How is Property Divided in a California Divorce?

The Two Types of Property in a California Divorce

When dividing property during a divorce in California, the courts distinguish community (marital) and separate (individual) property types.

Depending on whether a particular item is separate or community property, the judge will determine how to split it. A general rule is that each spouse receives half of the marital property and keeps the separate property to their name.

Is California a Community Property State?

California is one of a few states with a community property law.

It means that all assets and debts spouses own or incur during their marriage are joint or community property. Some examples include cars, houses, stocks, retirement benefits, and mostly any other items holding a monetary value or financial liabilities.

California state laws grant each spouse a 50% interest in everything that constitutes community property. So, in case of divorce or legal separation, each party will receive an equal share of any joint assets and debts (Family Code, § 2550).

However, several rules prevent the assets from falling into the jointly owned category, making some items separate property.

Generally, the best way to ensure that particular assets stay in your possession is to conclude a prenuptial or postnuptial agreement.

What Is Community Property in California?

Property laws in California say that any assets or debts acquired by any spouse during their marriage are owned and owed by both of them. And it does not matter which spouse earned money to buy something.

In a divorce, all this marital property will be split 50/50.

Despite its simple definition, community property law is a complex concept because it’s not always possible to divide each item of property right down the middle.

In addition, some properties, such as pensions, may not be immediately accessible for the division if the person hasn’t reached a certain age.

What is Considered Community Property in California?

The community property principle in California applies to all types of property, such as houses (also called real estate), financial assets, pensions, and debts. As long as these property items were acquired during a marriage, they are considered joint marital (community) property.

Here are several examples of what can be community property in California on condition that these items were purchased, acquired, or occurred during the marriage:

• Personal income (wages, commissions, bonuses)
• The family home and other real estate
• Bank accounts and investments
• Pensions and retirement benefits (401(k)s, IRAs)
• Vehicles, furniture, electronics, household equipment
• Business interests, stocks, patents
• Credit card debts, mortgages, and other loans

Sometimes, the community and separate property can commingle.

For instance, the spouses buy a house and pay the mortgage together, but the down payment is made with one spouse’s money they earned before marriage.

What Is Separate Property in California?

Separate property in California is every property acquired before the wedding date and after the separation. Some items, such as inheritance and personal gifts during the marriage, also belong to this category.

California Family Code defines separate property as:

• owned before marriage
• acquired by gift, bequest, devise, or descent during the marriage
• profits, rents, and issues from separate property

While the start of a marriage is easy to determine, the date of separation sometimes needs clarification. Most couples consider it the day one spouse moved out, meaning they stopped physically living together to dissolve the marriage.

Is Everything Split 50/50 in a Divorce in California?

In the most common sense, all community property in California must be divided equally between spouses. However, there are some exceptions.

Although the marital property is subject to division during divorce, not every item will be split in half.

It’s common practice to award spouses with different types of assets.

For example, one partner gets the house, and the other receives retirement benefits. And if the property’s value is uneven, the spouse with a higher amount of assets should make an equalization payment to the other spouse.

Also, if the couple has a prenup or a settlement agreement, they can divide their property unevenly, and the court would not object. In addition, each spouse will receive their separate property, which belonged to them before marriage, or if it’s an inheritance or a gift.

Another essential factor that California courts consider is the fairness of division. If for some reason, the 50/50 split is unfair, the judge may order unequal division. They usually make this decision based on each spouse’s contribution to marital property and their earning capacity.

How Long Do You Have to Be Married to Get Half of Everything in California?

California family law does not establish a specific period that the couple must be married before they obtain the right to half of the marital property. In addition, the spouses will not get half of everything; they will only have 50% of jointly acquired property and debts during the marriage.

Therefore, if one party purchased a car and then got married, the other party won’t receive half of the value of this car since it’s not community property. Thus, a couple can be married for one day and be eligible to split the marital assets they obtained during that one day.

How Is Community Property Divided in California?

Community property is divided by the judge during a court trial or by spouses via agreement. It can be a prenuptial agreement that the couples had signed before getting married or a divorce settlement agreement drafted after they decided to end their marriage.

The vital aspect of dividing community property is to ensure that each spouse receives assets with equal value. California’s divorce rules do not require dividing every physical item 50/50 between spouses.

