What is Community Property in California and is it Always 50/50?
Prepare to learn about California community property and how it works
What is community property and is it always an equal division?
What is community property under California family law? The question is a common one. The answer can range from the simple to the very complex. On this page, we will give you some community property principles that will help you better understand California's community property laws.
California community property laws within Family Code 760
California Family Code 760 states, "except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property."
That may seem simple but the Family Code actually states a lot in that short sentence. Community property is real property (real estate), personal property (explained below), no matter where it is and when acquired during the marriage. Is it that simple? No, it is actually more complex. We explain the reason why below.
What is community "real" property?
Real property is real estate of any kind. The most common examples are a home, land, commercial property, etc.
What is community "personal" property?
Personal property is anything that is not real property. That basically means, "everything else." It is literally that broad.
What are the different types of community property?
The most common types of community property spouses may acquire during the marriage are as follows.
1. The family residence and other real estate that may be community property
A home acquired during the marriage is often community property. It may be partially or completely community property, depending on the source of money used to buy it or improve it. When determining what community real property is, we often look at the date of acquisition, the source of money used to make a downpayment as well as the source that paid down the loan's principal amount.
Household furniture, furnishings and appliance may be community property
Was all that "stuff" around the house bought during the marriage? Yes, that includes everything from the refrigerator to the bed. If it was and marital earnings or savings paid for it, then it is likely community property.
Community property jewelry, art, coin collections and other valuables such as antiques
Jewelry of a personal nature (wedding ring, jewelry gifted during the marriage) is often not community property. California law is not inflexible on this issue. We already wrote if it was acquired during the marriage through a community property source, it is likely community property. So why would there be an exception for jewelry? That is because California Family Code 852 carves out an exception for it and it is not just for jewelry.
California community property laws usually require a transmutation (community property becoming separate property or vice versa) to be in writing. However, section 852(c) states:
This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.
The key words there are "taking into account the circumstances of the marriage."
If one spouse buys a nice gift for the other spouse and that gift is within the reasonable means the spouses have to spend on such a gift, it is likely the receiving spouse's separate property. What does, "taking into account the circumstances" mean? For example, if the spouses make a combined $250,000 per year and have an upper-middle class estate, and one of them invests in a $50,000 piece of art for the other spouse's birthday, it may be harder to argue that is a gift that becomes separate property.
These scenarios can apply to nearly any personal property. Since the laws are not black and white (words like "taking into account the circumstances of the marriage" give the court leeway), every factual situation will be different.
Community property motorized vehicles including cars, motorcycles, boats, etc.
Cars, motorcyles, boats, trailers and any motorized vehicle can be community property. The tricky part when determining what community property (versus separate property) is cars acquired before marriage but paid down during the marriage. In that case, it may be both.
Bank accounts or accounts with financial institutions as community property
These include saving, checking, credit union, brokerage accounts, etc. Sometimes, a spouse opened the bank account before marriage but deposited and withdrew marital earnings and savings within the account during the marriage. The account itself is not important. What matters is the money going in and out of it. The source of that money is the key to determine what is community property. This gets more complex when the spouses commingle premarital and marital money.
Community property cash
Cash is often community property unless a spouse had the cash from prior to the marriage and segregated it. Most people do not have a large amount of cash so this issue does not come up often in a divorce. When it does, it usually deals with cash in a safe and one spouse accessing the safe without the other spouse knowing. This causes allegations of misconduct back and forth. It becomes harder to then determine what is community property and who has it.
Community property life insurance
Life insurance may be term life insurance or life insurance with a cash surrender or loan value. When experienced attorneys try to figure out whether life insurance is community property, they first look at when one or both spouses purchased the policy and whether marital earnings or savings paid for its premium.
Life insurance policies and their characterization as community or separate can get very complex and an attorney's advice is essential.
Stocks, bonds, secure notes, and mutual funds may be community property
Many of these may increase or decrease in value during the marriage, even though they were bought before marriage. Do market conditions that affect such accounts during the marriage create a community property interest? The answer is usually no, if it is only market conditions that affected it.
However, if community property money went into these accounts or community property efforts went into their investment during the marrriage, then the community may acquire an interest. When determining what community property is within such accounts, you may need a forensic accountant's help.
