Dividing Assets And Debt: Community Property
The issues of property division during a divorce can be some of the thorniest and most complicated issues in the field of family law. Thankfully though, that does not necessarily mean your division of assets and debts is going to be especially difficult. To begin, let’s start with some general definitions.
Community property is all property acquired during the marriage, and is owned equally by both spouses. In other words, if you bought a house during your marriage, it is community property and the general rule is that it will be divided equally upon dissolution (divorce). This is true even if you never worked during the marriage because all wages earned during marriage and prior to separation are community property. However, always keep in mind that there are numerous possibilities and exceptions that can disrupt the general equal division rule.
There are too many kinds of community property to list here, so I am only going to cover the more common assets that people tend to be most concerned with during a divorce. Community property can include furniture, china, and nearly anything else bought with community funds. But we’re only going to hit the big items here.
- How is Community Property Divided?
- Real Property
- Community Retirement, Insurance, Investments, and Bank Accounts
- Quasi-Community Property
- Separate Property
- Dividing Debt
How Is Community Property Divided?
At its most basic, you and your spouse each own 50% of everything that was purchased during the marriage. However, this is not always as straightforward as it seems. For example, when you married, if you already had $50,000 in a pension prior to the marriage, and then during the marriage your pension increased by another $50,000, your spouse would likely be entitled to $25,000 of your pension (half of one-half). In other words, what you had in your pension prior to your marriage is your separate property, and what you put into your pension during the marriage is community property.
Real property includes houses, rental properties, vacant land, commercial land, and so on. When acquired during the marriage it is community property and therefore the general rule applies: since each spouse owns half of all community property, both will own half of all real property acquired during the marriage. Keep in mind though, your circumstances may not be as simple and so different rules (exceptions) may apply.
Deferred Sale of Home
One of the not uncommon issues arising from community ownership of real property is when the spouses do not want to sell the family home right away. This is usually to provide stability for the children. In this case, both spouses would remain on title until a certain date, and when that date is reached, the home will be sold. One spouse will remain in and have exclusive use of the home.
Assuming mom and dad agree to a deferred sale, the first factor to consider is whether it is financially feasible. If it is feasible, the court will then begin to consider the following factors under Family Code Section 3802.
- The length of time the child has resided in the home.
- The child's placement or grade in school.
- The accessibility and convenience of the home to the child's school, and other services or facilities used by and available to the child, including child care.
- Whether the home has been adapted or modified to accommodate any physical disabilities of a child or a resident parent in a manner that a change in residence may adversely affect the ability of the resident parent to meet the needs of the child.
- The emotional detriment to the child associated with a change in residence.
- The extent to which the location of the home permits the resident parent to continue employment.
- The financial ability of each parent to obtain suitable housing.
- The tax consequences to the parents.
- The economic detriment to the nonresident parent.
- Any other factors the court deems just and equitable.
The spouse who wants to keep the home can buy the other out of their share (assuming there is equity in the home). However, if there is a mortgage he or she will have to qualify to refinance, which also means they will also have to be able to afford to pay the entirety of the new mortgage, insurance, and property taxes. Again, financial feasibility is the driving factor here.
This is the easiest, most common, and least acrimonious way to divide the family home. You still want ground rules though. Will you try to sell it yourselves? If not, how will you go about picking an agent? Are repairs needed before it can be sold, and how will those be paid for? Obviously, it is best to be flexible and cooperative with your spouse during this time because being amicable will most likely facilitate a quicker sale of the home, and allow you to get on with your life.
Again, keep in mind that you and your spouse may own rental and commercial properties as well, and depending on when they were acquired, such properties may or may not be community assets. Further, the division of such assets may be subject to unequal division depending on factors too numerous to cover here. As always, how any property will be divided will ultimately depend on the facts of your case.
Retirement, Insurance, Investments, and Bank Accounts
Retirement assets may consist of 401Ks, IRAs, pensions for private employees, employee stock ownership plans (ESOPs), and various types of government retirement plans including CalPERs and CalSTRS. This is not an exhaustive list by any means. Suffice it to say that if there is a retirement asset of any kind, it may be divided as long as it existed during the marriage.
Are there different rules and exceptions to this? Of course! And there are different methods of dividing retirement assets depending on what the asset is and how long it existed both before and during the marriage. Or, the spouses can come to an arrangement they believe suits them best.
