California is a community property state. Separate property is defined in California as an asset owned prior to the date of marriage, acquired after the date of separation, or acquired after the date of marriage and prior to the date of separation by way of inheritance or gift as it is defined by the California Family Law Code. Community property is defined as an asset acquired after the date of marriage and prior to the date of separation unless acquired by way of inheritance or gift as it is defined by California law. Income, rents, and dividends generated by separate property are separate property.
Characterization of Property is generally determined by the date of acquisition. In the case of earnings, the courts look to the date the money was earned, not the date it was received.
Earnings on separate property are separate property. Earnings on community property are community property.
When separate and community property are commingled or mixed together the separate property may lose its separate character.
If the separate property cannot be “traced” and uncommingled the property will most likely be characterized as community property.
If the separate property can be “traced” and uncommingled the property may retain its separate character.
Division of Community Property
California family law requires an equal 50/50 division of all community property. A ‘mere expectancy’ is not property and thus is not valued or divided in a divorce. A ‘mere expectancy’ is a benefit that a party does not have a contractual right to receive.
Income that is not ‘earned’ until after the date of separation is not community property, it is the separate property of the earning spouse.
The court has wide discretion as to how to allocate the various assets and debts between the parties so long as the result of the overall division is an equal division between the parties. The court is not required to divide each individual asset and debt equally between the parties. Such a division is not possible or practical in many situations. In other words, the court may allocate an asset of significant value to one party and other assets of significantly less value to the other party so long as the court also requires the party receiving assets of higher value to pay an equalization payment to the other party.
Separate property includes assets owned and debts owed before the date of marriage. An asset received during the marriage as a gift or as an inheritance is separate property. Income earned after the date of separation is also separate property. Rents, issues and profits generated from separate property are separate property. Separate property is not divided between the parties but rather is confirmed to the owning party. The community may have a right to reimbursement where community effort or community funds have been utilized to benefit the separate property of one party.
There is a rare exception to the equal division rule. The court has the authority to divide the community property unequally if the net value of the estate is negative.
California family law prohibits courts from taking into consideration tax consequences that relate to the division of community property assets unless they are immediate, specific and arising out of the divorce itself. Likewise, in a divorce, commissions and costs of sale related to real property are not deducted from the equity of the property being awarded to one party unless the property is being sold as a part of the divorce.
A divorce court has the authority to award a particular asset to one party if that party has an emotional relationship or connection to the asset. An award of such an asset to that party would result in a charge to the receiving party of the value of the asset in the overall division of community property.
In order to change (transmute) the character of property from separate to community, community to separate or separate property of one spouse to separate property of the other spouse, there must be a written express declaration executed by the party adversely affected. The statement must be specific as to the item being transmuted.
Transmutation of Property
Intention by Itself May Not Be Sufficient to Meet the Gift Requirement
To be valid, gifts between spouses must meet the specific qualifications of the California Family Code. A clear intention, by itself, to give an item to the other spouse, does not replace or overcome the requirements of the Family Code. There are no restrictions relative to gifts of wearing apparel, jewelry or other tangible articles of personal nature solely or principally used by the recipient spouse and not substantial in value considering the economic circumstances of the marriage.
A vehicle of any price cannot be characterized as a gift in that it is not a tangible article of a personal nature. Can items of art or furniture be items solely or primarily used by one spouse?
Parties May Contract With Each Other Relative to Certain Issues if the Procedural Requirements Are Met
The terms of a prenuptial agreement may limit or waive spousal support if the terms are not unconscionable at the time of enforcement.
Allowable Prenuptial Agreement Subject Areas
- Rights and Obligations of the Parties
- Property Rights and Interests
- Management and Control of Assets
- Insurance Benefits
- Choice of Law
- Spousal Support
Examples: Asset Division and Equalization:
$9,000 - $2,000 = $7,000 ÷ 2 = $3,500
Husband pays equalization payment to the wife the wife the sum of $3,500
Each party receives $5,500
$1,000,000 - $250,000 = $750,000 ÷ 2 = $375,000
Husband pays equalization payment to the wife the sum of $375,000
Each party receives $625,000
The Court is not Required to Divide Each Individual Asset Equally Between the Parties so Long as the Overall Division is Equal
$410,000 - $300,000 = $110,000 ÷ 2 = $55,000
Husband pays equalization payment to the wife $55,000
Each party receives $355,500
Dividing Community Property