Community property retirements and pensions
Retirements and pensions often go through a qualified domestic relations order (called a QDRO). When spouses want to know what the community property portion of a retirement or pension may be, the QDRO sent to the retirement Plan usually spells out a formula to figure out the community property portion. Most plans are partially community and separate because new money goes into such plans after the date of separation.
Community property profit-sharing, annuities, individual retirement accounts, and deferred compensation plans
If they must go through a QDRO process, California community property law treats them similar to accounts with financial institutions or retirements, as we explained above.
Accounts receivable or unsecured notes may be community property
What is community property when dealing with money owed to one or both spouses? If one or both spouses lent the money during the marriage and that money lent was community property money, then it is likely the account receivable is community property.
Community property corporations, partnerships, limited liability companies or other forms of business
Any business acquired during the marriage is community property. However, do not get caught up in the actual "formation" of it.
If one spouse owned the business before marriage and just changed it status from one type of entity to another, that, by itself, does not mean the spouse acquired a business during marriage.
The important part when figuring out what the community property interest is:
- "When" one or both spouses started the business,
- "Whether" the investment of time and/or money into the business was through community money,
- "What" the value of the business was at the time of the marriage (if owned prior to marriage), and
- "How much" is it worth today.
The above are only some of the considerations.
This is a very complex subject and can be a guide, by itself. Spouses often dispute the community versus separate property nature of a business. Experienced representation and help from a forensic account is essential.
Community property that is intellectual property such as patents, copyrights, trademarks, etc.
Intellectual property often involves the collision between federal law with California's community property law. A detailed explanation of intellectual property and its community or separate nature is beyond the scope of this article. We work with highly skilled intellectual property lawyers who help guide our clients when such issues arise.
What else is community property?
Community property can certainly be more than just what we wrote above but the above are the most common types of property at issue in a divorce. Keep in mind the above can also be separate property so a significant consideration when characterizing any property as community versus separate is when and how it was acquired.
California has a statute regarding a joint title community property presumption
That is part of Family Code 2581. That Family Code states the following about the community property presumption.
For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following:
(a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property.
(b) Proof that the parties have made a written agreement that the property is separate property.
That is a pretty powerful statute because it creates a presumption that has to be rebutted to consider a property to be separate property.
People sometimes get caught up on how title is held. That is also a complex concept so I will tell you two things to keep in mind.
1. Do not assume title guarantees whether property is community property versus separate
In other words, just because, for example, a house is only under one spouse's name on the deed does not mean that house is 100% that spouse's separate property. However, just because a spouse acquired a home during the marriage, regardless of whose name it may be under, does not guarantee the house is 100% community property.
These are the things that make community property law complex as you sometimes see a general rule, exceptions to the general rule and then, somewhat annoyingly, exceptions to the exception. That is why spouses should not represent themselves when there is property to divide.
2. Even the word "acquired" can lead to different interpretations when evaluating community property characterization
For example, if a wife owned property before the marriage but placed that property during marriage under joint title with her husband, was the property acquired before marriage or was it acquired during the marriage? The answer is actually both but an argument can be made that because of the property transfer to joint form during the marriage, Family Code 2581 kicks in.
In such a situation however, that presumption can usually be rebutted because the wife bought the property prior to the marriage and that is when it gets interesting. From that point the question becomes how much of the property is community property and how much of it is separate property.
This hypothetical also causes other Family Code sections to kick in including Family Code 721
Spouses are fiduciaries to each other
Because spouses are fiduciaries to each other, they are not permitted to take advantage of each other in any interspousal transaction. The term interspousal means transactions between the spouses.
When property arguably goes from separate to community property or vice versa or there are title transfers that are then argued as transferring a community or separate property interest, the question is whether one spouse took advantage of the other one.
That complicates the analysis even more. If the property has significant value and there is little to nothing given up in exchange for the interspousal transfer or transaction, it could lead to arguments of undue influence and an invalidation of the transfer.
From what is community property to, "what is separate property?"
I could write about the subject for many more pages. It is a fascinating set of rules and exceptions within the Family Codes and California law.
We encourage you to read our article on the separate property down payment on a home and what disputes often arise from it. It is great insight into Family Code 2640 on this issue. We link to this article earlier.
You now have a basic knowledge of California community property laws. Ready to learn more? Let us now move to California separate property.
We provide you with the links below.