What is Considered Community Property in a Divorce?
Generally speaking, community property involves any property that was acquired by either spouse during the marriage. However, when lawyers talk about a “community property state” versus an “equitable distribution” state, they are discussing how the assets are divided after the marriage has been dissolved, not how the property is acquired.
In legal terms, a decision must be made as to whether or not certain property belongs to an individual spouse or the couple. If the property belongs to the couple, then it must be divided in accordance with the law. In this article, the Sacramento, CA, divorce lawyers at Wagner Family Law will discuss community property and how assets are divided in a California divorce.
Community Property Versus Equitable Distribution
Today, the vast majority of states are equitable distribution states. One of the notable exceptions is our home state of California. California is a community property state. What does that mean?
In an equitable distribution state, estates are divided in accordance with what is equitable to both partners. That means if one partner makes $1 million a year and the other partner takes care of the home, the homemaker would be afforded more of the marital estate since they have less earning power.
In California, the estate is divided in half regardless of the earning power of either spouse. Section 2550 of California's family code requires the court to split the estate 50/50 unless there is a written agreement. In this case, the law requires a prenuptial agreement to avoid a 50/50 distribution.
Do I Have to Divide My Estate in Half?
No. Everything under the law is negotiable. However, a 50/50 split would be the default way in which to divide an estate. Prenuptial agreements can be used to protect important assets or business interests, and you can negotiate which assets go to which estate after the divorce is finalized.
However, if no agreement can be reached, then the court will simply divide the estate in half.
How Does a 50/50 Division Work in Practice?
Let's say you and your spouse buy a vacation home for $3 million in Colorado. You still owe $1 million on the mortgage, but the home is now worth $4 million. That means that the bank still owns $1 million in the house's equity while the couple owns $4 million in overall value. The mortgage is subtracted from the value of the home, so the couple's net is $3 million. The couple could elect to:
- Retain 50/50 possession of the vacation home and split the proceeds via a sale
- One spouse can buy out the other for $1.5 million
- One spouse can move $1.5 million in other assets to the other spouse to retain possession of the vacation home
- The spouses can sell the home and split the proceeds
If one spouse wants to keep the vacation home, it becomes the equivalent of a $1.5 million chit that must be moved over to the other spouse's side to compensate them for the loss of wealth. Ultimately, California wants the ledger to be equal once the divorce decree is certified.
Prenuptial Agreements Can Prevent 50/50 Distribution in California
One way to protect valuable property, such as business interests, is to protect the property in a prenuptial agreement. For example, if one spouse gets a business venture off the ground, they may not want the business to be vulnerable to a 50/50 asset split in a divorce. So, they protect the business with a prenuptial agreement that prevents the business from being subjected to community property distribution in California.
What Property is Subject to Distribution in California?
Almost any property that was acquired during the marriage can be subject to 50/50 distribution in California. Exceptions include any property that was acquired before the marriage, property acquired after the date of separation, and property that was given as a gift or an inheritance. Alternatively, property protected in a prenuptial agreement is not subject to distribution. Further, property that was acquired by inheritance or gift (IE: bought with an inheritance or gift) is property of the individual (and not the marriage).
To put it simply, any income-generating property or big-ticket items are subject to distribution in California. This includes real estate, investments, your 401(k) or IRA, vehicles, collectibles, businesses, and debts. Contributions you made to a 401(k) during your marriage are considered property of the marriage. Contributions you made before the marriage are considered your individual property.
For example, a couple may end up buried so far in debt, that they no longer have any assets to divide. Instead, they have debts to divide. Unfortunately, at least some of these couples will file for bankruptcy either together or as individuals. But even debts are divided in half in California unless one spouse can prove that the other spent the money recklessly and without their knowledge.
How Can a California Divorce Lawyer Help?
While it sounds straightforward to divide an estate in half, modern realities have made it much more difficult. The process of simply appraising the value of items can end up being the cause of serious conflict during divorce proceedings. For couples with high assets, the stakes are even higher.
The Sacramento, CA, divorce attorneys at Wagner Family Law have experience mediating high-conflict and high-asset divorces. High-asset couples tend to favor mediation to avoid having their entire marital estate pass through a court-ordered probate process and having their financials exposed to the public. In these cases, litigating the divorce through the courts may be the worst-case scenario regarding financial costs and exposing information that could leave you vulnerable.
Call a California Divorce Mediation Attorney Today
Wagner Family Law represents the interests of Sacramento, CA, couples seeking a divorce. Call today to schedule an appointment, and we can begin discussing your goals and future interests immediately.