Community Property & Separate Property
Property division is an issue that must be addressed during a divorce action. State law governs property division in divorces. Therefore, the laws vary by state.
Most states are equitable distribution states. However, nine states operate under the rules of community property. If you’re facing a divorce, consulting with a divorce attorney can be essential to navigating the complexities of property division.
This blog discusses the difference between community property and separate property. The distinction is very important regardless of whether you live in a community property or equitable distribution state.
Is California a Community Property State?
California is a community property state. Nine other states, including Nevada, Washington, Arizona, Texas, Idaho, Wisconsin, and Louisiana, have community property laws.
Couples can negotiate a property settlement agreement to propose to the court. In some situations, a pre-nuptial or post-nuptial agreement might determine how to divide property in a divorce. If the parties cannot agree and there is no marital agreement, the court decides how to divide the property based on community property laws.
What Is Community Property in California?
Property includes anything that can be purchased or sold. It also includes anything of value, such as financial accounts, wages, life insurance, intellectual property, retirement accounts, etc. California includes income earned and property acquired during the marriage as marital assets.
Without an agreement between the parties, community property law states that each spouse has an equal share in all marital property. It does not matter whether the property is titled in one spouse’s or both spouses’ names.
Furthermore, it does not matter which spouse purchased the assets or earned the income. Each spouse owns an equal share if the assets or income were acquired during the marriage. However, there is an exception for separate property.
What Is Separate Property in California?
Separate property is not subject to property division during a divorce.
The separately owned property includes:
- The property the spouse owned before the marriage
- Property inherited by a spouse before or during the marriage
- Income earned while living individually and apart
- Profits earned from property owned before the marriage, with some exceptions
- Inheritance received before or during the divorce
- Wealth or earnings acquired after the parties are legally separated
- Property received as a gift before or during the marriage
- Profits earned from property inherited or received as a gift before or during the marriage
If a spouse maintains the property separately, their partner is not interested in the assets. However, a spouse can do things to cause separate property to become community property.
Turning Separate Property Into Community Property
There are several ways separate property can be converted into community property. Examples include:
Transmutation of Assets
If both spouses agree, the classification of property can change from a separate asset to community property. The declaration that the spouses intend separate property to be community property must be made in writing. The original owner must acknowledge how the transmutation will negatively affect their interest.
If a dispute arises later, the court must determine there was no undue influence, fraud, or force to uphold the transmutation. Additionally, the court must determine if a spouse waived their right to reimbursement because of the transmutation.
Commingling Assets
A separate asset may become community property if commingled with other community property. The commingling does not need to be intentional to change the property’s character. Intermixing property can make it nearly impossible to trace ownership interest.
For example, a spouse uses an inheritance to purchase a home during the marriage. The down payment may be separate property. However, the spouses pay the mortgage payments and upkeep from their income during the marriage. Therefore, equity in the home is community property.
Another common example of commingling assets is the money in retirement accounts. The money in the account before the marriage is separate property. However, the non-owning spouse can claim an interest in funds deposited into the account during the marriage.
Commingled assets can create complicated property division questions. A forensic accountant and other experts may be required to assist in separating the interests in the assets, if possible.
Dividing Community Property in a California Divorce
Under California community property laws, the community estate is divided between the spouses 50-50, including marital assets and debts. The spouses may agree to a different split, or a pre or post-nuptial agreement could change the split.
The spouses must submit a Preliminary Declarations of Disclosure (PDOD) at the beginning of a divorce case. The disclosure lists all assets and debts at the time the parties separated.
Common issues that arise when dividing community property include:
- Characterizing property as community vs. separate property
- Determining the value of property
- Separating commingled assets
- Dividing pension plans and retirement accounts
- Hidden or concealed assets
- Wasteful misconduct, reckless mismanagement of finances, gambling losses, and funds spent on extramarital affairs
Even though California is a community property state, property division is not always clear. An experienced Los Angeles property division lawyer can help you navigate issues that arise during a property division dispute.
Get Help With Property Division Cases in Los Angeles, CA
Schedule a consultation with a Los Angeles divorce lawyer. A property division attorney can work with you to protect your marital and separate property rights during a divorce.
Call Berenji & Associates Divorce Lawyers today to learn how we can assist you.
Berenji & Associates Divorce Lawyers Los Angeles Office
550 S. Hill Street STE 1467
Los Angeles, CA 90013
(213) 277-2586
Berenji & Associates Divorce Lawyers Beverly Hills Office
9465 Wilshire Blvd #333
Beverly Hills, CA 90212
(213) 277-2586