In the U.S., states can be divided into two categories when it comes to divorce rules. While other states are considered equitable distribution states, California is among a handful of states that are considered community property states. In equitable distribution states, assets from the marital estate are divided in accordance with what a judge perceives as fair. In other words, it is not necessarily an even split. In California, however, assets and debts from the marital estate are almost always divided evenly, or 50/50, between the spouses. In this article, the Sacramento, California divorce lawyers at Wagner Family Law will discuss community property and how it works in our state. 

Separate versus marital property in a California divorce

One of the first determinations that needs to be made is whether or not an asset or a debt belongs to the marital estate (in which case it is split according to community property rules) or it belongs to one spouse individually. Generally speaking, if an asset or debt was acquired before the marriage, it is usually considered the separate property of one spouse. If the asset or debt was acquired during the marriage, then it would be considered community property. There are some cases where individual property becomes commingled with marital property. In that case, the asset or debt would likely be considered marital property. 

What does community property include?

Community property could include any asset or debt that was acquired during the marriage. This includes:

• Bank accounts

• Real estate

• Investment property

• Investment portfolios

• Retirement accounts

• Separate property commingled with marital property

What does separate property include?

Separate property includes:

• Property that was purchased before or after the marriage

• Debts that were acquired before or after the marriage

• Property acquired as a gift

• Property acquired via inheritance

• Assets purchased with money that was received as a gift or inheritance

How are assets divided in a community property state?

The California courts will attempt to divide community property equally between the two spouses. This could involve dividing individual assets (like bank accounts) right down the middle. I could also involve awarding certain assets to one spouse, while the other spouse receives offsetting payments. In other words, one spouse may get the house while the other spouse is entitled to a greater share of other assets. 

Of course, couples are allowed to come to their own agreements when it comes to dividing property. But the law determines how their assets will be divided if the spouses cannot reach an agreement together. 

In the vast majority of cases, assets will be divided in half in a community property state. 

When is community property not divided 50/50 in California?

There are three situations in which community property might not be divided 50/50. The first involves prenuptial agreements. The second involves marital misconduct. 

• Prenuptial and postnuptial agreements - A spouse in a marriage can separate property that would otherwise be considered marital property from the marital estate in a prenuptial agreement. For example, if one spouse starts a business, they may not want the business to be considered property of their spouse as well. That could mean dividing the business during divorce. Instead, they can ask their spouse to sign a postnuptial agreement, which stipulates that the business is the separate property of one spouse. In that case, the judge would not divide the business equally between the two spouses. 

• Marital misconduct - Even in a no-fault divorce state, like California, marital misconduct plays a key role during divorce. Certain actions taken during the marriage can be considered marital misconduct. These actions would impact how property is divided. For example, financial mismanagement of the marital estate could be considered a reason to divide marital assets unevenly. This is especially true when one spouse dissipated the marital estate of funds during the marriage. Domestic violence is another consideration that could lead to the uneven distribution of the marital estate. In any case, the misconduct must be proven in court, and the judge must find in favor of the individual who is making the allegations. 

• Failure to disclose financial information during discovery - The State of California requires all spouses to accurately disclose their financial situations during divorce proceedings. If one spouse hides an income stream or a major asset from the discovery process, it would lead to an unfair division of property. If the court catches a spouse attempting to hide assets or income, the court can impose penalties. This includes awarding a greater share of the marital estate to one spouse. 

Commingling of separate property with marital property

In some cases, separate property can be transmuted into marital property. Essentially, the separate property is converted due to commingling. For example, if you were to receive an inheritance from your uncle, that would generally be considered your own separate property. But what happens if you deposit the inheritance in a bank account that is owned and controlled by both spouses? In that case, you have just transmuted the separate property into marital property. The court would consider the inheritance to be property of the marriage and divide it equally according to community property laws. 

Other examples include:

• Real estate - If you use separate property for a down payment on a house that is purchased during the marriage, and then community property to make mortgage payments, the real estate would be considered community property.

• Retirement accounts - If a spouse brings a retirement account into the marriage and continues to contribute to the retirement account during the marriage, the part of the retirement account (the contributions made before the marriage) would be considered separate property, while the value accrued during the marriage would be considered community property. 

• Businesses - If a spouse brings a business into the marriage as separate property, but uses marital assets to fund the business during the marriage, the marital estate would acquire an interest in the business. 

Talk to a Sacramento, CA, Divorce Lawyer Today

Wagner Family Law represents the interests of Sacramento residents who are going through divorce. Call our office today to schedule an appointment, and we can begin addressing your concerns right away.