Most states have their separate laws regarding property in divorce cases. Some states, including California, are community states. But what are community property laws in California?
In this article, we will dive into the California community property rules and how they may affect your divorce. Like all other states, California requires some specific circumstances and exceptions to be considered when dividing property.
Let’s begin and learn what is community property in California!
Community Property Laws in California
Community property means that each spouse is assumed to own equal ownership of any property they acquire throughout their marriage. Due to the legal system’s complexity, it is best to contact a great marital property lawyer to ensure your rights are protected.
Community property is everything you or your spouse have earned after you married but before you separated. More specifically, community property is the following:
- Anything either of you earned while married.
- Anything you or your spouse bought with money earned while married.
- Any debt you incur while married is also community property.
On the other hand, there is also separate property. Separate property constitutes property owned before marriage, acquired after separation, inheritances, gifts, and personal injury awards. Unlike community property, separate assets remain separate and are exceptions to community property in California. There can be some nuanced or more complexity when parties commingled separate property.
Division of Community Property in Divorce
Family Code Section 2550 mandates that the community estate be divided equally when it comes time to distribute all of the assets at the time of the separation. The court must ensure that the community’s assets and obligations are divided precisely 50/50 unless the parties agree otherwise.
It does not matter which spouse made more money or bought more property; all assets are subject to an equal split. Dividing assets down by half is not done in every divorce case. For example, if you and your spouse can agree on splitting your property, you may draw up an agreement and file it with the court. Dividing property outside of Court is suitable for couples going through uncontested divorces.
Factors affecting division
Some factors affect the 50/50 split in a divorce. For instance, if you have a prenuptial or a postnuptial agreement, the property may be divided unevenly without the court objecting.
The assets not mentioned in the agreement will be subject to even division. California courts also consider the fairness of division. If the judge thinks the 50/50 split is unfair, they may order unequal division. The judge typically decides based on both parties’ contributions to marital property and earning capacity.
When does separate property become community property in California?
Another factor in property division is changing the property from separate to community. This usually happens when separate property and community get mixed together, known as commingling.
This usually happens with bank accounts, retirement plans, and big purchases. For example, if one spouse has an account they had formed before marrying but later combined and their spouse has made contributions to it, it will be part separate and part community.
In other words, the court will do it if the couple cannot agree on splitting it. Your contributions before marrying will remain separate, while the rest are split equally.
Valuation of assets
In California’s courts, an essential aspect of dividing property is ensuring that both parties receive assets with equal value (equity). The division is based on the assets’ value instead of a physical split.
To achieve this, the court may assign each party portions of property equal in net value. Suppose you receive the family home; your spouse may get several assets with the same net worth.
This is why valuing marital property before your trial or final hearing is crucial. You want to ensure you get a fair division. The most common methods of valuation for different types of assets include the following:
- For family homes, spouses usually contact real estate appraisers or realtors to estimate the property’s value.
- Due to their nature, businesses are more complex to evaluate than hard assets. To evaluate a business, a business appraiser will use methods like market capitalization or revenue multiplier.
- The value of cars typically depends on the model, mileage, make, year, etc.
Division of debts
Debts, much like property in California, are communal if accrued during the marriage. Any debt you or your spouse accrued when you were legally married will be split in half. In contrast, any debt that either party has from before the marriage will remain separate and their responsibility after the divorce.
Special Considerations in Community Property
Depending on your and your spouse’s marital property, special considerations may also complicate the division. Here are some of them:
Business ownership
If you and your spouse own and run a family business, there are several ways to handle division. One option is to sell the business to a third party and split the proceeds, but one spouse may become unemployed.
Another way to handle it is by one spouse buying out the other spouse’s ownership interest in the business. This option does include more complicated steps, including hard assets (bank accounts and equipment), value determination, generated income, and debts.
Pensions and retirement accounts
In California, the portion of pension, retirement benefits, and 401(k) accounts you obtain during your marriage are considered community property. In regards to pensions and retirement benefits, a complication arises in the fact that a person must reach a certain age to start receiving them.
If you withdraw money earlier, you must pay income tax and penalty fees. To avoid penalties and pay out the other spouse’s share, you may file a Qualified Domestic Relations Order (QDRO).
Real estate
Any land or buildings that you and your spouse own are community property if you have accrued them during the marriage. If they are bought before the marriage, they will remain separate property. You may sell the properties and split the proceeds, or if one of you wants to keep them, they can pay the other spouse 50% of the market value.
Intellectual property
Although not tangible like hard assets, intellectual property is also a community property if acquired during the marriage. This includes copyrights, trademarks, and IPs (creations of the mind).
The court may order the copyright holder to split royalty proceeds with the other spouse. This is because determining the value of intellectual property can be challenging.
Conclusion
Community property laws in California can be rather complex and difficult to understand, which is why legal counsel is vital. To sum up, community property rules state that any debt or property earned during a marriage belongs to both spouses and is shared equally in the possibility of a divorce.
You want to have a fair split in your divorce to obtain what is legally yours. If you need further assistance, contact Moore Family Law Group today for our expertise.