Most couples entering wedlock in California know that it is a community property state, but may not know exactly how that affects them should they ever divorce. Basically, once a couple marries, or enters a domestic partnership, they are no longer two separate units but one legal entity. Community property is all property and all debts acquired during a marriage or partnership. There is an exception for inherited property and gifts.
Property is virtually anything that can be sold or bought. Couples may think of community property in terms of real estate, bank accounts, retirement and pension plans, stocks and bonds and the like, but it also applies to cars, furniture and even clothing. When a couple divorce in California, the court decides how the marital property and marital debts are divided. It doesn’t matter if only one spouse incurred debt, as both of them are responsible for it. The mortgage on the family home is one such debt.
Property that a spouse acquired before a marriage is not part of community property. If one spouse had their own home prior to marriage, for example, and continued to own it and rent it out, not only is the dwelling not considered community property but neither is the rental income. Inheritances are always exempt from community property, and so is property purchased with inherited funds, as long as that is provable. Once a couple legally separates, their earned income becomes separate property, so that separation date is crucial.
Some property becomes commingled during the course of the marriage, and legal help is generally needed to sort this out. For example, if a spouse had their own home before they married, but sold it and used the proceeds toward the martial home, that is separate property. If there’s a mortgage on the house, the resulting equity in the home is community property, and that means commingled equity. Pension plans are another tricky area, since one spouse may have contributed to the plan prior to marriage, making that separate property, but continued to contribute to the plan after marriage, making those contributions community property. Pension plan rules are quite detailed and an attorney may be necessary to ensure the property division meets all legal requirements.
Community property discussions tend to focus on divorce, but the laws also come into play when one spouse dies. Assuming that the spouse left a will, he or she can only transfer half of the marital community property to other parties. The surviving spouse still owns the remaining half. If the spouse dies without a will, or intestate, that’s where problems can really arise. California laws of intestate succession, or who is entitled to the property of someone dying without a will, grants the late spouse’s property entirely to the surviving spouse only if there are no surviving children, grandchildren or other members of the immediate family such as parents. If there is one surviving child or other immediate family members, half of the late spouse’s property goes to the surviving spouse and half to the child. If there are multiple children or grandchildren, the spouse receives just one-third of the late spouse’s separate property, and the rest is divided among the children and grandchildren.
While community property is the law in California, there are ways for married couples to avoid it. For couples who have not yet wed, the answer is a prenuptial agreement, also known as a premarital agreement. Both parties must have their own attorneys to ensure fairness regarding the agreement. Those who are already married may enter into an antenuptial agreement, also known as a martial agreement. These agreements spell out what belongs to each member of the couple. Keep in mind that under California law, any type of pressure or duress in signing these agreements may invalidate them, so this is not a document put together the day before the wedding.