California is a community property state. This means during a divorce, the assets of the marital estate are divided equally, as are the debts. However, what is not as clear is what is considered part of the marital estate. Under California Family Code 750 Section 3 the definition of the marital estate is more clearly defined. However, this does not mean that all property is considered community property.
Property and Debt Acquired During a Marriage
In general, when any asset is acquired during a marriage it is considered to be community property. This includes:
- Wages and Benefits
- Lottery Winnings
- Business Ownership
- Real Estate
- Bank Accounts
- Retirement Accounts
These assets would be divisible equally between the spouses at the time of a divorce in California.
Understanding Sole Property in California
Separate (or sole) property may also be owned by a spouse in a California marriage. There is a narrow standard for this category of property. To be considered sole property, the spouse must show the property was gifted to them, was acquired from an inheritance, or was part of a personal injury compensation settlement.
Other sole property may be identified as agreed upon by the partners. Generally, this means the partners have either a post-nuptial or a prenuptial agreement in place. Property which either party owned prior to the marriage may also be considered sole property under California Code § 770.
There is one other category of sole property which couples should be aware of. Any debt or asset acquired following the parties physically separating from each other during the marriage would also be considered sole property.
Commingled Marital Property
Spouses often do not understand community property statutes and inadvertently wind-up using funds which might otherwise be considered sole property for property which becomes part of the marital estate. Some examples of this include:
- Pension and Retirement Accounts — any funds which are in a pension or retirement account at the start of the marriage are considered sole property. However, if you withdraw funds from these accounts during your marriage and deposit the proceeds in a jointly held bank account, they are then considered community property. The difference in value between the accounts at the time of the marriage, and upon the dissolution is also considered community property. Funds in this case which are owed to the non-contributing spouse would be divided through a Qualified Domestic Relations Order (QDRO).
- Real Estate Liquidations — if one spouse owned a piece of property coming into the marriage and subsequently sells the property the proceeds may be deposited into an account in only their name and remain sole property. However, if the proceeds are used as a down payment on another property, the new property becomes part of the marital estate if the payments on the property from funds either partner earns, then the equity in the property is considered community property.
As you can see, community property rules are confusing which is why a couple who is in the process of a divorce must seek competent legal assistance. Debt and property, including business which is part of the marital estate must be carefully reviewed.
Post Nuptial and Prenuptial Agreements and Community Property
Another factor which must be considered when dividing property in a community property state is what agreements exist between the spouses. In some cases, there are agreements which were entered into legally which bind the parties. Unless there are instances of fraud or coercion, these agreements will further dictate the division of property. Some examples include:
- Debt incurred by one spouse — either spouse may elect to purchase a vehicle or other large-ticket item which requires a loan. In these cases, the spouses may have an agreement in which one party agrees to be legally liable for the loan. These agreements, unless they are forced upon the spouse are legal and would eliminate one spouse’s liability.
- Assets acquired by one spouse — when a spouse buys a business, invests in artwork, or buys an antique, they may have a reason for holding it as sole property. If the spouses have a legal document specifying that for legal purposes the property is designated as sole property, the court will typically uphold these agreements.
Prenups, and post-nuptial agreements can often cause complications in divorce proceedings. Make sure your attorney is informed of any agreements which exist which may have an impact on the overall value of your marital estate.
Always Seek Legal Help When Dealing with Property of a Marriage
Most people are not aware of how the courts view marital property under California law. Individuals should take steps to ensure their sole property does not become commingled during their marriage to protect their own interests. It is also important to remember that if you should acquire property during a period when you are separated from your spouse you should make a note of the date of your separation to ensure you are credited with being the sole owner.
Student Loans in Community Property States
Remember, there may be different rules which apply to student loans. When a spouse takes out a student loan during a marriage, the rules may be applied differently. If the spouse co-signed on the loan, they are liable for repayment of the loan. If the loan was used and as a result the student’s income improved the family’s financial picture, then both spouses may be liable for repayment.
However, if the spouse who used the loan defaulted on the loan and the other spouse was not a cosigner, they may not have any liability. If one spouse entered the marriage with outstanding student debt, that debt does not become part of the marital estate and remains the sole liability of the spouse who took out the loan. Talk to your attorney about any student loans which were taken out during your marriage, so you understand when you may be responsible for part of the loan.
Want to Know More About Community Property?
To learn more about your specific options regarding community property and your divorce, call our San Diego office at 619-304-0418 or send us an email. We will arrange a free phone consultation with Attorney Bishop, and he can help you understand sole and community property and how it may apply to you.