Instead, the court may assign each spouse portions of property equal in net value. For instance, if one spouse receives the family home, the other may obtain several assets with the same net worth.

Another option is for one spouse to buy out the other party’s share of an asset or sell it and divide the proceeds. It may work well with real estate and businesses. However, it’s not uncommon for some couples to keep owning such property together even after divorce.

How is a House Divided in a Divorce?

Many couples believe that the family house is their most valuable asset.

However, often this real estate property comes with ongoing mortgage payments. In addition, some parts of it may be one spouse’s separate property, such as money paid for the down payment or improvements to the house.

The most common method to deal with the house division is by selling it and dividing the proceeds 50/50. If one party covered the down payment, they must be reimbursed the money in this case and then receive half of the net proceeds.

Another option is for one spouse to keep the family home and to buy out the other party’s ownership interest in the house.

However, this path will be more complicated since it includes determining the home’s market value. Plus, the spouse keeping the house should refinance the mortgage with a new loan in their name only.

Who Has to Leave the House in a Divorce in California?

California laws do not require that one spouse leaves the family home while a divorce is pending. Both spouses have the right to live in the house until the final decree is issued.

However, the divorcing parties have a few options to decide who stays and who moves out. First is when the spouse who continues to live in the marital residence pays the other party the home’s rental value.

Another way is to obtain a restraining order to make the other party move out if there is evidence and danger of domestic violence and child abuse.

How Are Pensions Divided in a Divorce?

The portion of pensions and retirement benefits obtained during the marriage is also deemed community property in California and must be split equally between the parties.

However, the most apparent complication in dividing retirement assets is that all pension plans require a person to reach a certain age to start receiving benefits. And if they try to withdraw money earlier, they will pay income tax and penalty fees.

Fortunately, there is a penalty-free way to give one spouse their share of the other party’s retirement assets via a Qualified Domestic Relations Order (QDRO).

Is 401k Community Property in California?

The portion of any 401(k) accounts earned during the marriage is community property in California and must be divided equally.

Dividing it requires getting a QDRO, which will instruct the custodian of this 401(k) account on how much money to transfer to the other spouse without penalty.

Is an IRA Account Community Property in California?

A part of an Individual Retirement Account (IRA) funded by community income is considered marital property in California.

Also, this account can only be split by a court order, typically a divorce judgment. If one spouse takes out any money before receiving the court order, they will pay state and federal taxes and penalty fees.

How Are Business Assets Divided in a Divorce?

Any business assets acquired by a California couple during their marriage are community property regardless of who has run the business.

However, if one spouse started it before the wedding, its pre-marital portion, including generated income, will be treated as separate property.

Divorcing couples running a family business has several ways to deal with its division. The simplest option is to sell it to a third party and split the proceeds. However, this might leave one or both spouses unemployed.

Another option is for one spouse to buy out the other party’s ownership interest. It will include many complicated steps, such as determining the value of all hard assets (bank accounts and equipment), debts, and income that this business generates.

How Do You Split Investment Properties in a Divorce?

Investment properties such as land or buildings used for earning rentals or capital appreciation can be considered community property if acquired during the marriage. Otherwise, California law will treat them as separate property, not subject to division.

Investment properties can be split by either selling them and splitting the proceeds or trading them for other assets equivalent in value. In addition, the spouse who wants to keep these investments can pay the other party 50% market value of the property.

Valuing Property in California

Equal distribution of assets in a California divorce requires understanding their value. To determine their worth, courts (or the parties) use an evaluation process and should complete it right before the trial or final hearing.

Property items the spouses possess can be valued using different methods.

For instance, real estate appraisers and realtors can estimate the value of a family residence.

However, they will charge additional fees. As for the price tag, the house’s value will not be the same as it was when the spouses had purchased it; instead, it is the potential current market price.

Some items are more difficult to evaluate than others. For instance, business evaluation is complicated, mainly because its fair market value consists of many tangible and intangible parts.

In particular, a business generates income, unlike hard assets such as money in bank accounts, real estate, and vehicles.

Therefore, determining the company’s value may require hiring a business appraiser who will use several evaluation methods, such as market capitalization or a revenue multiplier method.

