Key Takeaways:
- Assets in the US are divided in one of two ways: community property or equitable distribution.
- California uses the community property model.
- Community property states view all assets acquired during a marriage as joint property.
- This does not mean assets are split 50/50.
- There are separate property exceptions.
Courts divide assets and debts in the United States in two ways. Most states use the equitable distribution model. The rest follow community property statutes.
What’s the difference between the two, and how does this affect your divorce settlement? Which set of rules does California follow to split assets in a divorce?
Is California A Community Property State?
Yes, California is a community property state. Understanding what that means and how it affects the division of debts and assets in your divorce can greatly influence your settlement.
Community property states view all assets acquired during a marriage as joint property regardless of title. (With some exceptions.)
This means that if, while married, you purchase a house (or car, boat, or another big-ticket item) and only your name is on the title, the law still views it as belonging equally to you and your spouse.
There are, of course, exceptions to this rule. For instance, inheritance falls outside of these guidelines. In general, if you inherit something, it stays yours.
Many people interpret community property to mean there is an automatic 50/50 split of assets in a California divorce. That, however, is not the case.
Related Reading: How Is Debt Divided in California?
How is Property Divided?
In California, if you acquire an item during the marriage, both parties have an equal claim to ownership. That’s true no matter who appears on documents as the owner.
For example, if you use joint funds to buy a car but put it solely in your name, the court considers it to belong to both of you. The same goes for a house, condo, and most significant purchases.
But that doesn’t mean the court awards everyone half of everything.
When dividing assets in divorce, California courts aim for a fair and equitable division. The general idea is for exes to come out on relatively even terms and for each to enjoy a standard of living similar to what they had during the marriage.
In some instances, it makes sense for one spouse to take an unequal division of assets in exchange for lower support payments.
As we said earlier, some items fall outside community property rules as separate or excluded property.
Examples of separate property include gifts, such as an engagement ring, and inheritances.
For an asset to be excluded as marital property, the item must be purchased solely in one spouse’s name and maintained with funds separate from marital funds.
An Example of Excluded Property:
Imagine you want to purchase a car and keep it from being considered community property.
- You need to title the car in your name only and use separate funds for the purchase.
- All maintenance and insurance must also come from separate funds.
- If you use any shared money for this purpose, the court may consider this community property. As such, it becomes subject to property division.
Things do often become cloudy, however. Say you use your own individual income to buy a car in your name. That purchase is subject to being divided in the divorce.
Since California views money earned during a marriage as belonging to both spouses, any items purchased with these funds are considered marital property.
Whether you live in a community property state or an equitable distribution state like our neighbors up in Oregon, you should carefully consider how to divide property and debts. Thoughtful planning and an effective strategy can help protect your interests throughout the divorce process.
Related Reading: Bankruptcy Or Divorce: Which One Do You File First?