What is community property in California? – a comprehensive guide.
If you have read about divorce law in California, you will have likely come across the phrase ‘community property’. States like Arizona, Nevada, and California are community property states, meaning any property acquired by a couple during their marriage is presumed to belong equally to both spouses.
What is community property in California -definition and the source of the law?
Under California’s Family Code Section 2550, the court must make a 50/50 division of any property acquired by a married couple. Of course, if the couple can come to an agreement on the division of property, it will be divided according to this agreement. In cases where this is not possible, however, it falls to the court to decide who gets what.
Community property is property, other than separate property acquired by either spouse during marriage. What is community property in California?
Community property is property, other than separate property acquired by either spouse during marriage.
What is separate property in California?
Separate property is property: 1. Owned by either spouse before marriage, or 2. acquired during marriage by gift, will or inheritance, or 3. Acquired during marriage with expenditure of separate funds.
Property is anything that has value. This could be something that has been bought, such as houses, cars, furniture, pets, and so on. But property doesn’t have to be physical, it could also be things like 401(k) plans, businesses, stocks, and bank accounts.
If a couple acquired any property during their marriage, while outside California, it is considered quasi-community property. Quasi-community property is still treated as community property under California divorce law.
It’s not just property that is divided under community property rules. Debts must also be taken into account, and be divided equally between both spouses.
How is community property in California divided?
In the first stages of the divorce process, both spouses will complete a Preliminary Declaration of Disclosure form FL-140. As part of this form, they also complete a list of all assets and debts accrued during their marriage, as well as their estimated values.
The court then uses these documents as a way to calculate the value of the couple’s property and divide it equally. This means even if the court awards a house to one spouse, and a car and cash to the other spouse, each will receive an equal amount of property.
How is real estate divided under laws of community property in California?
In cases involving minor children, the primary custodial parent and their children will live in the marital home until the divorce is finalized. During this time, the primary custodial parent will be required to make all mortgage, tax, and insurance payments related to the house.
The court may also choose to award the primary custodial parent the marital home permanently, and offset this by awarding more property to the other spouse.
If there are no minor children, and neither spouse wishes to keep the marital home, it is typical for the couple to sell their house, and evenly split the proceedings.
However, if one spouse wishes to keep the house, and the other doesn’t, things become a little more complex. In this case, the court will need to determine the value of the house. This is done either by both spouses agreeing on a value or through a third party appraisal.
Once a value is determined, any remaining mortgage payments will be subtracted from this value. For example, a house is valued at $700,000 with a $150,000 mortgage payment. The total community property value to be divided by the court ends up as $550,000.
If the couple has not yet finished paying off their debt on any other property, such as on a car, this debt will also be subtracted from the community property value. A car worth $20,000 with a debt of $5,000 left to be paid will have a community property value of $15,000.
No matter whose name these properties have been purchased in, the property is owned equally by both spouses, provided it was purchased during their marriage.
How are pension plans divided under laws of community property in California?
Pension plans, such as a 401(k) or a profit-sharing plan, can be tricky to divide. Any contributions made before the marriage are considered the contributor’s separate property, i.e. not owned by the other spouse. However, any contributions made during the marriage are considered community property under California law.
California courts deal with pension plans in one of two ways: cash out or reservation of jurisdiction. As an example, a couple is divorcing after 16 years, and Spouse A has a 401(k) valued at $200,000. They have been contributing to their 401(k) for 20 years. The community property of their 401(k) is therefore 80%, or $160,000.
Cash out – The community property value of the 401(k) – $160,000 – is taken into account when dividing the property between the spouses. Spouse A receives the last $40,000 as their sole and separate property.
Reservation of jurisdiction – When Spouse A retires, Spouse B is entitled to half the community property percentage of 401(k). This is 80%, so Spouse B will receive 40% of any pension payments. If Spouse A is able to retire but chooses not to, Spouse B can still elect to receive the payments they would have, had Spouse A retired.
What is community property in California? – business ?
Any businesses started during a marriage, regardless of who by, are community property. In cases involving a business, a court will enlist an expert in business appraisal to find its value. It may be possible for a couple to agree on the value of the business, though this is rarely accepted by the court. The business’ value is then added to the list of property awaiting division.
In cases where one spouse obtained an educational degree or professional licence during the marriage, the other spouse will be reimbursed for the costs of obtaining it (i.e. tuition fees, examination fees, and books). Under community property laws in California, the other spouse is not entitled to any percentage of the income enhanced by the qualification.
Are there exceptions to community property in California?
Pets – Pets rarely have any financial value, but have lots of sentimental value. In cases involving pets, the court will take into account the emotional attachment of each spouse to the pet, and whether the pet was a gift to either spouse.
Dividing community property
Once the value of all the community property is attained, the court will then seek to divide the property equally, awarding 50% to each spouse. A clean split down the middle is rare, and each spouse will receive different items, although with the same value.
To equalize the division, one spouse may have to pay the other an amount of money. For example, Spouse A is awarded property with a total value of $370,000, and Spouse B is awarded property with a total value of $500,000. Spouse B must pay Spouse A $130,000.This post covers pretty much everything you need to know about what constitutes community property in California. If you’re looking for more information on California divorce law, seek good legal advice from a qualified attorney,
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