Property Division in Divorce FAQ

California is a community property state, meaning that all property acquired during the marriage is presumed to be community property owned equally by both spouses. Under California Family Code Section 760, community property includes all real and personal property acquired by either spouse during marriage before separation. This includes income earned, assets purchased with that income, and debts incurred.

Separate property, defined in Family Code Section 770, includes property owned before marriage, acquired after separation, received by gift or inheritance during marriage, and income from separate property assets. The characterization of property as community or separate can significantly impact how assets are divided in divorce. The date of acquisition and source of funds used to purchase property are critical factors in determining characterization. Property purchased with commingled funds may be partially community and partially separate, requiring tracing analysis.

The family home is typically the most valuable and emotionally significant asset in a divorce. If the home was purchased during the marriage with community funds, it is community property and subject to equal division. The court may order the home sold and proceeds divided, award it to one spouse with an equalization payment to the other, or allow one spouse to buy out the other's interest.

If the home is separate property, it remains with that spouse, but the community may have acquired an interest through mortgage payments made with community funds or improvements made during marriage. When minor children are involved, courts may award temporary use of the home to the custodial parent under Family Code Section 3800. The Moore/Marsden formula calculates community interest when separate property is purchased before marriage but mortgage payments are made with community earnings during marriage.

Retirement accounts accumulated during marriage are community property subject to equal division, regardless of which spouse's name is on the account. This includes 401(k)s, IRAs, pension plans, and other retirement benefits. The community interest is calculated from the date of marriage to the date of separation. Dividing retirement accounts requires special procedures to avoid taxes and penalties.

A Qualified Domestic Relations Order or QDRO is necessary to divide most employer-sponsored retirement plans without triggering early withdrawal penalties. For IRAs, a special transfer incident to divorce can be used. Military pensions follow specific federal rules under the Uniformed Services Former Spouses Protection Act. The Time Rule formula determines the community portion by comparing years worked during marriage to total years of service. Some retirement benefits like Social Security are not divisible as property but may be considered when setting spousal support.

Business interests present complex property division issues in California divorce cases. If a business was started or acquired during marriage with community funds or labor, it is community property. If started before marriage or acquired with separate property, it remains separate property, but the community may have acquired an interest through work efforts during marriage. Professional goodwill and market goodwill are community property if built up during marriage.

The Van Camp and Pereira formulas determine community interest in a business. Van Camp allocates a reasonable salary to the working spouse's separate efforts, with remaining profits attributable to community labor. Pereira gives the separate property a fair return, allocating excess profits to community effort. Business valuation typically requires expert appraisers to determine fair market value. Division options include buyout, continued co-ownership, or sale to third parties. Courts consider factors like the nature of business, spouses' roles, and impact on business operations.

Community debts incurred during marriage before separation are divided equally between spouses, just like community assets. Under Family Code Section 2550, debts must be characterized and divided. Community debts include credit cards, loans, mortgages, and other obligations incurred during marriage for the benefit of the community. Separate debts include those incurred before marriage, after separation, or for one spouse's separate benefit.

When one spouse incurs debt for non-community purposes like gambling or an extramarital affair, that spouse may be solely responsible. Post-separation debts are generally separate, but debts for necessities of life or children's expenses may still be community obligations. Credit card debt requires analysis of when charges were made and for what purpose. Both spouses remain liable to creditors for community debts regardless of the divorce decree; the decree only affects obligations between spouses. Reimbursement rights exist when separate property is used to pay community debts or vice versa.

California Family Code Section 721 imposes fiduciary duties on spouses regarding community property transactions. These duties require the highest good faith and fair dealing, similar to business partners. From the date of separation until asset division, spouses must not take unfair advantage, must disclose all material information about community assets and debts, and must account for all transactions affecting community property.

Violating fiduciary duties can result in severe remedies including being charged with the asset's highest value during the case, paying attorney fees, and being awarded 100% of the asset to the other spouse. Common violations include hiding assets, depleting accounts, selling property below value, or failing to disclose financial information. The duty includes full disclosure during the mandatory financial disclosure process. Spouses must also give advance notice before disposing of significant community assets. These duties continue even after separation until final property division.

Commingling occurs when separate and community property are mixed together, making it difficult to distinguish between them. For example, depositing separate property funds into a joint bank account, or using both separate and community funds for mortgage payments. When property is commingled, the burden shifts to the spouse claiming separate property to trace and prove the separate property contribution with clear and convincing evidence.

Without adequate records, commingled property may be deemed community property under the community property presumption. Direct tracing uses documentation like bank records to follow separate funds. The exhaustion method can establish that only separate funds were available for a purchase. Family expense and recapitulation methods may also be used. Keeping separate property segregated in separate accounts titled in one spouse's name and maintaining clear records is critical to preserving separate property character. Transmutation can occur when spouses agree to change property characterization, but this requires written consent under Family Code Section 852.

While California generally requires equal division of community property, Family Code Section 2602 allows unequal division in limited circumstances. When one spouse has deliberately misappropriated community assets through actions like hiding money, gambling away funds, or using community property for an extramarital relationship, the court may award the wronged spouse more than 50%. The misappropriation must be deliberate and substantial, not merely poor financial judgment.

Family Code Section 1101 provides specific remedies for breach of fiduciary duty including awarding 50% of the misappropriated asset plus 50% of the remaining community assets as a penalty. Educational debt incurred during marriage may be assigned entirely to the spouse who benefited from the education under certain circumstances. Negative community property, where debts exceed assets, may be divided unequally based on ability to pay. The court has limited discretion and cannot order unequal division simply because one spouse needs more or the division seems unfair.

Stock options and restricted stock units are increasingly common forms of compensation requiring special analysis in divorce. The characterization depends on when the options were granted and when they vest. Options granted during marriage as compensation for work performed during marriage are community property. The In re Marriage of Hug formula determines the community interest by comparing the time from grant to separation versus time from grant to vest.

Unvested options present challenges because value is uncertain. Courts may defer division until vesting occurs or use present value calculations. Tax consequences must be considered, as exercising options triggers income tax liability. ISO and NSO options have different tax treatment. Restricted stock that vests during marriage is community property to the extent it represents compensation for pre-separation work. Post-separation vesting may still be partially community property if earned during marriage. Division methods include offsetting against other assets, dividing upon exercise, or immediate buyout at present value.

Reimbursement rights arise under Family Code Section 2640 when separate property contributions are made to community property or vice versa. When separate property funds are used for down payment or improvements to community property, the contributing spouse has a right to reimbursement without interest upon divorce. Similarly, when community property pays down a separate property mortgage or makes improvements to separate property, the community has a reimbursement right.

These rights protect the contributing estate and prevent unjust enrichment. Separate property contributions to education or training may also create reimbursement rights. The amount is the actual contribution amount without appreciation, unless there is a written agreement otherwise. Credits for post-separation payments of community debts or preservation of community assets are available. Accurate documentation is essential to establish reimbursement rights. Lost records may make it difficult to prove the amount of contributions. Transmutation agreements can waive reimbursement rights.