.
Both spouses will have an equal and undivided interest in all community property and according to Family Code section 910, the community property is exposed to the debts of either spouse. In addition to spouses’ interest in community property, spousal fiduciary duty also applies. Spousal fiduciary duty is the right and responsibility of spouses who manage or use community property, to always act in the other person’s best interests.
If you and your spouse decide to separate, you will have to divide your debts and property equally, or you will have to ask the court to assist with the process. If you and your spouse are unable to agree on the best way to divide your assets, an arbitrator or judge will have to assist you.
Even if you and your spouse are able to agree on the division of property, a judge must still sign off on the agreement. Spousal fiduciary duty continues to remain in effect until all assets have been divided. The court uses four methods to divide assets, namely:
- in-kind division
- cash out / asset distribution division
- sale and division of proceeds
- deferred partition by conversion to tenancy in common.
While it may not be necessary to hire an attorney to handle the entire legal separation or divorce, it is important to have a professional assist with the division of assets. This is especially important if you signed a prenuptial or postnuptial agreement.
What is Property?
Property, in terms of divorce or separation, is anything that can be traded or exchanged for money, including 'fixed' property such as houses, cars, furniture, and clothing. It can also be another type of property that has value, such as cash money or bank accounts, security deposits on a home, 401 (k) plans, businesses, life insurance with a cash value, patents, and more.
Three Steps to Division of Property
The process of property division involves three steps, whether you and your ex spouse handle it, or whether you request that the court handles it on your behalf.
- Determine whether something is community property or individual property.
- Determine the value of the property.
- Divide the property.
Throughout the process of division of property, you are bound by spousal fiduciary duty to play open cards with your spouse regarding any information that affects community property. You must inform your ex-spouse of any changes in the value of the property as well as about any offers to purchase, plans to sell or give away property, and any other pertinent information.
Community or Individual Property
California law strongly presumes that debts and assets accumulated during marriage are community property and property that was obtained by one spouse prior to the marriage, is separate property belonging to the individual. By law, you may not coerce your spouse to transmute his or her personal assets into community property against his or her will. This presumption also extends to items or gifts purchased with separate money that was obtained by inheritance or gift before the marriage. Likewise, any property that is acquired after separation but before divorce, is considered separate property.
Any personal or financial asset, income, expense, or debt that can be jointly owned, transferred, or that can survive the death of a spouse, may be community property. Any talent, labor, or time expended during the marriage by one of the partners, is presumed to be community property.
Property Obtained After Separation
Any property acquired after spouses part ways, is separate property, even though you may still be legally married. Your earnings are separate property, according to code 771.
Separation is not always the date on which a spouse leaves his or her marital home, but rather the date on which one of the spouses decides to end the marriage. In order to prove the separation date, some evidence of physical separation is needed. This date can become troublesome if one of the spouses received or spent an usually large sum of money shortly before the divorce. In the case of conflicting evidence, the court will typically include as much as possible in the community property pool by leaning towards the later date presented.
Assets that were originally separate property may be included into community property during marriage. For instance, an inheritance may be separate property if it was bequeathed to one spouse, however, when some of the money is placed into a joint bank account, it becomes commingled property.
Written agreements must be drawn up for all valuable assets and for the way in which a couple wishes to handle their property. However, it is common for a spouse to unintentionally change a separate asset into a community asset by commingling it with marital property. Using a bank account you owned before the marriage may become marital property if your spouse uses it, and a home that belongs to one spouse can become a marital property if both spouses contribute to the mortgage and related expenses.
The court will typically look at the source of the money used to obtain an asset to determine who it belongs to.
Likewise, assets may become partially separate and partially community property. This can make the process of dividing property cumbersome and that is why we recommend that you get in touch with a San Diego divorce attorney for assistance.
If you and or your spouse obtained property - that would've been considered community property in California - while living in another state, it becomes quasi-community property during your California-based legal separation or divorce. It will therefore be treated as community property.
Overcoming Legal Presumption of Community Property
It is not uncommon for spouses to use separate property in a way that benefits both parties during the course of a marriage. Sometimes, a spouse may give use or control of a separate asset to the other spouse during marriage. However, this can lead to confusion when the marriage ends. After treating an asset as his or her own for years, it may seem fair for it to become personal property, or community property at the very least. However, the other spouse may wish to retain ownership of the asset for sentimental or other reasons.
In order to prove that property that was acquired during the marriage or legal partnership is separate property, the person who wishes to do so must be able to shows that the property was:
- transmuted (opposite of commingled) into separate property,
- derived from a separate source of property,
- a personal injury award received while legally separated,
- an inheritance or gift intended exclusively for one spouse, or
- acquired after the date of separation, while the spouses were living apart, or after the Judgment for Legal Separation was granted.
Value of Property
Each spouse is entitled to half the market value of the community estate. The court will distribute each item on an individual consideration basis. If a spouse tries to transmute the classification of an asset during the proceedings, the court may award the entire value of the asset to the other spouse.
If the spouses are unable to agree on the monetary value of property items, the court can assign values by having the items (such as art or antiques) appraised. Financial assets may have to be evaluated by a financial professional, C.P.A. or actuary.
When dividing community property, neither spouse may claim half ownership of a specific asset. The key is to award equalized assets to both spouses in the end.
If spouse A receives an asset that is significantly more valuable than what spouse B received, spouse A will be required to equalize payment in order to make up the difference in value. For example, spouse A receives a car worth $20, 000 and spouse B receives a car worth $30,000. Spouse B will have equalize payment by giving spouse A assets or cash worth $5,000 to equalize assets to $25,000 per spouse.
Division of Property
Assets may be divided by:
- assigning specific items to each of the spouses;
- allowing a spouse to buy out the other spouse's share of the asset;
- selling the assets and dividing proceeds.
In some cases, spouses agree to co-own property after the divorce. This is usually the case with businesses, or family homes. Most people wish to sever ties - and financial relationships - with their exes, but it makes financial sense for some couples to hold onto an investment property. Spouses will enter a new form of fiduciary duty and, in essence, become legal business partners.
Simply assigning separate or community ownership of property does not legally transform separate property into community property and it does not ordinarily transmute it either. It can only be legally commingled if there is no way to trace the sources. If property was acquired using money from a commingled source, the property will then be treated as community property.
Community property may be legally transformed (transmuted) into separate and vice versa. Likewise, separate property may be transferred between spouses. You may ask the judge to divide community property equally between spouses or partners.
Debts and Community Property
Many people are under the assumption that they are liable for the debts of their spouses, but that's not the case. Community property - rather than the individual partners personally - will be liable for the debts. Your exposure to debts that were solely incurred by your partner ends as soon as soon as the marriage does. You will only be liable for debts you personally incurred.
All debts accrued while married must be divided as well, including mortgages, credit card debts, and mortgages. Since a divorce or separation agreement is not binding on creditors, they may continue trying to collect community debts from either spouse. You may ask the court to put a lien on your spouse's property as security for paying the debts assigned to him or her.
If one spouse buys out the other's share in the family home, refinancing may provide an opportunity for all the marital debts to be paid off.
California divorce law was designed to give couples a clean break and to enable spouses to live independently after divorce. Naturally, mitigating circumstances exist, whereby the court will take sentimental value and family situations into consideration. Issues that involve children may well affect rulings in community property cases. However, it is rare for the court to insist on spouses remaining co-owners of community property on divorce settlement.
Help With Division of Property
Navigating the issue of property division during divorce can be difficult, which is why it is important to speak to San Diego Divorce Attorney as we specialize in division of property. Call 858-529-5150 for an initial case review.