Are There Exceptions to What Is Considered Community Property During Divorce in California?
Anyone that has gone through a divorce or knows someone that has gone through a divorce knows that next to child custody, addressing finances can be the most stressful and time-consuming aspect of the process. It is shocking how even a few years of marriage can accumulate multiple accounts of tens of thousands of dollars, financial debt, tangible property, real estate, and other assets.
What is Community Property?
In the State of California, community property is any financial asset of tangible property accumulated throughout the life of the marriage. Property earned by a spouse before marriage would normally be considered their own property until that spouse decides to bring that property into the marriage, creating community property.
Forms of community property can include:
- Household items like large appliances, entertainment systems, jewelry, etc.
- Bank accounts.
- Retirement savings accounts like 401k’s, IRA’s, and Roth IRA’s.
- Investment accounts.
- Pension funds.
- Security deposits.
- Credit card debt.
- Financial stakes in businesses.
In most cases, property becomes community property when accumulated during the marriage. However, the property earned by a spouse before entering into a marriage can become community property when the spouse that owns the property intends for that property to be a part of the marriage. For example, if one spouse sells a real estate investment they earned before entering the marriage but then deposits the funds in a jointly shared account intending to use the funds for the marriage, this would be considered community property.
How is Community Property Handled in Divorces?
Under California Family Code Section 2550, all community property is divided equally by both spouses in a marriage. For some forms of property, a division of assets can be relatively straightforward. For example, if community property includes a savings account of $20,000, a court will mandate that the funds be divided equally—each spouse receiving $10,000.
In other cases, where a division is not as simple as splitting a bank account, courts find creative ways to divide the property. For example, tangible items like real estate, automobiles, appliances, and pets can be tricky to divide equally. Thus, family law judges will act as a kind of mediator between the parties to help spouses and attorneys agree on dividing assets as a part of the entire estate. For example, a couple cannot divide Spot, the beloved family dog, in half (although I’m sure some couples have tried). Instead, a court may allow one spouse to keep sole ownership of Spot while the other is provided additional funds from another portion of the marital estate as a form of compensation.
Under certain circumstances, spouses can express in writing their intention for specific community property to be divided differently based on a spouse’s specific interest in that property—prenuptial or postnuptial agreements. Although a couple can include these agreements as a part of their marriage or during their divorce, courts tend to be cautious of these agreements if one side has an advantage over the bulk of marital community property.
Equitable Distribution Isn’t Always Equitable
California courts have a lot of discretion when dividing community property. Even if the parties agree on specific issues, courts can step in as case law and public policy allow.
Historically, the division of marital assets during a divorce has favored men. As traditional breadwinners, society has valued working men’s financial contribution to the nuclear family. However, this perception radically changed some decades ago as courts and legislatures realized how many non-working spouses (women, in particular) were not being provided adequate representation in the division of communal assets during divorce proceedings.
These days, equitable division states like California will always start with the presumption that marital assets should be divided equally. However, courts may consider other factors when dividing assets. Such considerations can include:
- Financial interests in a particular communal asset or property.
- Financial need and earning capabilities of both spouses.
- Custodial arrangements between both spouses.
- Contributions of either spouse to the communal marital property.
- History of domestic violence or abuse.
Exceptions to Community Property
There are multiple exceptions to community property allowed for marriages licensed under California law. Understanding these exceptions can help couples divide existing community property more efficiently and amicably, without spending time and resources aIs My Spouse Hiding Assets During Our Divorce? or property irrelevant to their divorce.
The separate property exception is the most common exception used during the division of community property stage of a divorce. Essentially, separate property can be established in several different ways, which can include property:
- Received through an inheritance.
- Received through a will or trust.
- Obtained as a gift.
- Acquired before either spouse entered the marriage or has not become a part of the marital estate.
- Purchased or earned using one spouse’s own funds (for example, if a spouse earns income deposited into a separate account that the other spouse cannot access).
Prenuptial or Postnuptial Agreements
As stated above, Section 2550 allows for spouses to agree in writing that particular property, either previously owned by a spouse or earned by a spouse during the life of the marriage, may not be considered communal when dividing the estate.
Popular culture has villainized these agreements in marriages because a wealthier spouse can use them to shield their assets from another, which has happened and can still occur from time to time. However, in most marriages, spouses can have financial interests in funds or property that they would prefer not to have been included in the marital estate. Thus, these agreements can greatly benefit spouses looking to divide assets amicably.
Property Acquired During a Separation
Unlike divorce, legal separation allows a couple to live separately (both physically and financially) before a divorce occurs or instead of a divorce. Legal separation only requires the consent of both parties and a court order acknowledging the separation. Once the separation has been finalized, all assets earned by either spouse moving forward will not be considered community property.