Division of property and assets is a huge concern in most divorces, and it doesn’t help that the pertinent laws can often be complicated and confusing. Before entering the separation process, it’s important to understand whether your property is considered “community” or “separate” property, and how each will be treated in the eyes of the law.
First, let’s clarify what’s on the table. In general, “property” can be understood as anything that can be bought or sold, such as real estate (both residential and commercial), cars, furniture, clothing, technology, etc. In addition, property can also refer to anything of monetary value, including bank accounts, investment holdings, patents, and even security deposits on rental property.
In a divorce, all property owned by you and your spouse will be labeled as either community or separate property (or in rare cases, a commingling of the two). This labeling process will determine how the property is divided when the divorce is finalized.
California is a community property state, meaning that a marriage or registration of domestic partnership makes two people one legal “community.” Any property or debt acquired by one person during the marriage or partnership is seen as belonging to the community, and not the individual that accrued it. In the words of California Family Code section 760, community property is defined as “all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in the state.” At the end of a divorce, community property is generally split 50/50.
The state’s definition of community property is intended to be an umbrella classification covering many categories of property and possessions. The state relies on a host of additional statutes that delineate whether real property or personal property is community or not, depending on various interweaving factors and stipulations.
Property that one party owned before the marriage is not owned by the “community,” and thus is treated as separate, and not community property. Separate property also encompasses gifts and inheritance specifically given to one party, and property purchased or earned after the separation. This is the principal reason why date of separation is so important in so many divorces, and should be recorded and discussed with your attorney as soon as it occurs.
Any property that is bought with separate property is also separate property, even if it is bought during the marriage. For example, if you purchase a car after your marriage with money you made before the marriage, that car can still be seen as separate property. Rent or income earned from separate property continues to be separate as well — so money or rent earned from businesses or real estate owned before the marriage will exist as separate property, as long as it is isn’t mixed with community assets.
Commingling — Mixing Separate and Community Property
Dividing property is rarely as cut-and-dry as defined above, and much of the work in the divorce process comes down to picking apart where separate and community property has “comingled” over the course of the marriage. A common occurrence is when one party owned a home before a marriage, and sold it to make a down payment on a new home with their spouse. The down payment would be considered separate property, but if mortgage payments were then being made with money earned during the marriage, the equity on the house is now a commingling of separate and community property.
Complications can also occur if one spouse has a money in a bank or investment account pre-marriage, and then places the spouse’s name on the account, or deposits community earnings or uses the account to pay community debt. These cases often come down to employing a forensic accountant to follow the money and review the history of transactions during the marriage, and divide the leftover money into separate or community property.