When dividing marital property pursuant to divorce in California, the rules are clear, but are also often confusing. California is a community property state, and as such all property acquired during marriage is divided 50/50. Most states do not operate under community property rules, preferring instead to use a system of property division known as “equitable division.” Equitable division gives the court much more discretion in applying concepts of “fault” to the decision of who gets what in a divorce. California, however, is what is known as a “no fault” state, meaning fault is not considered in this context of deciding who gets what, because (to put it simply) all assets and debts acquired during marriage belong equally to both spouses and must be divided equally upon dissolution of marriage.
As they say in these cases, the formula for division is simple; what makes the process difficult is in determining exactly what community property is. Generally speaking property will fall into one of three categories: community, separate or some hybrid of the two. Property one spouse owned before the marriage or acquired by gift or inheritance during the marriage is presumptively separate property. This also includes earnings on separate property (such an interest on a separate property bank account) and increases in value of separate property (for example, if a house owned in full before marriage increases in value over time, rising in value as a result of primarily market forces). Further, property acquired after the date of separation is also separate. In a divorce setting, all property acquired during the marriage (after the date of marriage and before the date of separation) is presumed to be community. It is thus up to the party claiming it to be separate property to carry that burden of proof. This will involve tracing of assets, contributions made to the acquisition and improvement of those assets, an analysis of any work put into assets during marriage by one or both of the parties, and things of this nature.
What happens when a spouse commingles a separate asset with community funds? In such cases, apportioning the value between separate and community property can be very complicated. For example, when a house acquired before marriage requires improvements or mortgage payments with money obtained during the marriage, the house could become marital property, in whole or in part. Think of it like this: you have a bowl of cornflakes you poured before you were married. That would be your separate property. Then, after marriage, you and your spouse go to the store, buy another box of cornflakes and put some of them into the bowl. What do you now have? Community? Separate? Hybrid? And how do we decide who gets what when the bowl of cornflakes is divided? That’s a simplistic view of how tracing works in order to sort out questions like these.
Once the basic determination of what is and is not community and separate property is determined, the inquiry turns to questions of credits and reimbursements. In the event separate property has been used in the acquisition or improvement of a community property asset, the spouse contributing those funds may be eligible for reimbursement. Similarly, if community money (or labor) finds its way into the acquisition or improvement of a separate property asset the community may then have a claim of reimbursement. These are situations typical to the requirement of tracing in a divorce case.
Another issue arises when classifying property involves property acquired outside of California. Such property, called quasi-community property, is still determined under California community property law, but for technical reasons cannot be considered to be true community property due to manner in which it was acquired.
In addition to determining whether property is community or separate or hybrid, it is also necessary to value these assets so as to ensure each spouse receives their fifty percent. This is where expert appraisers are used. Spouses attempting to resolve these issues themselves must try to agree on the value of these assets and how to divide it. Spouses must also agree on how to apportion debt. Since a separation agreement isn’t binding on creditors, it’s wise to address these issues with your attorney.
While the rules on marital property division may be clear, as can be seen, clarity isn’t always what one might expect. An attorney can help you negotiate a fair settlement to avoid the delay and cost of leaving such determinations to a court. Remember, you will most likely be best served by obtaining expert advice to help in the division of your marital estate in a divorce setting. It is not required, but it is certainly preferred.