Different types of insurance policies may or may not be divided depending on the policy. Term life insurance is generally not divisible, but one spouse can choose to take over payments and then name any beneficiary they want. The spouse who takes over will usually be responsible for continuing to pay the policy. On the other hand, whole life policies, which usually have cash value may be liquidated or the spouses can make some other arrangement that suits them better.
Investments purchased during the marriage are community property and may be divided. This includes stocks, bonds, artwork and nearly anything else that was purchased for the purpose of earning a return. Investments can be liquidated, divided evenly between the spouses, or there may be some other arrangement the parties agree on that they believe suits them better than either of those two options.
Generally, community bank accounts are relatively simple to divide. For example if prior to separation you and your spouse have $5,000 in a joint savings account, then you would each receive $2,500. As you're probably used to by now, there are exceptions and circumstances that can alter an easy 50/50 split of not just liquid, but any community asset, so it may not be as simple as an even allocation in all cases.
Quasi-community property is any type of property that was acquired by either one or both spouses or domestic partners when living in another state that, had it been acquired while living in California, would have been considered community property. For example, say you and your spouse were married in Oregon. While living there you bought a house. Then you moved to California, but kept the Oregon house. That house would be considered quasi-community property. In a divorce or legal separation it will be treated as community property.
Separate property is all property that is not community or quasi-community property. Generally, it is all property a person owns before the marriage, and all property that is acquired during the marriage by gift or inheritance. For example, if you bought a cabin in the Adirondacks prior to marriage, then it is your separate property and your spouse has no interest in it. Or, if a relative passed away and left that same cabin to you while you are married, it is your separate property.
Separate property issues that arise during divorce can be simple, or they can get pretty complicated depending on your circumstances. For example, say you had $50,000 in a bank account that you earned prior to getting married. After getting married, you used that money as a down payment on a new home. That new home would be community property. But what about your $50,000 in separate property; does that become community property or are you entitled to reimbursement when the marriage ends and the home is ordered to be sold? As long as you can trace your $50,000 to a separate property source, you will most likely have the right to be reimbursed. This is a straightforward example, but hopefully it sheds some light on the complexities of how separate property can complicate the division of assets.
Division of Debt
Generally speaking, as it is with assets, so it is with debt. It can be a simple process, a very complicated one, or it can lie somewhere in between.
The basic concept is that each person takes with them half of the debt incurred during the marriage. This includes credit cards, loans, and, if you are upside down on your mortgage, you and your spouse will be equally responsible for paying that debt. Ideally, the community debt is divided in a perfectly equal manner, but often one spouse takes on more debt, possibly because they are more capable of paying it or are simply willing to if they incurred it when buying something that was purely for their own use.
Keep in mind that even if your spouse agrees to pay off a certain credit card that the credit card company does not have to adhere to the agreement made between you and your spouse. For example, if an American Express card is in your name and your spouse fails to make timely payments, American Express has every right to come after you for the payment regardless of the deal you made with your spouse. Thus, using a little strategy and forethought when dividing debt can make your life a lot less troublesome in the future.
Other issues that arise include reimbursement for separate property debt paid for during the marriage. For example, if your spouse had $5,000 worth of credit card debt prior to the marriage, which was then paid off during the marriage, you may be entitled to get some of that money back.
Another issue that often arises is when one spouse moves out of the family home, but continues to pay the rent or mortgage payments. The spouse making the payments may be entitled to reimbursement.
Like so many other community asset matters, the issue of how to divide debt fairly is dependent on your unique circumstances. The goal though is to ensure that you find yourself taking on an unfair amount of debt. This can happen when you are just sick of fighting and want to get the divorce over with. You may believe it’s worth it, and maybe it is. This why you really want an attorney who has the patience, the negotiating experience, and the fortitude to fight this battle for you.
As I mentioned at the outset, this page is not meant to be an all-encompassing examination of the division of community property. Hopefully I’ve been able to begin to answer some general questions you may be pondering as you consider dissolving your marriage. If you would like to discuss your matter, please feel free to call or set up an appointment. I very much look forward to hearing from you.
This page is for informational purposes only. It is not meant to provide legal advice for your particular matter, and in no way constitutes the establishment of an attorney-client relationship.