Are you getting married? Or are you already married? If so, you'll want to understand California's community property laws. In issues of marriage and divorce, California is a community property state. It means when two people decide to get married, they essentially become one legal community, and any property acquired during their marriage is commonly known as community property.
In other words, this means the marital property will be divided equally at the dissolution of the marriage unless there is a prenuptial agreement. All assets, including stocks and real estate that were acquired during the marriage, are presumed to be community property under California law. In legal terms, community property is different from separate property.
Separate property includes any property that was owned by either spouse before they were married, property that one spouse acquired by gift or bequest, and property acquired with separate funds. However, it's important to note here that all property in the community property estate is subjected to distribution by a Los Angeles Family Law Court at the time of divorce.
The distribution of property in this manner is frequently difficult, time-consuming, and emotionally devastating. Joint assets are an important consideration, and California has specific laws around what is considered community property once a couple enters a marriage. Although this might seem like a relatively straightforward concept and sound deceptively simple, California community property law can be confusing and difficult to decipher.
Nobody wants to consider the possibility of going through a divorce, but it's often a real one that might face. Knowing the law and having a plan in place to protect assets prior to marriage is crucial. If you are going through a divorce and need assistance, call the Los Angeles divorce lawyers at Furman & Zavatsky for a free consultation. Our attorneys have extensive experience helping clients obtain their fair share of marital property during a divorce.
What is Community Property?
In simple terms, community property is property, excluding separate property that either spouse acquires during their marriage. This would include all property obtained in California or any other community property state. A few common examples include wages earned by spouses and any income acquired from community property assets. In a community property state like California, most property that is acquired during the marriage is commonly known as “marital economic community.”
In this context, the marriage will end at the time of divorce, death, or when a spouse moves out with no intent to get back together later. This means if you are planning to file for a divorce in Los Angeles County but still live with your spouse, the marital economic community still exists. This important fact is critical to understand because many people incorrectly believe their assets are magically frozen when they file for a divorce.
They are not and this is a common myth. Couples can enact a legal agreement on handling their property (e.g., money and other assets). These written contracts are known as prenuptial (before marriage) and postnuptial (after marriage) agreements. Without an agreement, community property becomes ‘default,' meaning the law controls how marital property is handled. Questions about community property? Contact our Los Angeles divorce lawyers at 818-528-3471 to review your situation.
What are Community Property Assets?
California defines “property” as anything that can be bought or sold. Most common examples include a house, car, or furniture. It also includes anything that has value. In fact, virtually anything valuable that spouses acquire during the marriage constitutes community property. This might include:
- Real estate (homes, office buildings, shopping centers)
- Personal property (checking and savings accounts, stocks, bonds, mutual funds)
- Intangible property (copyrights, patents, trademarks)
- Lottery winnings
- 401(k) retirement plans
- Life insurance
What Assets are Excluded? Property acquired by husband or wife before marriage, after separation, and through gift or inheritance will typically be considered separate assets. If you need additional information, call a Los Angeles divorce attorney at our law firm to discuss.
Dividing It Up
So now we have a sense of what assets are in the ‘community property basket.' The next question is – how are these assets divided? It's not an exercise of literally splitting the physical property in half; that's impractical and usually impossible. Instead, the parties will try to value what all of the property is worth, and then they will attempt to agree on how to allocate it. This often results in extensive discussion, negotiation, and reliance upon experts (such as accountants, attorneys, and appraisers) to strike a balance (and often, compromise) to satisfy divorcing couples.
For example, it's common for one spouse (usually the primary custodial parent) to be awarded the family residence and the other spouse to receive a second home, other investment real estate, etc. If the values are equal, differences can be “made up” with other properties. The ultimate goal is for the husband and wife to receive one-half of the community property, in cash or in-kind (i.e., with physical property).
Usually, it's not hard to determine community vs. separate property. However, unique issues can arise in certain scenarios, such as:
- Pension and other employment benefits that were in place before marriage and continued to grow after the marriage
- Family businesses that existed before the marriage
- Professional degrees (e.g., physician, attorney, accountant, engineer) earned during the marriage
These nuances of how to divide property require an experienced family law and divorce attorney familiar with identifying and solving thornier issues.
Debts: All in this Together
Community property is subject to the debts of either spouse. For example, one spouse's wages can be garnished by the other spouse's creditors (California Code 910). There is a narrow exception for premarital debts using separate bank accounts, which your divorce attorney can explain.
There is an important, subtle-but-significant distinction to understand. A creditor may look to the ‘community property basket' to satisfy its debt. However, a spouse is not personally liable for the other spouse's debts. In other words, although the creditor can attack the community property, the non-debtor spouse is not subject to personal liability. This is especially important after a divorce when one spouse's exposure ends.
What Happens when Separate Property Increases in Value?
This gets complex. Imagine this scenario: one spouse had a $50,000 stock portfolio before marriage, which they received when their father died. That started as separate property. The other spouse regularly reviewed quarterly statements through the years, conferred with investment advisers, handled tax-related matters, provided input, and authorized sales and purchases. The portfolio grew to $150,000. How much (if any) is now community property?
Or suppose one spouse had a family accounting business before marriage (again, separate property). The other spouse worked part-time as an assistant (for which they were fairly compensated as an employee), and through their social media marketing skills, helped acquire new clients. The business's ‘goodwill' value grew. Again, after determining the before- and after-marriage values, how much of that incremental gain constitutes community property?
These are frequent tip-of-the-iceberg examples of community property issues. They dovetail with concepts like source, tracing, appreciation, and accessions. You should hire a seasoned Los Angeles family law lawyer for these complex matters.
If you or someone you know faces community property challenges, don't delay in seeking legal consultation. Call us right today at 818-528-3471, or contact us confidentially. Our experienced Los Angeles divorce attorneys will make you our priority and put your mind at ease. We will answer your questions, evaluate your circumstances, discuss your options, and develop an effective, cohesive action plan.