Community Property Vs Separate Property
What you may think is your property may actually belong to you and your spouse, and something you think is owned by the two of you may be owned by just one of you under California law. Who owns what property can be simple or complex depending on the situation and the complexity of your finances. This is important for divorcing couples because property division is a critical issue to be resolved during a divorce. Property includes anything of value, including but not limited to,
- A house,
- Bank accounts and cash,
- collectibles or art,
- Pension plans,
- 401(k) plans,
- Stocks, and
- An ownership interest in a business.
Under California law, property may be considered community, quasi community, separate or commingled.
1. Community Property
The marriage or the registration of a domestic partnership results in two people creating one legal community. Property the couple obtains during marriage/partnership is community property, and debt incurred during the relationship becomes community debt.
Community property is what’s owned together. Everything you bought or obtained during the marriage or partnership, including debt, that was not a gift or inheritance to an individual, is to be community property. This includes the couple’s earnings and what was purchased with these earnings. If something was bought with money earned during the marriage, it is to be community property. Each party owns one-half of community property and each is responsible for one-half of the debt. Community property and debt are required to be divided equally, unless the couple makes an agreement to divide the property differently, or if there is a negative asset estate.
2. Quasi-Community Property
If you or your spouse/partner lived outside California during your marriage or partnership, earned incomes, purchased real estate or acquired any property that in California would be considered community property, that property is called quasi-community property. During a divorce or legal separation in California, that out-of-state property will be treated as community property.
3. Separate Property
Anything you owned before your marriage or domestic partnership, Property inherited, or gifts received by one party (even during the marriage or partnership) is also separate property, provided it is not commingled with community property. Rents, profits or money earned from your separate property is also separate property, as is property acquired after the separation.
4. Commingled Community and Separate Property
Property can be a combination of community and separate property when they become mixed or ‘commingled”. For example, this can occur when the down payment for the purchase of a house comes from one party, but both pay the mortgage and for improvements. The status of the property, and who is entitled to what share, can be complex and is often decided by the paper trail of information establishing who contributed what, when, and how.
The method by which the character of commingled property is determined is called tracing. To determine the full extent of separate versus community property when the property in question is commingled, direct or indirect tracing can be used to help analyze the characterization and interest in the property. Direct tracing allows a contribution to community property to be traced to a separate property source. Indirect tracing may require other evidence of a separate property contribution.
This will be discussed in detail with the attorney analyzing your case. It behooves you to begin assembling all paperwork regarding your asset as early as the date of marriage, anything that changed during the marriage, and the most recent statement, and/or that which is as close to the date of separation as possible.
Division of assets and debts is a primary part of the divorce process. This division could turn what might otherwise be a cooperative couple into two people fighting for every dollar. If the divorcing couple can agree on a distribution of assets (and debts) that need not be litigated, it will be approved by a judge even if the division is not exactly equal.
If you live in Orange County and have any questions or concerns about property and how it might be divided during a divorce, contact our office so we can talk about your property, assets and debts and how the law might apply.