In the United States, there are two methods of distributing marital property in a divorce: 1) equitable distribution and community property. Out of the 50 states, only 9 states are community property states and these include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In equitable distribution states, the courts divide marital property in a manner that is just and fair considering the couple’s individual circumstances. With this model, there is more room for variance. With the community property model, distribution of marital assets is more straightforward.
Under California’s community property law, all marital assets belong equally to both spouses; this means they are split in half upon divorce. So, the next question is, what counts as community property?
What Constitutes Community Property
Community property is another term for marital property. It is anything the spouses earned or acquired during the course of the marriage. This includes the following:
- A business,
- A patent,
- Boats and RVs,
- Cash in bank accounts,
- Security deposits on a home or apartment,
- Life insurance with cash value,
- All income earned by either spouse,
- All real estate acquired during the marriage by either spouse,
- All personal property paid for with community property, and
- Retirement and investment accounts contributed to during the marriage.
The community property theory also applies to debts. All debts acquired during the marriage are community debts, meaning both spouses are responsible for them.
If you’re like a lot of people, you may not want to deal with dividing all of the assets and debts, but in order to obtain a divorce, the court will need to issue an order about these matters. Fortunately, this doesn’t mean you have to have a judge decide on these issues who doesn’t know you, your spouse, or your personal situation. The majority of our clients reach an agreement without needing a judge to intervene.
Separate Assets Are Not Divisible
Separate property or assets are not subject to division under California’s community property laws. Separate assets are those owned by one spouse before the date of the marriage or after the date of legal separation, gifts or inheritances acquired by one spouse during the marriage from a third party, and debts the spouses incurred before the marriage. For example, if a spouse had an auto loan from before the marriage, their husband or wife would not be liable for that debt.
A lot of people mistakenly believe that since California is a community property state, all assets and debts have to be split 50/50 by law, but that is not the case. Of course, that will be the default arrangement if the couple cannot reach a settlement agreement, but in practice, most couples will reach an agreement on how to divide their assets and debts out of court. In other words, California couples have the right to deviate from the 50/50 model.
Are Prenuptial Agreements Effective?
Like we mentioned above, couples don’t have to stick to California’s community property laws if they don’t want to. The community property laws are essentially there in case divorcing couples cannot agree on how to divide their property. So, if a couple reaches an agreement that is not a 50/50 split, the judge will probably accept it as long as the couple has come to terms on the settlement.
“Will a prenuptial agreement trump the community property laws?” If there was a prenuptial agreement in force before the marriage and it was legally executed and doesn’t break any state or federal laws, the prenup should be legally enforceable. There are two things a prenup cannot do; it cannot dictate child custody, nor can it waive a parent’s right to child support.” These matters are strictly governed by the family courts.
What if I Own Property in Another State?
If you’re getting a divorce and you own a home or land in an equitable distribution state, you may be wondering which laws apply. According to the Internal Revenue Service (IRS), it all has to do with which state you call home. If you live in California but for example, you own a vacation home in Park City, Utah (an equitable distribution state), your home in Utah will be subject to California’s community property laws because California is the state where you’re paying state income taxes.
What if I Bought Something Myself?
What if you bought something all by yourself during the marriage, does that mean it also belongs to your spouse? Suppose you bought a brand-new car with money you had been saving out of your paycheck for the last two years. Each month, you stashed away $1,000 until you were able to trade in your existing vehicle and pay $25,000 cash for your new car.
Even though you bought the car with money you saved from your paycheck, the car would still be considered “community property” and owned by you and your spouse. This is because all of the income you earned during your marriage belonged to you and your spouse equally. But it goes both ways. You also own one-half of all income your spouse earns while you’re married.
“What if I financed the car?” It’s the same even if you financed the car and took out an auto loan in your name only. Your spouse would have a right to the car and he or she would be just as liable for the auto loan, even if they were not on the loan itself.
Related: Fundamentals of a California Divorce
We hope this post cleared up any questions that you had. If you’re looking for a Los Angeles divorce attorney, contact Claery & Hammond, LLP to schedule a free case evaluation.