Is California a Community Property State?
December 7th, 2022
Community property, also known as marital property, spousal assets, and marital assets, is vital when it comes to divorce, estate law, and taxes. It encompasses all assets you obtained during the marriage.
Community property states are states where community property law rules. Here, couples must split equally all assets acquired during their marriage, including real estate.
So, is California a community property state? Find out in this article.
What Is a Community Property State?
Divorce is one of the modern world’s most draining experiences. However, in the US, nine states have tried to facilitate this process by passing community property laws. In community property states, couples must divide equally all assets obtained during their marriage. The goal is to reduce the quarrels over who gets how much of what by having the law dictate the split.
The nine states are:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
While, in some states, divorce laws are leaning toward the community property concept, the nine states mentioned above are the only true community property states as of June 2021. Alaska, South Dakota, and Tennessee have an “opt-in” community property law that enables such a division of property if both individuals agree.
What Is Community Property?
Also known as marital property, community property is a US state-level distinction that identifies a married individual’s assets. And real or personal property and any income obtained by either spouse during a marriage are considered community property. Therefore, they belong to both partners, meaning both spouses own and owe everything equally, regardless of who earns or spends the income.
Understanding Community Property
In community property jurisdictions, each spouse owns a share of the marital assets, including real estate and other financial assets acquired during the marriage. In some jurisdictions, such as California, community property is split strictly in half, with each spouse getting 50% of any assets considered marital property.
However, in other jurisdictions, such as Texas, a judge may decide to split assets in any denomination they deem fair to both spouses.
Typically, inherited assets and gifts to one spouse aren’t considered marital property, whereas debts acquired during the marriage are usually considered community property.
Existing to protect spousal rights, the concept of community property originated in Spanish law, a system of civil law derived from Roman civil law and the Visigothic Code. It acknowledges that both spouses contribute to marriage differently and considers them financially equal under the law.
For instance, community property considers the contribution of a “breadwinning” spouse and a homemaking spouse as equals by granting both spouses a share of marital property. This is true even if the homemaking spouse may not have brought financial or other assets into the marriage.
So, Is California a Community Property State?
California is a community property state. And according to the California Family Code section 760, community property is defined as all property, personal or real, wherever situated, obtained by a married individual during the marriage while domiciled in the state. Once officially divorced, community property is typically divided 50/50 between the ex-spouses.
Exceptions to Community Property in California
There are several exceptions to community property in California. Under specific circumstances, the law will regard property as separate property of just one spouse:
- The property was given to one spouse as a gift.
- One spouse received the property through someone’s will or a trust fund.
- One spouse received it as an inheritance.
- A spouse acquired it before marriage.
- The property was acquired by one spouse or just that spouse's money.
- It was obtained when the couple was living apart or separated. Typically, spouses are regarded by the law as living apart when one of them informs the other that they don’t want the marriage to continue. They also must physically reside in separate locations.
What Is Property Under California Law?
Under California law, property is anything you can sell or buy, including real estate, furniture, vehicles, clothing, and household goods. Also, it’s anything that holds value, even if you can’t sell or buy it, such as cash, bank accounts, stocks, pension plans, businesses, patents, life insurance with cash value, etc.
When you divorce your spouse, you can come up with an agreement that gives you and your spouse a fair share of the property. However, the judge will still have to sign off on it, even if you agree. And if the settlement is unfair to one of you, the judge is free to tell you to come back with another plan. On the other hand, if you and your spouse don’t agree, you’ll have to ask the judge to rule or go to mediation.
What Is the Difference Between Community Property vs. the Common Law Stat
Most states rely on the concept of common law property to decide who owns property obtained during a marriage. Common law property is considered the property of the spouse who obtains it during the marriage unless it’s placed under the names of both spouses.
So, how is property divided in a common law property state in case of a divorce? The guiding principle is equitable distribution. Here, the idea is that property ownership is unequal due to factors such as spouses’ education, employability, earrings level, financial needs, health, and age.
Considering these factors should make the distribution fair, but not necessarily equal. For example, in some cases, judges may demand one spouse to use their separate property to make a settlement fair to both individuals.
Divorcing spouses will often work out how they wish to split their assets and debts themselves or with the help of a neutral party. However, if they can’t agree, the court decides on the division of property based on the laws of the state.
What Is Separate Property?
Separate property is the property that one spouse owned before the marriage. It also covers inheritance and gifts given to one spouse and property bought or earned after the separation. This is the main reason why the date of separation is vital in many divorces and should be recorded and discussed with your lawyer as soon as possible.
Moreover, any property purchased with separate property is separate property, despite being bought during the marriage. In addition, income or rent earned from separate property is also separate, meaning rent or money made from businesses or real estate owned before marriage will still be separate property unless mixed with community assets.
How Does Separate Property Become Marital Property?
The trickiest part of marital vs. separate assets is that most married couples behave as a single household. They spend money from the same bank accounts, share significant assets, and hold property in common. This leads to what the law considers “commingling”.
Commingling happens when separate assets are used by both spouses or when married couples share separate assets, causing these assets to be reclassified as marital assets.
Protect Yourself During a Divorce
Each spouse should open separate bank and savings accounts once the split happens. However, an escrow account may be needed to ensure adequate support for shared children or a disadvantaged spouse. An escrow account can also prevent unnecessary or excessive depletion of joint marital funds.
If you need escrow services, work with a good agency, such as Lightspeed Escrow. We are a team of experts who know how the get the job done expediently and avoid common pitfalls. So, contact Lightspeed Escrow for quick and accurate escrow services.
