Assets and Debts Under California’s Community Property Law

Assets and Debts Under California’s Community Property Law

Assets and Debts Under California’s Community Property Law

Property division is one of the most important components of the divorce process. California is one of nine US states to uphold a community property law, which many people find unnecessarily rigid when dividing marital assets. Community property law requires all marital property owned by divorcing spouses to be evenly divided. There are very few possible factors that can alter the 50/50 division of marital property under this law.

If you are expecting to divorce in California in the near future, you must understand how the state’s community property law functions and its application to your assets and your debts. Unfortunately, many divorcing spouses overlook the fact that debt is divided the same way assets are divided in a divorce and, in many ways, evaluated along similar lines. Your California divorce attorney can assist you in approaching property division proceedings with greater confidence, and you and your spouse may have the option of resolving this aspect of divorce privately.

Preparing for Property Division in a California Divorce

Divorce is the legal process of ending a marriage, but it is also the legal process of dividing all the property owned by the divorcing spouses. The court must establish legal ownership rights of all property held jointly by the divorcing couple. Each spouse must provide a complete and accurate financial disclosure statement that contains a breakdown of all property they own, both separate and marital. The initial phase of the property division process requires the identification, characterization, and valuation of all assets and debts owned by both spouses.

Once both divorcing spouses have provided their financial disclosure statements, the next phase of property division defines each spouse’s separate property and shared marital property. This can be a contentious aspect of divorce, and it’s essential to understand how California law defines each type of property in this process.

What Is Separate Property?

“Separate” property is anything owned solely by one spouse. California law allows divorcing spouses to keep their respective separate property, but they must provide documentation proving valid separate ownership rights over any property claimed as separate. For example, a divorcing spouse’s separate property is likely to include gifts they received during their marriage, inheritance from immediate family members, and anything given to them by their spouse in a “donatory” capacity. Separate property can also include property owned before marriage, such as a home or vehicle purchased by the spouse individually before marriage.

It’s important to remember that the distinctions between “separate” and “marital” property apply to debts and assets. For example, if a spouse held a particular debt before marriage, they would likely retain responsibility for the debt in divorce. However, in some situations, a previously separate asset or debt becomes marital property and, therefore, is subject to division under California’s community property law.

What Is Transmutation?

The legal concept of “transmutation” applies whenever a separately owned asset or debt becomes marital property. This can happen in several ways. For example, if one spouse held separate property prior to marriage but their spouse improved the property’s value during the marriage, the increase in value could cause the property to qualify for marital property division. Similarly, if a spouse refinanced a debt under joint ownership with their spouse during marriage, the spouse would assume partial responsibility for the debt under the community property standard.

Although rare, it is also possible for one spouse to assume sole responsibility for a debt that would typically qualify as a shared marital debt. For example, a married couple obtains a credit card with a $20,000 limit early into their marriage that they reserve for emergency use only. After a few years, the couple decides to divorce, and the credit card has a full credit limit due to no previous use. Once the couple starts divorce proceedings, one of the spouses decides to use the credit card for a shopping spree without telling the other spouse, expecting them to assume half the responsibility for the credit card debt.

In this situation, a court would likely consider this act as “wasting” or intentional depletion of marital assets. A judge handling this case would likely saddle the spouse who used the card frivolously with the debt, but this is not guaranteed.

The Legal Process for the Division of Marital Property: Identification, Characterization, and Valuation

What Happens If a Divorcing Spouse Hides Assets?

It is vital for divorcing spouses to be honest and transparent in their financial disclosure statements. While it can be very frustrating for divorcing spouses to imagine dividing their assets with their soon-to-be exes, the reality is that any attempt to shield marital assets from property division proceedings will incur severe penalties. Additionally, attempts to hide assets from divorce proceedings are likely to fail. Therefore, each spouse must provide a financial disclosure statement, and these statements must be cross-referenced with one another. When discrepancies appear, the court will want to investigate them.

If it’s revealed that a divorcing spouse attempted to hide assets from their property division proceedings, that spouse will face contempt of court and possibly even criminal charges. In addition, a spouse in contempt faces additional scrutiny from the judge handling their divorce case. Once it’s clear that the spouse was dishonest in their disclosure, the judge will be unlikely to grant them any form of leniency or leeway in the divorce proceedings. Instead, they may hold the spouse responsible for the other party’s legal fees and civil damages.

Secure Legal Counsel for Your Impending Divorce

Dividing assets and debts can be one of the most stressful aspects of any divorce in California. Whether you are concerned about absorbing the responsibility for your spouse’s financial mismanagement during your marriage or securing the individual property ownership rights you legally deserve, you must have legal counsel you can trust in this demanding situation. Bickford, Blado & Botros has extensive experience handling complicated property division proceedings on behalf of our clients in Southern California. We’re ready to put this experience to work in your case. Contact us today if you have questions about California’s property division laws or to schedule a consultation with our team.



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