California is a community property state, which means that in a divorce, community property or marital assets are split 50-50 between each spouse. California courts consider both parties in a marriage to have equal rights to all community property including assets and debts acquired during the time of marriage. When a couple decides to divorce, all shared assets and debts are divided evenly.
In order to understand how property division works in California, it is important to know what distinguishes community property vs separate property, how the value of property is determined, and the steps in property division.
Differentiating Between Community Property and Separate Property
Oftentimes in a divorce, a challenging part of dividing property is differentiating community property vs separate property. It is important to understand the factors which set these two types of property apart from one another so that any shared marital property can be properly divided between each spouse.
What Is Community Property?
According to California courts, community property is “what you own or owe together during your marriage.” Community property includes anything you earned while married and any debt you acquire while married.
What Is Separate Property?
Separate property is defined as “what you each own or owe individually from before you married or after you separated, and any gifts or inheritance.” In California, a spouse’s separate property includes items purchased with or exchanged for separate property, earnings on separate property, and any increase in the value of separate property.
While some assets can be considered part separate property and part community property, such as the co-mingling of retirement plans or bank accounts, separate property is generally not divided in divorce. In a divorce, each spouse keeps their individual separate property and community property is divided.
Determining Value of Property
Once community property has been distinguished, the spouses must determine the value of each item. If it becomes challenging for the couple to agree on the value of the community property, working with a qualified appraiser can help with the valuation of shared assets. Formal appraisals can be necessary in complex, high asset divorces which may involve the division of businesses or real estate. The valuation of certain assets such as retirement funds can be difficult, in which getting help from a CPA or financial professional can be beneficial.
Steps in Property Division
- List all community property. Any shared property, assets, or debts acquired during marriage must be included in property division.
- List the market value of each item. With the help from an appraiser, estimate the value of each shared property.
- Negotiate an agreement and determine a fair division of marital assets with your spouse. Under the California divorce laws, assets can be divided by:
- Assigning certain items to each spouse
- Allowing one spouse to “buy out” the other’s share of an asset
- Selling assets and dividing the proceeds
If both spouses can not agree on the division of community property, a judge will divide the property. The Orange County divorce lawyers at Wilkinson & Finkbeiner who specialize in division of property cases explain that in California, courts will consider:
- Which party owns title to the asset and whether there may be a claim that the asset is not community in nature
- The income production of the property
- Any written agreements made before or during the marriage
- The current and future value of property
- The tax consequences for property ownership and distribution
- Current debts and liabilities associated with the asset
Getting help from a skilled mediator or divorce lawyer can make the property division process more efficient and help reach the best results possible for both spouses.