California is a community property state. Under the community property system it is presumed that any property acquired during the marriage is community property, and that each spouse has an undivided one-half interest in the property. Except as otherwise provided by statute, community property is all property acquired by a married person during marriage while domiciled in California. (California Family Code § 760)
The notion that all property (i.e., real property, personal property) can be community property, includes out of state property. The effect is that California courts will treat out-of-state community real property as community property for all purposes, including intraspousal management and control.
The spouses’ respective interests in community property are “present, existing and equal.
Each spouse’s 50% ownership interest in community property includes equal rights of management and control.
However, property can be acquired during the marriage that is not community property. Exceptions to the community property presumption are: separate property acquisitions during marriage; marital earnings and accumulations while living separate and apart or after a judgment of legal separation; community property transmuted to separate property; and certain personal injury damages recoveries. Other “separate property” includes: property owned before marriage; property acquired during marriage by gift, bequest, devise or descent; and the rents, issues and profits of any such property.
Generally, the court’s jurisdiction in a property division proceeding upon marriage dissolution or legal separation extends only to community (or quasi-community) property. However, to effect a complete disposition of the marital estate and avoid unnecessary partition actions, the court may also divide the spouses’ separate property interests in joint tenancy and tenancy in common property at the request of either party.
Characterizing the status of property interests as “community” or “separate” property is the foundational starting point for the handling of property in a divorce. The parties can agree to the status of all or any part of their property interests. If they cannot agree, the court will decide characterization. In making its decision the court will consider several factors:
Title. The form of title in which property is held ordinarily gives rise to a rebuttable presumption of its status. Therefore, absent a contrary statute, and unless ownership interests are otherwise established by sufficient proof, record title is usually determinative of characterization. The same result obtains where community property interests are conveyed between spouses by quitclaim deed. Title is presumptively held as evidenced by the deed and hence the grantee spouse’s separate property. The form of title presumption cannot be rebutted simply by tracing to the source of funds used to acquire the property, nor by testimony of either spouse’s undisclosed intentions. Rather, the party seeking to overcome the presumption must, at a minimum, present evidence of a communicated intention, agreement or common understanding between the spouses that ownership status is to be other than as indicated by the form of title.
Valuation is also an essential step in the division of property in divorce. In order to eventually realize an equal division of the community property, the court must determine the value of each item of community property.
What can be community property?
Everything acquired during the marriage can come within the definition of community property. This includes income; other employment benefits, such as stock options; pension and other retirement interests earned during marriage; purchased items houses, cars, clothing, or anything else); and all debts incurred during marriage.
What happens to community property at divorce?
At divorce, the community property will be divided. The parties are always free to divide the community property by agreement. However, if a negotiated agreement cannot be realized, then the court will order the division.
The preference of the court will be to divide the property in-kind. By this method all fungible assets (such as bank accounts, stock portfolios, pensions, and bills) are divided 50/50. However, disposition of community property by the judge after trial is seldom the best solution. There are other alternative for division of community property that can be utilized, provided the parties can agree to any of these alternatives. They include:
Trade-off approach. The parties agree that one will take certain items of disputed property (e.g., the furniture) and the other will take other items (e.g., the car) without regard to value.
Piece-of-cake division. One party makes up two lists of the disputed property (e.g., furniture, personal property, etc.) which he or she believes are equal; the other party chooses which list of items he or she will take.
One values, the other chooses. One party values each item of disputed property and the other chooses those items he or she will take at the stated value up to one-half of the total value.
You take it or I will take it. One party sets a value on an asset at which he or she is willing to let the other party be awarded the asset; otherwise, the party who set the value will be awarded the asset at the stated value.
Appraisal and alternate selection. This approach begins with a stipulated selection of an appraiser to value each disputed item. The parties then choose items alternately until all are taken. The party to make the first choice can be designated by coin flip. Alternatively, one party may go first; the other party then gets two selections; and subsequent choices proceed alternately.
Sale. Disputed items are sold and the proceeds are divided equally, or in any other proportion necessary to effect an overall satisfactory or equal division.
Sealed bid. Each party submits sealed bids for the disputed items. The bids are opened simultaneously and the one bidding the highest gets the particular item valued at the figure he or she bid, with an equalizing payment to be made to the other party if necessary.