Understanding California Community Property: A Comprehensive Guide

1. Introduction

Keith F. Carr is a San Francisco community property division lawyer. When it comes to property and assets acquired during marriage in California, there is a legal concept known as community property. Understanding community property is essential for anyone to grasp the fundamentals of property ownership in California when contemplating marriage or going through a divorce. 

2. What is Community Property?

Under California law, community property is all property (e.g. real estate or personal property) acquired by spouses during the marriage within California. It operates on the general principle that most property and income obtained during the marriage belong equally to both spouses, regardless of who earned or purchased them.

Key Principles of Community Property

– Ownership Equality: In California, absent a valid agreement to the contrary between a couple, both spouses are considered equal owners of community property. This means that each spouse has a 50% interest in the assets and debts acquired during marriage.

– Income and Earnings: Salaries, wages, and any income generated by either spouse during the marriage are generally considered community property, subject to some exceptions.

– Property Acquired During Marriage: Except as provided by statute, all property acquired by a married person during marriage, such as real estate, vehicles, savings accounts, and investments, are community property.

3. What is separate property?

On the other end of the spectrum is separate property. This is property a spouse owns outright as his or her own throughout the marriage.

What Is Separate Property?

Separate property includes assets and debts that are not considered part of the community estate. These assets typically fall into one of the following categories:

– Property Owned Before Marriage: Any property owned by either spouse before the marriage remains separate property.

– Inheritance and Gifts: Property received by a spouse by gift, devise or descent during marriage is separate property.

-Rents and profits: Rents and profits from any of the above property is separate property in California.

– Agreements: Spouses can enter into agreements, such as prenuptial agreements, to designate certain assets or debts as separate property.

– Property Tracing: If separate property is commingled with community property, it may still retain its separate property status if it can be traced back to its source.

-Property After Separation: Property acquired by spouses after they physically or legally separate is separate property.

Understanding what qualifies as separate property can protect certain assets from being characterized as community property and divided during a divorce.

4. What Is Quasi-Community Property?

“Quasi-community property” is (i) real and personal property, wherever situated, which would have been community property had the owner spouse been living in California at the time it was bought. Also, the term encompasses any property acquired in exchange for such property mentioned above.

If the property in question would have been the acquiring spouse’s separate property under California law it cannot be quasi-community property.

5. Separate Property vs. Community Property

During a divorce, characterizing the status of property interests as community or separate property is the starting point to determine marital property rights and obligations of the parties with respect to their assets and debts.

The parties may agree to the status of all or any part of their property. Absent such agreement, they can dispute characterization of community and separate property interests. In California, there exists a vast body of statutory and case law. If the parties cannot agree on the status of their property interest, then the court will be charged with such determination.

Community Property Division During Divorce

In California, a court, absent settlement between the parties, is tasked with ensuring an equal community property division between spouses during divorce. This practically means a lengthy and expensive trial.

The ultimate mandate of California law is that the community property division be equal. Learn more about California law, Family Code § 2550. The family court can make orders as necessary to carry out an equal division of the community property.

Valuation of property: Unless the parties agree to an “in-kind” division of their community property, the court necessarily must value the community assets and debts as a necessary prerequisite for equal division.

Learn more about the division of: pension and retirement benefits; or  employee stock options.

Manner of Division of property

In-kind division: The court may divide fungible assets, such as bank accounts or shares of stock, etc. in kind, whereby each spouse is awarded one-half.

Asset Distribution or cash-out division: Distribute one or more items to one spouse and items of equal value to the other.

Division of proceeds of asset sale: The court may order an asset sold, with the proceeds divided in a way that is necessary to effectuate a net equal division of the community estate.

Economic circumstances: Equally dividing each item of property in the community estate is rarely practical or feasible. Where warranted, the court may award a community asset exclusively to one party in order to provide a substantially equal division.

6. Types of Community Property 

Vehicles

If a vehicle was acquired by the spouses during marriage and is held in a joint title, that triggers the California presumption that it is community property in a divorce or legal separation proceeding.

