California is a community property state. What does this mean for you in your divorce? It affects how assets and debts can be divided between you and your spouse. Community property is 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 through the date of separation is community property.
The exceptions comprise separate property. This is anything acquired before the marriage (and any income produced by those separate property assets) and any gift or inheritance received at any time.
The separation date
In California, there is a presumption of community property if it was earned during the marriage. However, this can be rebutted by evidence, including your separation date.
Property acquired after the date of separation is considered separate. However, the date of separation can be difficult to prove. It’s not always the date one party moves out of the home.
The law says that the date of separation is the date one spouse decided to end the marriage and objectively acted as if they were no longer in the marital relationship. There must be an act of physical separation, along with other actions, to clearly show a spouse’s decision to separate.
Hello Divorce CEO Erin Levine answers: What counts as community property?
How property is divided in a community property state
Regardless of who was doing the earning or spending, California affords each spouse equal rights to community property in divorce. This applies unless there is a written agreement to the contrary or the facts and circumstances favor an inequitable division.
Many people think if they live in a community property state, they are entitled to 50% of everything—half the interest in the car, half the interest in the other spouse’s retirement, and so on. But in California, it’s rarely that simple.
The court will examine the overall total fair market value of the entire community estate. They will weigh this information against all debts the community owes. At that point, the court can more fairly divide the net community estate.
This may mean that one spouse gets the pricier car—but they also get the higher sum of credit card debt. This is done in an effort to balance things out. The ultimate goal is for each spouse to receive assets that are equal in their value.
Determining what’s community and what’s separate
Sometimes, it can be difficult to determine whether something is community property or separate property.
For example, it can be hard to divide a business that one spouse formed before the marriage but both spouses worked on during the marriage.
With retirement plans, anything earned and contributed to a specific plan during marriage is community property. Therefore, it’s a good idea to print out and save the exact balances of your accounts before getting married.
Prenups and postnups: A workaround
One way to get around California’s community property rule is to establish a prenuptial or postnuptial agreement.
Prenups and postnups are written contracts that predetermine the nature and division of property in the event of divorce.
To make sure the contract is enforceable, it’s a good idea to have a licensed California lawyer draft your prenup or postnup. After all, you don’t want to rely upon a risky document that could end up being contested and thrown out in court. See our Lawyer Help page for flat-rate, affordable legal help.
Couples can agree at any point to change an asset’s characterization. In other words, community property can be re-classified to separate property, and vice versa.
Any agreement like this must be captured in writing and should clearly state what each party intended, along with changing the title. Doing the latter by itself would not be sufficient to change the nature of the property.