Let’s start with a primer. In California, all real estate and personal property obtained during the marriage is generally considered community property. This includes income earned during the marriage. All real estate, personal property, and income obtained outside of the marriage or by gift or inheritance is generally considered separate property. That is straightforward, but it gets more complicated where community property is mixed with separate property or vice versa. It also can get complicated if separate property is used to pay for community property (also vice versa). There are also significant and complex issues if a business is involved.
When it comes to understanding how property is divided in a divorce, you must first identify all property you and your spouse own. Identifying the property may be difficult if your spouse did not share all the information about your assets during the marriage. If you suspect there are assets your spouse has hidden it may be necessary to hire an investigator, issue subpoenas, and conduct discovery. You may even want to hire a forensic accountant to take a look at bank statements.
The Facts that Determine What Property You Will Keep in a Divorce
Since California is a community property state, property will be characterized as community or separate. The status of the property will be the most important determining factor in dividing property and dividing real estate in a divorce. This is the starting point.
Ideally, the parties can both agree on the status of all property owned. If not, then there are several questions you should ask about the property that you want to divide. Courts will look at the answers to decide the status of property.
Question #1: When was the property acquired?
The first question to ask is when was the property acquired? Property acquired before marriage is generally separate property and property acquired during marriage and before separation is presumed to be community property—except for property acquired by gift or inheritance. And, if property can be “traced” to something that was acquired before marriage or after separation the status of the property can be in question. But, keep in mind that tracing alone will not work to rebut or challenge property acquired during marriage and held in joint title—see below and Family Code section 2581.
What do the terms “acquired” and “tracing” mean?
There are two terms that need to be understood in the previous paragraph: “acquired” and “traced.” In very general terms, a property is “acquired” when the ownership right of the property started. Ownership rights become complicated if the right to purchase is separate from the actual time of purchase, for example when you are dealing with stock options or a contract to purchase. You will need to consult with an experienced Orange County divorce attorney if this situation applies to you.
Tracing in a divorce context is, generally, identifying the source of funds used to purchase property. The status of property, including rents and profits, take on the character of the property that produced them. And, there are two general ways to trace. The first is direct tracing, which requires looking at the money deposited into a certain account, the money deposited stays in the account when the money is withdrawn for the purpose of purchasing the property being traced, and the person withdrawing the money intends to withdraw the funds to purchase the property. The second is family expense tracing which is conducted by a process of elimination. The account needs to be shown to have been exhausted of community funds at the time the property was purchased or acquired. Tracing in this manner is complicated by commingled funds. “Commingling” refers to the mixing of community property funds and separate property funds. This is a very general discussion of tracing and is only provided as an introduction. Consult with an experienced Orange County divorce attorney when you have tracing questions for your particular situation.
Question #2: How was the property acquired?
After looking at when property was acquired, courts will look next to how the property was acquired. Let’s start with the general rule: the status or character of property does not change by a mere change in form or identity. In other words, property acquired from a community source remains community property and property acquired from a separate property source remains separate property. So, property acquired from earnings is community property, since income from labor, time or skill during marriage and prior to separation is community property. But, property acquired during marriage by gift or inheritance is the separate property of the recipient, unless given to both. When property is acquired in unusual situations, there are other rules that may come into play. So, check with an experienced Orange County divorce attorney to see how the general rules work for your specific situation. When it is unclear how the property was acquired, tracing becomes even more important. Often, disputes regarding the status or character of property boils down to determining the source of the property.
A key method to get the evidence and information about the source is through discovery. But, often discovery is misused and mishandled in family law. Family law attorneys typically do not understand how to conduct discovery in an efficient and cost-effective manner. Conducting discovery in a regular civil lawsuit is much easier, because civil attorneys usually understand the boundaries. They understand that hundreds of requests for production or special interrogatories are not necessary. Carefully crafted discovery can save you a significant attorney’s fees. Carefully crafted responses to discovery can also help you win your case, and it can be done without “hiding the ball.” Speak to an experienced Orange County family law attorney who understands discovery before you fall in the chasm of discovery hell.
Question #3: How is the property owned?
Another factor is how the property is owned. Put into more legal terminology, what is the form of title? Form of title refers to the description of how a property is owned. How title to property is held will usually determine how much work is involved in proving ownership is different than what is in the title documents. But, just because the form of title or identity of property has changed, does not necessarily change its status or character. For example, a business owned before marriage doesn’t change simply by incorporation during the marriage. Another example, is when real estate is held by one spouse then the other spouse is added onto the deed.
The answers to these questions will form the basic approach of how to divide property in a divorce. These are general guidelines and you should consult an experienced Orange County Divorce attorney. Song Family Law is a Mission Viejo Divorce Attorney who provides free phone consultations.
Question #4: Has there been a valid change of status?
Spouses may agree to change the status of any property—from separate into community, community into separate, or from one spouse’s separate property to another spouse’s separate property. This process is called “transmutation” and it only changes the status or character of property if certain rules are followed.
Those rules are found in Family Code section 850 and following. Merely transferring property from one spouse to the other does not necessarily change the character or ownership. There has to be an “express declaration that is made…” A signature is not enough, the signature has to be accompanied with very clear language that one spouse is giving up her right to the property—a clear demonstration of a change in ownership or characterization of the property. See the following statute.
Family Code section 852
(a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.
(b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.
(c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.
(d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined.
(e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply.
Frequently Asked Questions about Dividing Property in a California Divorce:
If property is held jointly, can my spouse still claim it is separate property?
To answer this question, you have to start with an important statute – Family Code section 2581. That code section states:
For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following:
(a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property.
(b) Proof that the parties have made a written agreement that the property is separate property.
So, if a married couple owns real estate and it is held in joint tenancy, for example, there is a presumption that the property is community property. To disprove it you must follow section (a) and (b). Your spouse may also have a claim for reimbursement under family code section 2640.
What if we purchased real estate during the marriage, but my spouse’s name is the only name on the deed?
Suppose you and your spouse purchased real estate during the marriage. Before you separated, the real estate was transferred over to one spouse and the deed now only names one spouse. The California Supreme Court has said that even though the title names only one spouse, there must be proof that the real estate property was transmuted, or its status properly changed to separate property, before the courts will consider it separate property. Properly changing the status can only be done by following very specific procedures. An experienced divorce lawyer should be consulted. But, divorcing parties should know that the deed is not the final answer to dividing real estate in a divorce. The presumption of title does not apply. Check out Family Code section 852 above.
How do courts divide retirement?
Different types of retirements are handled differently in a divorce. Individual Retirement Accounts can be rolled over, but a pension or a 401(k) may need to be divided by QDRO.
A QDRO stands for Qualified Domestic Relations Order. A QDRO or DRO is a order that grants a person a portion of retirement benefits. A DRO is an order against a plan that is not qualified under certain federal statutes. DROs are typically issued against government plans.
Depending on the type of plan, a simple equal division may not be the best option for the parties. This is one area where you will need to consult with an experienced orange county family law attorney. Call the Song Family Law firm for a free 30-minute phone consultation, your Orange Divorce Attorney and Mission Viejo Divorce Attorney.