California‌ ‌Divorce‌ ‌Questions:‌ ‌Direct‌ Tracing‌ Community‌ ‌Property‌ ‌vs.‌ ‌Separate‌ ‌Property‌

Getting divorced is stressful and complicated enough. Figuring out how to divide your assets adds a layer of complexity that can seem overwhelming. With the right team on your side, understanding the different ways to separate and identify what property belongs to who can be a much simpler experience. 

Types of Property in a California Divorce

The state of California recognizes generally two types of property in a marriage: separate  property and community property. 

Separate property is property that was owned or acquired before you got married or after you were separated. If you received property by gift, bequest, or devise or descent during the marriage that was specifically gifted to just you and not your spouse, that will also qualify as  separate property. 

Community property refers to all property acquired during the marriage other than property that was acquired by way of a gift or bequest.

When the court says everything, they mean everything. Your salary through your marriage is considered community property even if you keep separate bank accounts throughout your marriage. The home you bought while married is considered community property. Everything you acquired while you were with your spouse is community property.

However, if you used individual assets to improve or acquire community assets during the marriage, you are entitled to the property or reimbursement for the cost of improvements. This can be a tricky thing to argue because the onus of proof is on you, as the court’s default assumption is that everything acquired during the marriage is community property. You have to be able to prove that you used what the court would classify as separate property assets to cover the cost before they will grant you the reimbursement or the actual property.

How to Sort Out Separate Property Claims

One of the most frequent questions we get asked is this: How do I prove that my separate property assets are my separate property assets? There are three methods that you can use to sort out separate property claims from community property claims:

Keep Property Separate

The easiest way to prove a separate property claim is to keep your separate property in a stand-alone account throughout your marriage and avoid adding community funds to this account. You should also try to avoid using separate property funds on community property assets to keep things clear and simple.

Examples of the kinds of property that should be kept in a stand-alone account include:

  • Everything you owned before the marriage.
  • Gifts you received during the marriage to just you.
  • Any inheritances you (and you alone) received.
  • Rent or profits from separate property assets.

Direct Tracing Method

Another method of identifying what is separate property versus what is community property is the direct tracing method. Direct tracing is a way of connecting the dots between separate property accounts and improvements to community property, including community investment or brokerage accounts. 

Direct tracing requires you to have proof of sole ownership of what you are claiming as separate property. These could be things like deeds, bank statements from a stand-alone account, or legal documents from a gift or inheritance naming you as the sole recipient. 

If you are using this method to prove that you used separate property to fund improvements to community property, you need to be able to show the path of those funds from your separate accounts to community accounts. If you are unable to show that through a paper trail, there is one more way to try and prove to the court that you are owed a reimbursement.

Exhaustion Method

Not all of us are meticulous record keepers. Many times in a marriage, separate property funds are used without thinking about how to get reimbursed in the case of a divorce so records just aren’t kept. There is still a way to prove separate property funds were used: the exhaustion method.

In California, the courts assume that when funds are commingled, community assets are spent first on family expenses such as bills, food, mortgage payments, etc. If you can show that there were no community funds to spend at the time of the home improvement or investment account deposit, then the court would acknowledge that separate funds were used for that expense. 

For example, let’s say that you alone received an inheritance and you and your ex-spouse agreed to use part of those funds to renovate your kitchen since your incomes were used to cover your expenses. If you can show the court that there was no way your community property assets would have been enough to pay for the kitchen renovation, the court would have to acknowledge that your inheritance funds were used and would grant you a reimbursement of those funds.

Experts Can Help Simplify the Process

Separating property is a complicated process, but you don’t have to do it alone. Enlisting the help of an expert in family law is the easiest way to ensure that you walk away with your assets intact. Family lawyers and forensic accounts can help untangle any commingled assets and work with you to show the court that your separate property is yours alone. 
Over the past 28 years, our partners at Azemika & Azemika have all successfully handled the most difficult and high asset family law cases in Kern County and we can help you, too. We are family law specialists and we understand that each case is as unique as the clients we represent. For comprehensive representation in a divorce or domestic dissolution, contact us today.

Read more