Community Property vs. Separate Property: Which Is Which?

One of the primary considerations for any couple contemplating a divorce is how their property will be divided. While the question seems rather simple on its surface, it can become fiendishly complicated, as most couples own some property as individuals and other property jointly as a couple. Before negotiations on property division can begin, you must determine which is which. To do this, California law splits all property into “separate property” and “community property.” The term “property” includes real property, personal property, income, debts, pensions, businesses, life insurance policies, and anything else that has value.

Separate Property

Separate property is property that one spouse owns in his or her own right as an individual. It includes:

• Property owned before the marriage
• Property acquired after the date of separation
• Inheritances or gifts from third parties received by the spouse during the marriage
• Rents, profits, and other income earned from separate property
• Property that the spouse purchases with his or her separate property

Separate property remains the property of the spouse who owns it during the marriage. So long as that property is kept separate during the marriage, it is typically not subject to division upon divorce.

Community Property

The law treats a marriage as the joining of two individual persons into one legal “community.” Therefore, any property that either spouse acquires during the marriage is considered to be owned by that community (i.e., jointly). This includes:

• Wages earned by either spouse during the marriage
• Property purchased by either spouse with money earned during the marriage
• Financial obligations either spouse accumulates during the marriage
• Contributions to either spouse’s pension plan made during the marriage
• Businesses started by either spouse during the marriage

In community property states like California, each spouse owns one half of the community property, which is then typically divided equally upon divorce.

What about Commingled Assets?

The line between separate property and community property is not always clear. In some cases, property can become partially separate property and partially community property through “commingling.” This can occur in several ways. For example, commingling can occur when one spouse owns a home before the marriage but then uses marital funds to pay the mortgage or make improvements, which add to the value of the house. In that case, the house is separate property, but the increased equity in the house is community property. Commingling can also occur when a spouse makes contributions to his or her retirement plan both before the marriage (separate property) and during the marriage (community property). Division of commingled assets in a divorce can be especially tricky and normally requires the assistance of an attorney.

Contact our Orange County Property Division Lawyers for More Information

Property division in a divorce — especially for high net-worth couples — can be extremely complex and often acrimonious. To ensure the most advantageous outcome possible, you should seek the assistance of counsel to represent your interests during a divorce. To get started, please contact our Orange County property division lawyers by calling us at 949-474-0800.

Frequently Asked Questions

What is the basic rule for community versus separate property in California?

Property acquired by either spouse during marriage is presumed community property. Property owned before marriage, property received during marriage by gift, bequest, devise, or descent, and anything traceable to those sources is separate property. Earnings after the date of separation are separate. Because the community presumption applies to anything acquired during marriage, the spouse asserting a separate-property interest carries the burden of proving it, which in practice means proving it from records.

Does whose name is on the title decide it?

Not by itself. Title is evidence, and in some circumstances it creates a presumption, but characterization turns on when and how the property was acquired and with what funds. An account in one spouse’s name alone that was funded with community earnings is community property. Conversely, a jointly titled home purchased in part with one spouse’s inherited funds gives that spouse a reimbursement claim. Changing the character of property between spouses requires a written declaration expressly stating the change, which is why an informal understanding is generally not enough.

What happens when separate and community funds are mixed in one account?

The commingling does not destroy the separate interest, but it shifts the work to the spouse claiming it, who must trace the separate funds through the account activity. Tracing is done from the records, following separate dollars into the asset now claimed as separate, and it succeeds or fails on the completeness of the documentation. Where records are missing for part of the period, the untraced portion is generally treated as community. This is the single most common reason a legitimate separate-property claim is lost, and it is usually a records problem rather than a legal one.

Can separate property become partly community over time?

Its growth can. Where a spouse’s labor during marriage increases the value of a separate-property business or asset, the portion of that growth attributable to community effort belongs to the community, and California uses two competing apportionment methods depending on whether the growth was driven mainly by the spouse’s efforts or by the character of the investment. Similarly, community earnings used to pay down the mortgage on a separate-property home give the community a proportional interest in the equity. Passive appreciation on an inherited portfolio, by contrast, stays separate.