Community Property & Marital Debt Division

General Concepts Of Community Property

The term “community property” generally refers to all income, assets and debts acquired or incurred during the marriage, with some exceptions. The term “quasi-community property” is also occasionally used and refers to property located outside of the state which would have been deemed community property had it been located inside the state (for example, a vacation home in Reno acquired during the marriage using community funds).

There are exceptions, of course. Assets acquired by a spouse via inheritance, even if during the marriage, are deemed that spouse’s separate property. A prenuptial or marital agreement might characterize property acquired during marriage as the separate property of one of the spouses. Certain personal injury damages are the separate property of the injured spouse. Additionally, there are times a spouse’s premarital separate property assets can be combined with and even transformed into community property, sometimes unknowingly and unintentionally. And the form of title under which property is obtained and/or held may give rise to a separate property claim versus community property.

Community property is a concept that comes to California from old Spanish law. Husbands and wives were determined to be a “single entity.” Accordingly, each of them had an undivided one-half interest in all property acquired during marriage. Under modern California law, all property deemed to be community or quasi-community should be equitably divided, as close to 50-50 as possible. It may not always be possible to divide the number of assets equally, or to even divide certain assets at all, but the goal is that the total value each spouse receives in assets should be relatively equal to each other.

This same concept applies to debts as well. Most of the time debts incurred during marriage will be deemed community, regardless of whose name is on the debt (for example, couples frequently apply for credit cards that may only be in one spouse’s name, but the debt is almost always community). But there are also exceptions to this rule, like federal student loans which are confirmed to the spouse who obtained the loan for his or her education.

Full Financial Disclosure And Hiding Of Assets

California law requires that both spouses provide a full and accurate disclosure of all assets, liabilities, income and expenses in which one or both parties may have an interest. Moreover, each party has a continuing duty to immediately, fully and accurately update and augment that disclosure when there have been material changes. The public policy behind California’s disclosure law is to ensure that at the time of trial or agreement, each party has full and complete knowledge of all the relevant underlying facts.

Hiding assets during a divorce is against California law, but some spouses do it anyways. A spouse may pay wages to a non-existent employee, ask his or her employer to postpone bonuses, set up bank accounts in other people’s names (especially the children’s names), not report certain income or accounts, etc. It is not always easy to find hidden assets, but it can be done. The good news is that if your spouse has hidden an asset which you later discover, the court may not only award you half the value of the asset plus interest, but in certain instances may actually award you the asset in its entirety as a sanction, or penalty, to the spouse who intentionally hid the asset.

Discovery And Valuation Of Property

California law demands that spouses engage in cooperative discovery so that each party has access to and can obtain the information necessary to determine the extent of the community estate, to ensure fair and sufficient child and spousal support, and to achieve an equitable distribution of community and quasi-community assets and liabilities. We utilize the full range of discovery tools permitted under the Family Code and the Code of Civil Procedure, including tools that many family law attorneys tend to ignore. Those tools include subpoenas, form and special interrogatories, requests for admissions, demand for production of documents, requests for authentication, deposition notices, etc.

Before community property can be divided, it must first be valued. Sometimes valuation is fairly easy – a bank account is worth the money in the account and a car is typically worth the Kelly Blue Book, Edmunds or NADA appraisal. Other times it’s not so easy. What is the value of Husband’s private medical practice? How much is Wife’s antique store worth? What is the community interest in those stock options or pension plan?

We are experienced at working with a wide range of experts – from business valuation specialists and appraisers to forensic accountants and actuaries – to properly value the community assets. Once the assets have all been properly valued, the parties can then engage in meaningful settlement discussions or intelligently prepare for trial.

Property Division Issues

Although the concept of equitable division of assets and debts is easy to understand, it is not always so easy to execute. For example, how does a couple divide a home that is either underwater or just at break-even? How does that retirement account get divided without incurring federal penalties and tax surcharges? How do you determine who gets the dining room set and LCD TV?

There are a number of options and approaches available for determining how to divide property. The preference by the court at trial is to divide each asset “in-kind”, or 50-50. However, sometimes there are better options, such as the trade-off approach or the alternate selection approach.

We will work with you to determine your objectives and examine the practicality of how to divide the community estate, and to ensure that you are awarded the community property (or value thereof) to which you are entitled upon dissolution or legal separation.

Contact us or call (925) 465-2500 or (707) 398-6008 for more information or to schedule an initial consultation at Sparks Family Law, Inc. with attorney Gary D. Sparks.