Division of Assets & Debts
A separate page has been created specifically for issues relating to the division of assets and debts due to the number of people who do not completely understand how the courts apply California law regarding the division of assets and debts.Community Property Laws
First, understand the law: California is a community-property state. This means that unless a couple has a valid pre- or post-nuptial agreement, the courts will divide the couple’s assets and debts according to California community-property laws.The Community-Estate Period
With few exceptions, anything and everything acquiring during the marital period is considered community property. The community-estate period starts at time of marriage and ends at time of separation. (A quick note about date of separation: the parties do not need to have the court issue a “legal separation” order in order for the parties to be separated. All that need to occur is that one party decides the marriage is over and his or her conduct thereafter reflects that the parties are separated. Approximately 10% of couples argue about the date of separation; but for most, it’s easy to determine.
Though the rule is simple, people still don’t grasp the literalness of the rule. For example, even if a 401(k) is one party’s name—if some or all of the deposits were made during the marriage, then the community estate has a legal interest in the 401(k); if husband and/or wife have separate savings accounts and all the funds deposited in to the accounts were made during the marital period, then ALL the funds are community property; if husband and wife each have credit cards solely in their respective names, e.g. Wife only uses the AMEX (which has a zero balance) and husband only uses the Capital One card (which has a $10,000 balance), the entire $10,000 is a community-property debt. This means that both parties are legally responsible for 50% of the debt, or $5,000 each—since the debt was incurred during the marital period.What about Separate Property Assets and Debts?
Many people believe that when identifying the assets and debts, they do not need to include their separate property assets and debts because they believe the court does not have any jurisdiction to divide these particular assets and debts. This is incorrect and here is why: many mistakes are made regarding identifying the legal characterization of assets and debts. For instance, husband believes the home he purchased the day before marriage is his separate property asset and wife believes it is community property because the parties refinanced the mortgage several times and the community estate paid most of the mortgage payments, property taxes and insurance. In other instance, wife and husband believe that the 401(k) in wife’s name is wife’s separate property because it is in her name and/or because the 401(k) was opened prior to marriage. In both instances, the parties would be wrong and the community-estate would have, at least, a partial interest for any deposits made during the marriage.
If it turns out that the itemized item is, in fact, a separate property asset or debt, then the court would “confirm” the asset or debt as the person’s separate property.