Property Division in California Divorce
Like most western states, California is a community property state. Early on, western states adopted community property regimes in order to entice women to move out west. The idea was that if women were granted actual property rights, then they would hazard the journey to the frontier. It worked. This property rights regime still governs marital property rights division in California to this day.
How is Property Divided in a Community Property State?
In essence, community property laws in California analogize marriage to a business partnership. When you’re a sole proprietor, you work for yourself; when you have a partner, you work for the partnership. Prior to marriage, your labor, income, and the stuff you buy all belongs to your separate estate. Once you get married, however, your income and the stuff you buy with it belongs to the marital community. Just as a partner in a business labors on behalf of the partnership, the married person now labors on behalf of the marital community.
Against that relatively simple backdrop, California has a somewhat complicated set of laws that govern characterization depending on how things are acquired or titled or for specific assets. For instance, California presumes that property purchased during the marriage is community; though this presumption may be rebutted in some instances by tracing the funds used to acquire the property to a party’s separate property bank account.
California also presumes that property held in joint title is community property; though again, this presumption may be hollowed out if specific transmutation rules were not followed and/or if one party can claim a right to reimbursement by tracing their separate property contributions to the jointly titled asset. Note, however, that tracing funds to a separate property source cannot be used to overcome the joint title presumption of community property.
The laws governing property characterization in a California divorce are complicated.
For many people, however, this complexity is largely irrelevant. If you got married when you and your spouse were 25 (and broke) and everything you own was bought with the money you both earned during the marriage and it’s all titled jointly, then it’s all going to be community property and get divided 50/50. Pretty simple. However, if one of the parties brought assets into the marriage, or titles to assets were changed during the marriage, then things do tend to get rather complicated rather quickly.
If you are going through a divorce in Los Angeles and it involves any of the more complicated aspects of property characterization and division, then you need an experienced California family law attorney to advise you.
Property Division in California: The First Step is to Identify all Assets as Either “Community” or “Separate”
For most people, identifying property simply entails sitting down and writing a list of the separate and community property that they and their spouse own. Because people usually have many personal possessions of minimal value, it’s best to limit the list to items with at least a nominal minimum value. Limiting the list to items worth at least $5,000 usually keeps the list more manageable.
It is important to remember that “property” also includes contractual rights. This includes, for instance, life insurance contracts. There are also a host of employment-related assets that should be included in the identification of property where appropriate: retirement benefits, deferred compensation plans, severance pay, or unemployment benefits.
In addition, certain forms of income are deemed property in California. Unvested stock (or other derivative securities) paid as part of a compensation plan is considered property in California. A licensed professional’s income (doctor, lawyer, CPA, etc.) will often be deemed to be, in part, “professional goodwill” and should be identified as property and divided in the divorce.
Having an experienced Los Angeles family law attorney ensures that all property is properly identified for property division in a California divorce.
How is Property Valued in California?
After every asset has been identified as either separate or community property, the next step is to place a value on each one. California courts typically try to ascertain the fair market value of each item of property. “Fair market value” means the price that a reasonable buyer and seller would agree to in an arm’s length transaction in which neither was under any duress. For a house, that means getting it valued to see what a potential buyer would pay for it. For a car, that means looking it up on Kelly Blue Book.
For many assets, like checking accounts or retirement accounts, the value is determined simply by looking at the balance on a statement.
It can sometimes be difficult to determine the fair market value of certain assets, such as small businesses, professional practices, or some illiquid assets (i.e., an interest in a venture capital/private equity fund, art, or antiquities). In these instances, you or your attorney will retain valuation experts to ascertain their value.
When selecting a valuation expert, it is important to select someone who has both the proper qualifications (producing valuation reports for use in divorce is its own specialized area) and the ability to persuasively testify and present their opinion of value in the context of the divorce litigation (many CPAs have neither the experience nor the desire to testify in court). An experienced family law attorney will already have established relationships with relevant valuation experts.
California Courts Have Little Discretion Over Property Division
Once all separate and community property has been identified and valued, it is then possible to divide it equitably between the divorcing couple. In California, courts are required by statute to award each party their separate property. Likewise, California courts are required to divide community property 50/50 between the parties.
Because the court’s discretion is limited in how it divides property, much of the debate and litigation surrounding property issues focuses on characterizing property as either separate or community. Whether an asset is divided between the parties or awarded to one party outright is essentially determined by its character as either community or separate property.
As noted above, the law governing characterization of property in California is complicated. This is why experienced divorce attorneys are so valuable when making and evaluating potential settlements – there is no substitute for having the advice of an attorney who is familiar with the rules governing characterization of property.
Trust the California Property Division Attorneys at S.L. Pitts
The Los Angeles divorce lawyers at S.L. Pitts have years of experience helping clients resolve their property characterization and division disputes. If you have questions about community property, separate property, fair market value, retirement assets, marital debt, and other marital property, contact our property division attorneys today. We can help to ensure that you get your fair share during the divorce process. We can also help resolve any other family law matter related to child support, child custody, spousal support, and more.