Community Property/Asset Division
Property characterization
Property characterization is the process of establishing whether specific funds and other assets will be treated as community or separate property. Many complexities can arise during this crucial step.
community property
Whether property will be treated as community property by the court primarily depends on whether it was acquired before the date of marriage or after separation. Gifts and inheritances are exceptions, however, and many disputes involve valuation of complex assets.
- Disputes that hinge on when and how specific assets were acquired
- Establishment of fair and accurate valuations for family-owned businesses and professional practices, real estate, special collections and other complex assets
- Issues of acquired interests and the right of reimbursement, which may be relevant when, for example, a once-separate asset has appreciated significantly during the marriage or one party's separate assets were used to pay the other's debts
- Potential tax consequences of various settlement scenarios, in order to provide our clients with the information needed for productive consultation with their accountants.
Under California law community property is any property acquired by a husband and wife during marriage with community earnings, accumulations, and profits during marriage. In California a marriage is generally viewed as a partnership where both husband and wife are viewed as having equal ownership of all assets acquired during marriage. Generally these assets include a home, furniture, automobiles, pensions/retirement, stocks, bonds, recreation vehicles, and collections. Likewise, debts incurred during marriage are community debts and both husband and wife are equally responsible for debt repayment.
When spouses separate and divorce, the court has a duty to determine the value of all community property and divide it equally. In most cases the court will determine the balance due on all community debt and order that spouses share equally in repayment of those obligations.
Under California law separate property is any property owned by one spouse prior to marriage or acquired by that spouse during marriage by inheritance or gift. Additionally, interest or income from those assets are the separate property of that spouse. A spouse has no ownership interest in the separate property of the other spouse whatsoever. The only time a spouse may get an interest in the other spouses separate property is when there has been a commingling of those assets.
California law provides that separate property may be converted into community property by an agreement in writing between spouses. The court will determine if there is any separate property and, if there is, confirm its ownership to the spouse who acquired it.
The general rule is that all debts acquired during marriage are community debts to be divided equally between the parties. Some exceptions apply, however, with respect to characterization of a debt acquired during the marriage as well as the allocation of community debt upon legal separation or dissolution. It is possible to have more than one half of the community debt ordered against one spouse.
Unfortunately there are spouses married to business owners who have no idea the value of the community business. What is done to determine the value ? is a common questioned asked. The answer – hire a forensic Expert.
A forensic expert has the credentials in accounting and business to go through the books and records and make a determination on the value of the business. In some instances, the husband hires a separate expert than the wife. In other instances, one expert is chosen between the attorneys in hopes that a fair valuation is determined by the expert.
Often times separate experts are hired if the divorce is heated and the parties are contesting most aspects of the divorce. The benefit is that each party has their own witness if the matter goes to trial.
Generally student loan debt is considered to be the separate debt of the borrowing student spouse. However, depending on whether the or not student loan proceeds were used to pay for household expenses, to acquire property, these debts may be allocated and treated as community debt. The length of marriage can also play a part in the allocation or division of the student loans.
Current case law in California says that whether a gift between spouses is considered to be a “transmutation” of that property from community property to separate property depends on the value of the gift compared to the overall value of the marital estate.
If the gift is substantial compared to the value of the estate, then the gift will probably be deemed community property. However, if the gift is relatively inconsequential when compared to the value of the marital estate then the court will most likely find that the gift is the separate property of the other spouse.
