When it comes to marital property and the marital estate, there are two different types of states: Equitable distribution states and community property states. California is a community property state. These states have different rules when it comes to dividing the marital estate during a divorce. Under California law, when a couple marries, they share ownership of assets and debts acquired during the marriage. For this reason, property division is a fundamental aspect of divorce.

However, not all property is eligible for division during a California divorce. California family law recognizes three different types of property: community, separate, and quasi-community. Understanding the different definitions and how they work can help better prepare you for your divorce. In this article, the Sacramento divorce lawyers at Wagner Family Law will discuss community property, asset division, and the rules of dividing property during a California divorce. 

What Constitutes Community Property?

Community property, also known as the marital estate, constitutes most assets earned or acquired by either spouse during the marriage.

“Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.” (California Family Code § 760). 

Community property includes:

• Salaries or income received during the marriage

• Real estate and vehicles purchased with community property by either spouse during the marriage

• Anything that was purchased with community property

• Non-tangible property such as patents, copyrights, and trademarks created during the marriage

• Capital gains on investments made with community property

• Businesses that were formed by either spouse during the marriage

The marital estate accrues assets from the day the couple marries until the date of separation (or one spouse dies). Unlike equitable distribution states, in which property is divided equitably (not necessarily equally), California is an equal distribution state. That means that the marital estate is divided equally between the two parties to a divorce regardless of any other consideration. It does not matter which party earned, created, or purchased an asset. Both spouses have a right to 50% of that asset during the process of divorce. 

What Constitutes Separate Property in California?

Assets that were purchased or acquired before the marriage took place or after the date of separation are considered separate property under California law. By contrast, assets acquired during the marriage are considered part of the marital estate. According to California Family Code § 770, the law recognizes three types of separate property. Those include:

1. All property owned by one party prior to the marriage

2. All property acquired by one party during the marriage by gift, bequest, or inheritance

3. The rents or profits generated from a property described in this section

Separate property is not subject to equal distribution. Point two is important. Property that was acquired as a gift or inheritance is not considered part of the marital estate in California. As long as the spouse does not commingle inheritances with community property, the property is considered separate property from the marital estate. In other words, the spouse would retain full ownership of any inheritance, gift, or bequeathment unless they commingled that separate property with community property. For example, using an inheritance to pay for renovations on the family home would be an example of commingling separate and marital property. 

What is Quasi-Community Property?

41 states in the U.S. are considered equitable distribution states. Only nine states have laws like California, and these are known as community property states. What happens when a couple lives in an equitable distribution state and then moves to California during their marriage? In that case, California laws regarding the division of assets do not directly apply to assets acquired while the couple was living in an equitable distribution state. Nonetheless, the California courts have jurisdiction over both spouses should they pursue a divorce. This jurisdiction permits California to define assets that would have been community property if they were acquired while living in California as “quasi-community” assets. In the majority of divorces, they are treated similarly to marital property and divided equally in a California divorce. 

Prenuptial Agreements and Community Property

One way to avoid the equal distribution of the marital estate during a divorce is with the help of a prenuptial agreement. Prenuptial and postnuptial agreements can protect specific assets from equal distribution. Such agreements generally involve the protection of an important asset, like a business, that would otherwise be subject to equal distribution. The proceeds of the business are also generally considered community property. If the couple were to divorce without a prenuptial agreement in place, the business would be considered part of the marital estate. The courts would either split the business in half or use the value of the business to reduce the amount of income and assets the spouse would take from equal distribution. In other words, a spouse may be able to keep the business intact but would have to “pay for” the business by getting less of the marital estate. To avoid title clouding your business and the potential pitfalls that come with dividing a business, you can place a provision into a prenuptial agreement that holds the business out as separate property. The California courts will broadly enforce these provisions so long as they are not unconscionable. 

Similarly, you can hold out certain credit cards, bank accounts, or other assets, such as real estate, as separate property so that these assets are not equally divided during the divorce. In other words, you can protect these assets from the process of equal distribution with a valid prenuptial agreement. 

Talk to a Sacramental, CA, Family Law Attorney Today

The Sacramento family law attorneys at Wagner Family Law represent the interests of California residents who are pursuing a divorce. If you have any questions about community property, equal distribution of the marital estate, or prenuptial agreements, please do not hesitate to reach out to our experienced family lawyers today.