California is a community property state, which affects how assets and debts can be divided in the event of a divorce. Community property means any property (including income) that is earned or incurred by either person during the marriage. With few exceptions, all property acquired from the date of marriage until the date of separation will be considered community. The exceptions comprise ‘separate property,’ which is anything acquired before the marriage (and any income produced by those ‘separate property’ assets), or any gift or inheritance received at any time.
In California, there is a presumption of community property if it was earned during the marriage; however, this can be rebutted by evidence. Property acquired after the date of separation is considered separate. The date of separation can be difficult to prove. It is not always the date one party moves out of the marital residence. The law says that the date of separation is the date one of the spouses has decided to end the marriage and objectively acts as if they are no longer in the marital relationship. There must be an act of physical separation along with other actions that can clearly show the decision of the spouse to separate.
Hello Divorce CEO Erin Levine answers: What counts as community property?
Regardless of who was doing the earning or spending, California allows each spouse an equal right to receive community property upon the divorce, unless there is a written agreement to the contrary, or the facts and circumstances favor an inequitable division. Many people think that this means they are entitled to 50 percent of everything (so, half the interest in the car, half the interest in the other spouse’s retirement) and you just divide everything by two. However, in California, divorce is rarely so straightforward.
The court will examine the overall total fair market value of the entire community estate, weighing it against all the debts the community owes. At that point, the court can more fairly divide the net community estate. Often, that means someone will get the more valuable vehicle; however, to make it fairer, that same spouse might also receive slightly more debt in an effort to balance things out. The ultimate goal is for each spouse to receive assets that are equal in their value.
Sometimes it can be difficult to determine whether something is community property or separate property. For example, it can be difficult to divide a business that one spouse formed before the marriage, but both spouses worked on equally during the marriage to grow and expand. With retirement plans, anything earned and contributed to a specific plan during the marriage is community; therefore, it is important that, before marriage, you print out and save the exact balances of accounts in the event of a divorce.
One way to get around California’s community property regime is to have either a pre-martial or post-nuptial agreement. These are written contracts that predetermine the nature and division of property in the event of divorce. It is usually a good idea for a licensed California lawyer to draft these in order to ensure that they are enforceable and comprehensive. (See our Lawyer Help page for flat-rate, affordable legal help from our partners at Levine Family Law Group.) You do not want to rely upon a document concerning your personal wellbeing and income that has the risk of being thrown out in court when it is contested.
Additionally, couples can agree at any point to change an asset’s characterization – changing community property into separate property, and vice versa. However, the agreements must be in writing and should clearly state what each party intended, along with changing the title. Doing the latter by itself is not sufficient to change the nature of the property.