As our readers likely know, California is among a relatively small number of “community property” states. Just what that means, however, isn’t widely understood.
People – including a lot of celebrities – often complain that they had to give their spouse half of everything they own in the divorce. It may seem that way (and may be accurate, in some cases). However, that’s not exactly what the law requires.
No two states’ community property laws are even the same. Let’s take a brief look at California law.
What is “community property?”
Community property (also known as “marital property”) typically includes (with exceptions we’ll discuss) anything that’s acquired by either or both spouses during their marriage. This includes things purchased by both spouses or with joint assets (like a joint credit card or checking account) as well as:
- Each spouse’s work-related income
- Each spouse’s “passive” income like interest and dividends
- Property bought with one or both spouses’ income
The primary exceptions to assets acquired during the marriage that aren’t considered community property are inheritances and gifts acquired by one spouse. Those remain their separate property as long as they aren’t commingled with joint assets.
Commingling is often something people do – particularly in long marriages – without thinking about it or simply because it’s convenient. For example, if you inherit money from a relative and place it in a joint bank account to use to pay bills, you’ve commingled it, and it’s now community property. The same is true if you use that money as a downpayment on a new home you’ll both own.
How to avoid the required community property split
One way to prevent having to worry about community property requirements in divorce is to have a prenuptial or postnuptial agreement that addresses how assets would be split. Even if you don’t have that, you can work out whatever kind of division of assets (and debts) you want. It can’t be grossly unfair to one person, or a judge likely won’t approve it. If you can’t negotiate your own division or it’s not codified in a previous agreement, a judge will order a division based on California’s law – which would involve dividing all marital assets and debts in half.
Whether you’re considering marriage and putting a prenup in place or it’s a divorce that’s in your future, having legal guidance can help you better understand how to protect your financial well-being.
