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Understanding California’s community property law

On Behalf of | Aug 9, 2023 | Family Law |

Divorce is often one of the most difficult and stressful experiences people will ever go through. Outside of any custody issues, a common reason for stress involves property and finances.

People even avoid divorce at times, choosing to stay in an unhappy marriage, because they are afraid of what will happen to valuable assets such as houses, businesses or retirement accounts. This is understandable, but there are laws designed to ensure a fair outcome for both spouses.

California is one of just a few states that follows a community property model when it comes to divorce. This means that property acquired by you and your spouse during your marriage is equally owned by each of you.

Identifying and valuing property

When you start the property division in your divorce, you and your spouse will both be asked to list all of your assets and debts. Any that were acquired prior to your marriage are separate property and not subject to division.

You must then assign a value to each asset. You can agree on a value with your spouse, but if you do not agree, you must hire an appraiser. You can use the same appraiser, or each choose your own appraiser.

As you can imagine, things can become complicated if each appraiser comes back with different values. You can agree on one of the values, decide on your own value or let the court decide which value to assign.

Dividing your property

Once your assets and debts are assigned and valued, the property division process begins. Since the community property law assumes that you both have an equal right to community property, what happens if you both want an item of community property, such as a house?

Usually, the spouse who receives the house must pay the other spouse a sum equal to half the value of the property. If your house is valued at $500,000 and you receive the house, you now have a $500,000 asset. An equal outcome would then require you to pay your spouse $250,000.

You and your spouse are always free to come up with your own agreement as to how your property will be split. However, if you cannot do that, the court will divide it according to community property law, which generally means a 50/50 split.

What is not considered community property

There are some exceptions to the community property law. Gifts or inheritances are separate property and not community property that must be divided with your spouse.

However, separate property that mixes with community property becomes community property.

For example, if you received an inheritance prior to marriage and placed it in a separate bank account, but then transferred the inheritance into a joint bank account during the marriage, the inheritance money is likely now considered community property.

Property that is acquired while you are married but after you separate is also separate property. This is why determining an accurate date of separation is important.

These rules may sound complex, but their purpose is to allow you and your spouse to separate your lives while still maintaining financial stability. It is important to know how the community property law impacts your specific situation to achieve the best outcome.