Separate property is generally defined as any property owned by either party prior to their marriage, any property received by them by gift or inheritance after their marriage, and any income earned after separation. Separate property also includes the rents, issues, profits, interest income, etc. that are generated by separate property. Provided that the separate property is not co-mingled with other community property, such property will remain the separate property of the spouse who earned/received it.
All property acquired by married people during the course of their marriage is presumptively community property. This includes the rents, issues, profits, interest income, etc. that are generated by community property. Community property also includes the efforts of each spouse (significant in family owned businesses) as well as all wages earned by either spouse during marriage.
In California, in a dispute over whether property is separate or community, the party alleging that a particular item is their separate property has the burden to prove that the item in question was acquired by gift, devise, descent or bequest, or that the item/income was from an asset acquired prior to marriage or after the date of separation.
It is a common occurrence that one party’s separate property is used in part to acquire property during the marriage (i.e. to make a down payment on a family residence). Depending on the circumstances, as well as the party’s ability to prove that the down payment came from their separate property, property so acquired may be characterized as a “mixed” asset in which case, both the community and separate property components each receive a “pro tanto” rate of return on their respective contributions toward the acquisition of the property.
Upon dissolution, the court (either after trial or pursuant to a settlement agreement) will order the community property divided equally between the spouses. The division need not be exact, but should be a “fairly equal” division. Some items may be sold (i.e., the family home). Other items may be awarded in whole to either spouse depending upon his or her connection with the item. If one spouse is primarily responsible for a business, the court will likely award the business to that spouse, and make up for the community property interest of the other spouse in the business by awarding him or her other items, or money. Alternatively, the spouse with the business may be ordered to “buy out” the other spouse’s community property interest.
It is important to note, that for purposes of dividing property at divorce, the form of title to any item of real or personal property may be irrelevant. Therefore, although the marital home may be titled in the name of just one spouse, if payments on the mortgage or trust deed are made with community property funds, there will be a community property interest in the property in proportion to the community funds used to improve the value of the property, or pay down the principal on any debt. Property titled as “joint tenants” (with rights of survivorship) likewise may be divided by the court as community property. Nevertheless, at death, the rules of joint tenancy will operate to pass the entire joint tenancy item to the survivor. For this reason, a person involved in divorce should consult his or her attorney promptly regarding the changing of title of items held in joint tenancy with the other spouse. In the event of death prior to the entry of a judgment terminating the marriage, the joint tenancy item would pass to the surviving spouse rather than to the estate of the deceased spouse (the exception to this rule is if the property issues have not been resolved within four (4) years after judgment is entered terminating the marriage). In making any such changes, however, care must be taken not to violate the automatic temporary restraining orders which go into effect upon the filing of the Summons as to the Petitioner, and the service of the Summons as to the Respondent. It is therefore highly recommended that counsel be consulted on this issue prior to making any changes.