Marriage is often thought of as a romantic partnership, but legally, it is a financial contract. Under California law, when a couple marries, they accept a fiduciary duty toward the other person and generally share ownership of the assets and debts acquired during marriage. As a result, property division is a fundamental issue in most divorces.
However, not all property is eligible for equal division during a divorce. California family law categorizes all personal assets as community, separate, or quasi-community property. Understanding the definitions of each category is crucial for anyone seeking a division of assets when ending their marriage.
What Is Community Property?
Community property, also known as marital assets, includes most assets earned or acquired by either spouse during the marriage. Under California Family Code § 760, “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.” This includes:
- Salaries and other income received for labor during the marriage
- Real estate and vehicles purchased with community property by either spouse during the marriage
- Any items purchased with community property
- Patents, copyrights, and trademarks created during the marriage
- Capital gains on investments made with community property
- Businesses formed during the marriage
Community assets accrue from the day a couple marries until one party dies or their date of separation. The total value of all community property is subject to equal division when a couple divorces. Regardless of which party earned, created, or purchased an asset, both spouses have the right to half its fair market value in their divorce settlement.
What Is Quasi-Community Property?
Nine states in the US have laws that require an equal division of assets in a divorce. The other 41 states have “equitable division” laws that permit unequal division of marital possessions, typically determined by how much each spouse contributed to the household during their marriage.
Suppose a couple lives in an equitable division state for the beginning of their marriage but then moves to California, where they eventually file for divorce. In that instance, California laws regarding division of asset do not directly apply to the items acquired while the couple was living in an equitable division state. However, California still has in personam jurisdiction over both spouses. This jurisdiction permits the state to define assets that would have been community if acquired while living in California as “quasi-community” assets. In many divorces, they are treated similarly to marital property and divided equally in the California divorce.
It is important to note that California’s quasi-community asset laws do not impact federal designations. As per IRS regulations, “This characterization of property has little or no impact on basic principles of income taxation of community property or collection, because quasi-community property is not community property. It is therefore not taxed as community property or subject to collection as community property.”
What Is Separate Property?
Separate property is generally comprised of pre-marital assets and assets acquired during the marriage by gift or inheritance. Separate property assets are not subject to division during divorce. California Family Code § 770 defines three types of separate assets:
- All property owned by one party before marriage
- All property acquired by one party after marriage by gift, bequest, or inheritance
- The rents and profits generated from a property described in this section
The second two points are critical exceptions to California’s community property laws. As long as a spouse does not commingle inheritances, gifts, or passive income from their separate property with community assets, they retain full ownership of them.
California Family Code § 1612 provides another important exception. This law permits couples to draft premarital agreements to set different terms for the rights and obligations of each spouse regarding their future income and acquisitions. When a valid premarital agreement is in place, the court will enforce its terms as long as they are deemed conscionable. This permits couples to name certain assets or asset classes that would otherwise be considered community property as separate property instead.
Navigating Complex Asset Division in California
Dividing assets in a divorce requires a comprehensive understanding of California law and precedents surrounding community property. If you are preparing for divorce, you should seek experienced legal counsel to ensure you achieve an optimal settlement. The expert attorneys at Flicker, Kerin, Kruger & Bissada LLP are available to provide skilled guidance to clients seeking assistance with complex and high-asset divorces in California.