California Community Property Laws Explained

When you are getting a divorce in California, understanding California community property law is essential. During a California divorce, one of the biggest questions that come up is how the property is going to be divided.

Issues such as child custody, visitation, and property division are usually one of the most emotionally challenging aspects of a divorce. Other things like cars, personal property, and homes may have sentimental value, but the most significant emotional connections remain to private property and children.

California is a community property state, which means that usually, property obtained by either spouse during the marriage is equally owned by both parties. In this article, we will talk more about California’s community property law and how it works in practice.

Steps For Dividing Community Property In A California Divorce

Whether you and your partner agree on the division of property or if it is handled in court, there are several essential steps to follow, and a judge has to approve how you’ll divide your property and debts.

Step #1. Is The Property (or Debt) Separate or Community?

Community Property In California

California Family Code 760 states, “except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.”

Separate Property In California

California Code 770 includes:

  • Property owned before marriage
  • Property acquired by the individual after marriage by gifts, bequest, descent, or devise
  • Items purchased with or exchanged for separate property
  • Earnings on separate property
  • Any increase in the value of the separate property as long as the property owner can prove the claim with financial records or other documents

Date of Separation

The date of separation may be necessary under some circumstances. It can affect the designation of what is considered community property and is determined by the date that one party has expressed their intent to end the marriage and acts in a way that signifies their intent.

How Can Separate Property Become Community Property

There are two possibilities for change of ownership of community property:

  • Transmutation happens when one spouse changes the classification of property by transfer agreement, and it must be done in writing
  • Commingling happens when one spouse inadvertently combines separate property with marital property. This can only be disputed by providing evidence that it was unintended

Step #2. Assign Values To Community Property or Debt

The spouses or the court determines value if they can’t agree. To assess the value, a judge will look at evidence such as statements, appraisals, expert testimony, and financial disclosures.

Retirements, pensions, or employment benefits 

These accounts may be challenging and require the help of an actuary, CPA, or financial professional. Pensions and retirement plans are usually divided in two ways.

  • Reservation of Jurisdiction, when the court orders that the other party will receive a percentage of the pension check when the spouse retires. The amount is determined by calculating the number of years you were married and dividing it by the number of years the pension recipient was employed.
  • Cash-out is when an actuary determines the present value of the community property. The employed spouse will receive the entire pension plan, and the other party will receive other community property assets of equal value.

Step #3. Division Of Community Property, Assets, and Debts

In California, if no written agreement requiring a specific division of property is present such as a prenup, then community property must be divided equally. The judge will determine the net assets by subtracting the debt from the community property assets. California community property laws don’t require “in kind” division, meaning you have to divide each physical object. It requires that the split be an equal 50/50 of the value of the estate’s assets.

Separate property is the property that the spouse owned before the marriage or received as a gift or inheritance and not divided in the divorce.

Community Debt

All debt accrued during the marriage is community debt and must be divided between both parties. However, it is essential to understand that the divorce order is not binding to creditors who may attempt to collect community debt from either party.

Examples Of Community Property and Equal Division

It is essential to get the advice of an attorney to help determine what community property is and separate property. Identifying potential community properties is complex and can vary from case to case.

  1. Family residence and other real estate acquired while married
  2. Household furniture, appliances, and furnishings purchased during the marriage or with marital funds
  3. Vehicles, boats, motorcycles, etc., may be trickier if acquired before marriage but paid down during the marriage
  4. Bank accounts and accounts with other financial institutions, including brokerage accounts. Even accounts opened before the marriage may be included if marital earnings were deposited 
  5. Cash is community property unless one spouse had it before the marriage, and it is kept separately
  6. Life insurance if both parties purchase the policy with marital earnings or savings; however, it can be complex and requires the advice of an experienced attorney
  7. Retirements and pensions are required to go through a qualified domestic relation called a QDRO
  8. Annuities, retirement accounts, and deferred compensation plans may require a QDRO process similar to other financial accounts
  9. Accounts receivable or unsecured notes for money lent that was community property money will likely be considered community property
  10. Businesses, partnerships, LLCs, and other corporations started during the marriage are community property. However, suppose the spouse began the business before the marriage. 

In that case, it will be determined by 

  • The date the company started
  • If the other spouse contributed time or money 
  • If community money was invested
  • What is the value of the business at the time of marriage
  • The value of the company at the time of divorce. 

This is significantly complex, and hiring an experienced attorney is essential to ensure it is done correctly.

Consider The Tax Effects Of Dividing Community Property In A California Divorce

The court will consider the tax effects of dividing community property in California only when it immediately impacts a party’s taxes. However, you must consider the long-term impact of a gain or loss and the tax effects and consult a tax attorney or planner to discuss the possible tax implications of a community property division.

Hire Attorneys Devoted To Family Law Azemika & Azemika

At Azemika & Azemika, we specialize in the field of family law. We are here to help support you during this challenging time and navigate the complex issues of property division, child custody, visitation, adoption, divorce, and more. Contact us today for a free consultation.

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