Joint Bank Accounts

In California, any funds deposited in a joint bank account are generally considered to be community property.  This means that both spouses have an undivided interest in the money and each spouse is entitled to half of the funds. 

On-going Business

Determining the value of the business is very important where the business is determined to be the couple’s community property acquired during marriage in California. Once a value is determined, this asset will be considered for division by the couple or the court. 

Credit Card Debt

Debt accumulated during marriage is community debt. Each spouse is responsible for half. However, the credit card company may have never accepted both spouse’s under its credit card provisions. In that case, it would concentrate its recovery efforts on the one spouse that is under the credit card contract.

Student Loans

Under Family Code Section 2641, student loans incurred during marriage shall not be included among the debts of the community for the purpose of division during a divorce and are assigned for payment to one spouse. However, the community estate shall be reimbursed for community contributions to education or training of a party that substantially enhances the earning capacity of a  spouse. If the community property contributions are made less than 10 years prior to the start of the divorce proceeding, then there is no presumption that the community has substantially benefited from community contributions to the education or training of a spouse.

Read further Family Code 2641.Real Estate Held in Joint Form

California law provides that property acquired by the spouses during marriage in joint form is presumed to be community property for purposes of community property division in the event of a divorce or  legal separation. If either party to this action should die before the jointly held community property is divided, the language in the deed that characterizes how title is held, for example joint tenancy, tenants in common, or community property, will be controlling, and not the community property presumption that jointly held property is presumed to be community property. 

7. Managing Community Property During Marriage

Community Property Management

Under current California law, the duties owed between spouses in transactions between themselves and in the management and control of their community property are the same highest duties owed by parties to a fiduciary relationship. This means that the spouses stand as “fiduciaries” to one another when dealing with community property during marriage.

This means that with regard to community property, spouses must exhibit the highest level of good faith and fair dealing. In addition, neither shall take unfair advantage of the other.

When do these fiduciary duties end?

The parties’ respective fiduciary duties continue after separation in anticipation of dissolution as to all activities affecting the other party’s assets and liabilities, until the date of distribution of the community asset or liability. Once an asset or liability is distributed, fiduciary duties as to that asset or liability end.

Full Disclosure Required

During the marriage, the parties’ fiduciary duties require full and accurate disclosure of information that affects community property transactions.

Management and Control of Assets

In exercising management and control of the community assets and liabilities, each spouse must act in accordance with his or her general fiduciary duties.

Access to books and records

A spouse must providing the other access at all times to any books kept regarding a community property transaction for purposes of inspection and copying.

Truthful accounting

A spouse must provide upon request, any and information about all things affecting transactions concerning the couple’s community property.

Sharing of benefits and profits

A spouse acts as a trustee for any profit derived from community property transactions made without the other spouse’s consent and must account to the other for such profit.

Full disclosure of material facts

The spouses must give full disclosure to each other of all material facts and information regarding the existence, characterization and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable. The spouses must also provide equal access to all information, records and books pertaining to the value and character of those assets and debts when requested.

How can a spouse protect his or her interests?

It is essential that a spouse prepare for the event of a divorce, even unlikely, by proper record-keeping and consulting with professionals.

Maintaining Records

Each spouse should keep detailed records of financial transactions, especially transactions involving separate property and significant purchases, such as real estate.

Prenuptial Agreements

Before marriage, a couple may consider preparing a prenuptial agreement to specify which assets will remain as separate property and which will be community property. Along with this, spouses should discuss their financial goals and expectations. Learn more about Prenuptial Agreements.

Consult with Professionals

Spouses should consult with a different professional advisors, such as financial advisors, accountants, or attorneys to help them understand the financial and legal implications of their decisions regarding separate property and community property.

8. Conclusion

The Law Offices of Keith F. Carr is a San Francisco community property lawyer. California community property law impacts the ownership of assets and debts of a couple acquired during a marriage in California. One should have a fundamental understanding of the principles of community property and separate property and being acquainted with community property division during a divorce.

When you seek legal advice and professional guidance from the Law Offices of Keith F. Carr for transactions affecting community property laws in California, you will take a substantial step to ensure your rights and interests are protected.

Frequently Asked Questions