Property and Debt in a Divorce or Legal Separation
The property and debts part of a divorce or legal separation is often so complicated and the cost of making a mistake is so high that you should talk to a lawyer before you file your papers, especially if you have anything of value (or if you have significant debt). Keep in mind you may not need to hire a lawyer to take on your entire divorce or legal separation, just the property and debt portion of your case.
In this section, you will find some basic information about California law related to what happens with property and debts when spouses or domestic partners choose to end their relationship.
ALERT! If you signed a property agreement before or during the marriage (like a prenuptial or postnuptial agreement), talk to a lawyer to see how this affects your case before you file your papers with the court. Click for help finding a lawyer.
Property is anything that can be bought or sold, like:
Property is also anything that has value, like:
- Bank accounts and cash,
- Security deposits on apartments,
- Pension plans,
- 401(k) plans,
- Life insurance that has cash value,
- A business, or
- A patent.
When you get divorced or legally separated, the court makes decisions about how to divide the property that the spouses or domestic partners bought during the marriage.
Even if you do not want to deal with these issues or if you divided your property informally when you separated, the court still needs to make a formal order about these issues.
This does not mean that you have to go in front of a judge to decide these issues. Often, couples are able to divide their property (and their debts) by agreement. But when you get divorced, the judge has to sign off on that agreement. Until that happens, the property you got during the marriage or domestic partnership belongs to the 2 of you, no matter who is using it or who has control of it. The same is true of debts. If you divide them between you without a court order (or without a judge signing off on your agreement), the debt continues to belong to the 2 of you and you are both responsible for it, even if the 2 of you split it up informally.
To understand how to divide your property and debt so you can finalize your divorce or legal separation, you have to understand how property laws work in California when a couple is married or in a domestic partnership. The rest of this section will explain those laws.
Community Property and Separate Property
California is a community property state. This means that a marriage or the registration of a domestic partnership makes 2 people 1 legal “community.” So property that the couple acquires during marriage/partnership is “community property.” And debt that the couple acquires during the marriage/partnership also belongs to the “community debt.”
Click on each topic to get the definitions you need to know in more detail:
Community property generally is everything that spouses or domestic partners own together. It includes everything you bought or got while you were married or in a domestic partnership — including debt — that is not a gift or inheritance.
Community property also includes all the earnings that either spouse or partner (or both of you) earned during the marriage and everything bought with those earnings. You can usually tell if property belongs to the community by looking at the source of the money that was used to buy it. If the purchase money was earned during the marriage, the property belongs to the community.
For example, if you bought a car with money you were saving from your paycheck every month, and you made this money during the marriage/partnership, the car belongs to both you and your spouse or domestic partner, even if you paid for it yourself. That is because the savings you have from your paycheck is community property, since you earned that money during the marriage/partnership.
Community property includes all financial obligations (debts) accumulated during your marriage or domestic partnership. This is true even if the debt was incurred by only 1 of you, or even if a credit card was in the name of 1 spouse or partner only.
In California, each spouse or partner owns one-half of the community property. And, each spouse or partner is responsible for one-half of the debt. Community property and community debts are usually divided equally.
You may have more community property than you realize. For example, you may not know that if your spouse or partner has a pension plan, you have the right to part of the money in that plan if any of it was earned during your marriage or domestic partnership. You may also have more community debts than you realize. Your spouse or partner may have gotten into debt in his or her own name that you are not aware of. If the debt was incurred during your marriage or domestic partnership, it belongs to you too.
Quasi-community property is any type of property that was acquired by either one or both spouses or domestic partners when living in another state that, had it been acquired while living in California, it would have been considered community property. In other words, if you or your spouse or partner were living outside of California during your marriage or partnership, and you had any earnings, bought any real estate, or acquired any other type of property that in California would be community property, that property is called quasi-community property. And, in a divorce or legal separation in California, it will be treated as community property.
For example, if you and your spouse were living in New York during part of your marriage, and you were both working and bought a car there. Now, you are living in California and are filing to get divorced or legally separated. The earnings from your respective jobs in New York plus the car are quasi-community property because, if you had been working and bought that car in California, they would have been considered community property. So, in the California divorce, the earnings and car will be treated as community property.
Separate property is anything you have that you owned before you were married or before you registered your domestic partnership. Inheritances and gifts to 1 spouse or domestic partner, even during the marriage or domestic partnership, are also separate property. Rents, profits, or other money you earn from your separate property is also separate property. And property you buy with separate property is also separate property.
For example, if you buy a car with money you inherited from a relative who passed away, the car belongs to you even if you bought it during the marriage or domestic partnership, because it was bought with your separate property.
Separate property is also anything that you acquire after the date of separation, including money you earn. This is 1 of the reasons why the date of separation is so important. It can determine whether certain property or debt is community or separate property.
If you have separate property, it belongs only to you, as long as it was kept separately. Debts can be separate property too, such as credit cards you might get after the date of separation.
Always look at the source of the money used to buy an item. In this way, you can decide if the item is separate property or community property.
Sometimes things are part separate property and part community property. This is called “commingling” because the separate property and community property have become mixed together. When property is a combination of separate or community property, it can get very complicated to figure out how to divide it.
A common situation is when 1 party owned a house before the marriage or domestic partnership and then sold it and used the proceeds as a down payment on another house after getting married, or after registering a domestic partnership. The down payment for this new house would be considered separate property (since the money came from selling a house that 1 person owned before the marriage or partnership). But, if the mortgage payments on the new house are made during the marriage or partnership using the earnings of either 1 of you, the equity (value) resulting from paying down the house loan is community property. The result is that the equity in the house is commingled.
Another common situation happens when you or your spouse/partner has a pension or retirement benefit from a job held before and during the marriage. The contributions you each made to your pension before the marriage or registered domestic partnership are separate property. The contributions made after the date of marriage or registration of the domestic partnership and before you separated are community property. After you separate, those contributions go back to being separate property. Exactly how the pension is divided is complicated and you may need an expert in pension plans to help you figure it out. In some situations, if you each have a pension, you both may be able to keep your own pension. But you need to be sure of the value of each pension.
In general, when either spouse/partner has a pension, a lawyer’s help is necessary. First, a pension can be one of the most valuable assets you have from your marriage or domestic partnership. Second, the special rules that apply to pensions are very technical and do not apply to any other kind of asset. A pension plan must be “joined” as a party in your divorce case before a judge will issue an order about how the pension will be divided. That court order is called a qualified domestic relations order, or QDRO. If you make an error, there could be harmful results. It is worth paying a lawyer to correctly prepare the QDRO for you.
If you have a question about whether some asset is community property, separate property, or mixed, also talk to a lawyer for advice. The same is true if you are unsure about how a debt should be paid. Click for help finding a lawyer.
SOURCE: SOURCE: NEF2.COM