California Community Property – When you’ve reached an end of a relationship, it’s quite natural to feel a flood of emotions. You’ve probably invested a lot of energy – and yourself – into what you had expected to last forever. For one reason or another, however, plans changed. Your life took a turn and now you may feel defeated, sad, angry, betrayed, frustrated, scared, or even vindictive. If this emotional roller coaster wasn’t enough, you may even experience 101 thoughts racing through your head as you try to answer one question, “now what?“ Who keeps what? When you’re married, this generally isn’t an issue. You and your spouse are partners – two pieces to a whole. Given that you’re working together, to build a life together, you usually share the resources and assets you bring in. When that partnership reaches its end, though, who owns what? Who keeps the house? The car? The bank accounts? Stocks? Pension? Or even the dog?
California is a Community Property State
To answer this question, let’s begin with the fact that California is considered a “Community Property” state.
What is Community Property?
Community property is presumed to be any property acquired during your marriage or domestic partnership – minus any gifts or inheritance. This includes personal property (i.e. cars, furniture, antiques), real property (your home or rental property), earnings (regardless who earned it), and bank accounts. In determining whether an item of property belongs to the community or not, you must trace the property to the source of funds used to purchase it. If the property was purchased with earnings earned during the marriage, for instance, then it’s considered community property. In California, each spouse owns one-half of the community property. For example, if you purchased a car with your earnings, and even placed title in your name alone, “your” car is actually considered community property – as you used community earnings – thus belonging to both you and your spouse/partner.
What is Separate Property?
Property acquired before marriage or after a legal separation or divorce, or any property received via gift or inheritance during the marriage, is presumed to be separate property. Subsequently, any property purchased, rents received, profits earned, or other money obtained utilizing separate property, is also considered separate property – and subsequently not shared equally with the other spouse/partner. Referring back to the car example above, let’s assume the vehicle was purchased with funds from an inheritance, as opposed to community earnings. In this scenario, since an inheritance is classified as separate property, the car is also characterized as separate property.
What is Quasi-Community Property?
On the topic of California community property and separate property, let’s briefly discuss quasi-community property. Quasi-community property is any property that would be characterized as community property in California, but was acquired while living in a non-community property state. Under this situation, quasi-community property is treated as community property in a California divorce or legal separation. For instance, if you and your spouse lived in Florida while married, during which you purchased a vehicle with your earnings, although Florida isn’t considered a community property state, if you’re getting a divorce or legal separation in California, your Florida car will be considered as quasi-community property and treated as community property. Thus each spouse will own the vehicle equally.
Commingling California Community and Separate Property
We’ve discussed California community property, separate property, and quasi-community property, but let’s take it up a notch. What happens in situations where the property was obtained via both community and separate property? For example, who owns the house if you used your inheritance money to pay the down payment, but paid the mortgage with your earnings earned while married? This is called commingling, as your separate and community property have combined. Here, it gets complicated, but in simplest terms, the equity earned would have to first be separated between what proportion was acquired from separate property verses community property and then allocated between the spouses/partners accordingly.
This all said, there are ways to rebut the California community property presumption – including transmuting the property and enforcing a prenuptial or postnuptial agreement.
Transmutation means the parties have changed a property’s form or character from (a) community property to separate property, (b) separate property to community property, or (c) one’s separate property to the other’s separate property. Transmutation rules differ, depending on when the property was transmuted. Essentially, if the property was transmuted after 1984, the parties must have entered into a writing clearly indicating their intent to change the property’s characterization, with the adversely affected party signing the writing. Note, the adversely affected party is the spouse or partner who is losing their interest in the property. If the property was transmuted prior to 1984, a writing isn’t required.
Prenuptial & Postnuptial Agreements
Another way to rebut the community property presumption is via entering into a prenuptial (before marriage) or postnuptial (after marriage) agreement. These agreements allow couples to contract among themselves how they wish to treat their property (i.e. earnings, real property, or personal property). If a prenuptial or postnuptial agreement is in effect, then the contract can overrule California’s community property presumption.
Whereas community property is presumed to be any property acquired during the marriage or domestic partnership, minus gifts and inheritances, community debt is any debt a spouse or partner acquires during the marriage or domestic partnership. Under the community debt presumption, each spouse or partner will be held responsible for any financial obligations characterized as community debt – even if it’s a credit card in your spouse’s name alone, which he or she opened and incurred debt upon without your knowledge.
Contact Us to Learn More
We understand if this may all come across a little overwhelming and confusing, as the division of property and debt can become complicated – and a single mistake can be quite costly. If you have any questions about whether some asset/property or debt would be considered part of the community or not, contact us. Keep in mind, you may not need to hire a lawyer to represent you on your entire divorce or legal separation, as you can choose to work with an attorney for only issues relating to property division. Additionally, even if you and your spouse/partner have informally divided your property and debts, unless you have gone in front of a judge and the judge has signed off on the agreement, the California community property presumptions stand.