One of the most important aspects of all divorces is the division of community property. To do so in a fair and reasonable manner, it is important to begin with properly valuing a community’s income, debts, assets, and expenses.
Remember, California is a community property state. This means all property acquired by a spouse during marriage while living in California is presumed to be community property. Upon death or divorce, the value of all community assets is divided equally in terms of value between both spouses.
Both marital partners are equal agents of the partnership, and they are able to bind the partnership if acting within the scope of his or her authority, and if acting for the joint benefit of the family. The California community property system adds to joint ownership the right of equal management and control.
All benefits which come from either spouse’s employment during the marriage are community property to the extent they are earned and/or accrued during the marriage. This can include:
- retirement benefits
- pension, savings plans
- stock purchase plans
- 401k plans
- sick and vacation pay, and
- stock options.
If the benefits are not fully vested at the time of a separation, an allocation is made between the community and separate interests.
Separate property is property:
a) owned before marriage
b) acquired during marriage by gift or inheritance, or
c) acquired after separation.
Earnings, income, or appreciation from separate property sources remain separate property. If there is a dispute about when an asset is separate property, you must have proof that you acquired the separate property in one of these ways, and have documentation to trace the separate property back to the original source.
If you use separate property to acquire property in joint names during the marriage, you are only entitled to reimbursement for the amount of the separate property contribution (no interest or appreciation) and, again, you must be able to trace the contribution back to the separate property source.
If you own a business prior to marriage, the community may acquire an interest in the business if the business increases in value during the marriage, depending upon the reason for the increase in value. If you own a home in your own name and community funds are used for mortgage payments or to pay down the principal on a loan, the community will acquire an interest in the appreciation in the value of the property, but only in the ratio that the amount paid on principal bears to the total purchase price. The community will also be reimbursed for the amount paid down on principal.
The way you hold title to real property will affect disposition of property upon death of a spouse. For example, property held as joint tenants will automatically become the property of the surviving spouse. Property held as community property or tenants in common will be distributed according to the Will or Trust of the spouse, or according to the laws governing intestate succession in the absence of a Will or Trust.