There are a couple of methods to determine value for cars in a divorce. These include hiring an appraiser or using online valuation tools.

The value will depend on the car’s model, mileage, year, make, etc.

Does Inheritance Get Split in a Divorce in California?

Whether the inheritance will be divided in a divorce in California depends on which type of property (separate or marital) it belongs to.

For instance, if one spouse had inherited cash or a car before marriage, these items are separate property. They won’t be divided if they were kept segregated and not commingled with community property.

However, if these assets are commingled with marital property, for example, if a person placed the inherited money into a joint account, the judge would likely divide them between the parties.

Can My Spouse Take Half of My Inheritance If We Divorce?

The general rule in California is that inheritance is a separate property of a spouse who received it. So, if you have kept your inherited assets separate from marital property, your spouse will not get half of it upon divorce.

However, other factors may come into play, for instance, the timing of receiving an inheritance and the length of the marriage.

In particular, the estate received during shorter marriages will, most of the time, remain untouched. On the other hand, in longer marriages, the judge might award some part of the inheritance to the other spouse, primarily if it occurred somewhere in the middle of the marriage.

How Are the Bills Divided in a Divorce?

Until the divorce is over, any current house bills are the spouses’ joint responsibility.

The best option to continue paying them is to keep a joint account while the divorce is pending. If it’s not possible, the parties can split the responsibility equally.

After the couple receives their final judgment, the party who gets to keep the house will be responsible for paying the bills moving forward.

If the spouses cannot agree on an amicable solution, the judge may issue temporary orders assigning a part or all of the payments to one or both parties.

It can also be a temporary support for a spouse to cover the utility bills. In this case, the court will need to consider the income and assets of each party.

How Are Debts Divided in a Divorce?

In California, community debts incurred between the date of marriage and separation will be divided 50/50 (Family Code, § 2550).

By contrast, debt incurred before the wedding day is a separate debt of the spouse who incurred it and will be their sole liability (Family Code, § 2621).

Some examples of community debt can be credit card debts of both spouses, car loans, mortgages, medical bills, and other personal loans. Student loans are frequently considered separate debt and are assigned to the spouse who received the education.

Community debt in California is usually divided equally between the parties upon divorce.

For instance, the court assigns the debt on the part of credit cards to one spouse, while the other spouse will take responsibility for paying up the rest of the credit card debts. The same goes for loans and leases.

However, the court order is insufficient to stop being responsible for the debt. In addition to that, a spouse taking a property item with a debt owed against it must refinance their name on loan. Otherwise, if they fail to pay the debt, the creditor will hold both parties accountable.

What Happens to Property Owned Before Marriage in California?

Both spouses often come into a marriage with some property, such as houses and vehicles.

Will these items be divided into a California divorce?

The answer is no if the property stays separate from other assets and community funds, and the spouses can prove it with documented evidence or written agreement (Family Code, § 2581).

On the other hand, some parts of separate property sometimes mix with marital property. For instance, if improvements made to this property during the marriage increased its value, at least some of that value became marital property.

Suppose one spouse purchased a house before the marriage but then paid the mortgage using community money. In this case, the judge might divide the community interest and the increase in the house value because of community effort to pay for it.

Summary

The primary principle to remember when dividing property in California is that the state implements community property law where all marital property belongs to both spouses.

So, upon divorce, all these assets and debts will be distributed 50/50 between the parties.

The process of property division in a California divorce is often complex, especially for marriages with substantial assets or a lack of agreement between spouses.

By contrast, couples with a settlement agreement don’t have to spend time in court and can divide assets without court involvement.

FAQ

Are Gifts Separate Property in a California Divorce?

Under California Family Code §770, all gifts are the separate property of the person who received them.

However, a judge requires a formal discovery of whether it was a personal gift or one from which both spouses could benefit. In addition, high-value gifts, such as vacation homes, artwork, or antiques, may sometimes be treated as marital property.

Is California an Equitable Distribution State?

No, California is one of nine states using community property law. It means that any assets, real estate, debts, and other property a couple acquired during the marriage will be split in half if they divorce.

When Does Separate Property Become Community Property in California?

Separate property of each spouse can become marital property via commingling or transmutation. For instance, different assets can get mixed up, as in putting money from the separate property into a joint account with the clear intent to make it marital property.