As most people know, at the end of a divorce, property is divided between the parties. A crucial and sometimes very complicated task which greatly impacts the division of property is whether an asset or debt is characterized as belonging to either the marital community or to one party alone. This can often be confusing.
The first, and perhaps most clear and important rule regarding the characterization of property, is that the status of a piece of property as community or separate depends most basically on the time of acquisition of the property. Community property is defined in the Family Code simply as all property, wherever located, acquired during the marriage. The general “community property presumption” operates in family law to form the starting point for the court: All property acquired during marriage shall be deemed community property unless proven otherwise.
The “otherwise” begins with the definition of separate property, which somewhat limits the broad definition of community property. Separate property is defined as one of three types of property: 1) property acquired by one spouse before the marriage or after separation, 2) property acquired by one spouse during the marriage by gift or inheritance, and 3) profits from the separate property described in 1) and 2).
Moving beyond the simple definitions of community v. separate property, however, there are a plethora of other factors which come into play. A few examples:
- Gifts – The statute defining separate property provides that all gifts acquired during marriage are the separate property of the spouse receiving the gift. However, there are multiple ways a “gift” may not be the “gift” contemplated by the statute. For example, a gift from an employer may be community property to the extent it was given in recognition for services rendered during the marriage. As for gifts between spouses, the Family Code requires that the parties memorialize the gift in writing in order to make the item the separate property of one spouse. A caveat exists, however, with respect to gifts of a personal nature, such as clothing or jewelry, in which case the written record is unnecessary if the value of the gift is insubstantial in light of the marital financial circumstances.
- Commingling of Funds – Another way the line between community and separate property may become blurry is related to how funds are held. When one party receives an inheritance during the marriage, that inheritance is characterized as separate property. However, if the funds are deposited into a joint account in which community property money is kept, and the money is commingled and used for community expenses over the years such that it becomes impossible to differentiate the separate from the community money, all of the money in that account may be deemed to be belong to the community.
- Business Ownership – A common facet of many dissolution cases involves the division of a business owned by one or both of the spouses. Often, that business will have been owned by one spouse before the marriage, and the value of the business will have increased over the length of the marriage. A complicated analysis related to the source of the increased value, whether it lies with economic circumstances or the blood, sweat, and tears of the owner, is required to determine what, if any, portion of the business belongs to the community.
- Contributions to Separate Property – Often during a marriage, one spouse will use his or her separate property money to take care of community property obligations. Or, one spouse may utilize her separate property money to help make improvements to property her husband owned prior to the marriage. And finally, the parties together may decide to use community property money to satisfy the separate property debt or improve a separate property home of one party. When funds are used in this way, the line between separate and community property isn’t so clear. A thorough and complete tracing of funds will become necessary to parse out exactly what money and which property belongs to which spouse, and what belongs to the community.
Ultimately, a proper and fair division of assets and property in a divorce involves the careful categorization of property as separate or community in nature. An understanding of the intricate rules of the Family Code related to property is imperative. Your family law counsel can assist with identifying the specific information and documents necessary to determine how your property should be characterized at the time of a divorce.
Bremer Whyte Brown & O'Meara provides individualized counseling and representation in all areas of family law. For more information, please contact Nicole Whyte at (949) 229-8546.