California is a community property state. This means that all assets and debts incurred during marriage are equally divisible between the parties in a divorce. Assets or debts acquired prior to marriage or after separation are the “separate property” of the incurring party. Getting married does not turn separate property into community property. Thus, there is often the issue of how to divide assets or debts which were acquired before and during the marriage.
What Is California’s Community Property Law?
Generally, community property assets or debts are those assets or debts incurred from the date of marriage through the date of separation (the date one party decides he or she no longer intends to be married and objectively conveys that intent to their spouse). Thus, if you go to work after you are married and earn a paycheck, that money is “community” and upon divorce each party is entitled to half, even if only one party went to work while the other stayed home.
What qualifies as separate property?
Separate property assets or debts are those obtained by a party either, before marriage, after separation or that received by gift or inheritance. Thus, if you go to work and earn a paycheck before you marry, after you marry, those funds will be classified as your “separate” property. Additionally, if you were given 5 shares of GE stock before you were married, and those share increased in value, split, paid dividend income or were sold to buy other stock, the increases in value and income would also be classified as separate property even if the increases occurred during marriage.
What qualifies as a combination of property?
Assets may also be classified as a combination of property. Generally there are two types: A community property asset with a separate property contribution, or a separate property asset with a community contribution. It is common for a couple to marry and one spouse may own a house before marriage. The house is the separate property asset of one spouse. However, after the parties marry and they reside in the residence, the mortgage payment is generally paid by community funds (income earned as a married person), which then creates a community interest in that separate property asset.
There are formulas for splitting up that interest that Family Law practitioners refer to as a §2640/Moore/Marsden calculation. The calculation becomes more complex when the parties refinance, sell and buy a new home, etc. An example of a community property asset with a separate property contribution would be something like a pension or retirement program. There are many types of retirement programs and each program dictates when the benefits will be paid. This often prevents liquidation at time of divorce and the parties must wait until the employee reaches the proper age or number of years of employment.
If a husband owned a residence that had a mortgage on it before marriage, and after the parties were married he continued to pay the mortgage down, there would be a calculation to determine which part of the asset was community and which part was separate based on the fact that his earnings during marriage were community property. The fact that an asset appreciated during marriage is not the test, it must first be determined which percentage of the asset was owned by the husband (separate) and which percentage was owned by both husband and wife (the community). Any growth would generally be apportioned based on the percentage they each owned. If it were determined that husband owned 50% and husband and wife owned 50%, husband would own 75% (his 50% and ½ of the community interest or 25%) and wife would own 25%. Thus, after returning principal to husband and wife in their proportionate shares, the left over growth would be allocated 75% to husband and 25% to wife.
This same concept applies to evaluating other assets, debts and businesses. Further, the nature of the combination, separate property into community property, community property into separate property, or even the separate property of one into the separate property of the other each have their own unique set of rules to be applied.
A final note on the application of community property principles: they do not apply unless you are married.
About Our Family Law Practice
Family law is the designation given to the area of law that deals with divorce and spousal support (alimony), child custody, child visitation, child support, and generally all matters related to the evaluation and distribution of the parties assets upon divorce.