Property Division In Divorce
There are many different types of property. In a dissolution (divorce), property includes tangible property, such as a house, cars, bank accounts, stocks and bonds and retirement accounts, and intangible property such as intellectual property. The term “property” means both assets and liabilities and “property division” means the division of the assets and liabilities of each party.
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California is a community property state. Property acquired by either spouse during the marriage is generally presumed to be community property, owned equally regardless of whose name is on the title (Family Code section 760). Property owned before the marriage, or received individually during the marriage as a gift or inheritance, is generally treated as that spouse’s separate property (Family Code section 770). Couples who acquired property while living in another state before moving to California may also hold quasi-community property, which is treated the same as community property upon divorce. This page explains, in general terms, how California courts identify, characterize, value, and divide property in a divorce. It is educational information, not legal advice about any specific case.
The Four Steps of Property Division
Typically, property division involves four steps:
- Identifying the property type
- Characterizing it as community property, separate property, or mixed/hybrid property
- Estimating the value of property through the appropriate method (for example, if it is intellectual property we will have an intellectual property expert value it; if it is a car, we can use Kelley Blue Book; an actuary is used for retirements accounts; etc.)
- Dividing the property
Sometimes a division can result in neither party getting the property; the property being sold and then dividing the proceeds of the sales between the parties; and other outcomes.
Division of Marital Property
In a divorce, property could mean assets or liability. Before dividing property, it must be identified, characterized, and valued. Certain types of property may have a different methodology for valuation. For example, with a business, its valuation will be done by a forensic accountant or a business appraiser. To identify assets during the process of discovery, both parties disclose what they each own and owe. Discovery is important because one or both parties could try to hide assets during their divorce.
How California Classifies Marital Property
- Community property
- Separate property
- Mixed or hybrid property
- Title presumptions
- Date of acquisition and date of separation
The characterization of property follows standardized rules related to the date of acquisition, date of separation, title presumption and more. For example, property acquired during marriage is generally presumed to be community property, although that presumption can be rebutted in appropriate circumstances. Property acquired before marriage or after the date of separation is generally treated as separate property, subject to applicable exceptions.
Title can also affect how property is characterized, but title alone does not necessarily determine whether an asset is community or separate property. For example, a building purchased during the marriage may be titled solely in the wife’s name. The fact that only one spouse is listed on the title does not, by itself, overcome the general presumption that property acquired during marriage is community property.
What Is the “Date of Separation” and Why Does It Matter?
The date of separation marks the end of the community property period. Under Family Code section 70, the date of separation is the date a complete and final break in the marital relationship occurs, as shown by both spouses’ conduct — generally understood as the point when at least one spouse has decided to end the marriage and has acted consistently with that intent. Property and income earned before the date of separation are generally community property; property and income earned after that date are generally that spouse’s separate property. Because this date can directly affect what is characterized as community versus separate property — as well as spousal support duration — it is sometimes contested and may itself become an issue the court needs to resolve.
Hybrid Property / Reimbursement
We also go beyond characterization because some assets are a mixture of community property and separate property and are considered a hybrid. For example, you can have a separate property asset with a community interest in it. There could also be a community asset with a separate property right of reimbursement.
Let’s consider a home that was purchased during the marriage. In dividing it, let’s assume that the husband has proof that he used separate property money that he earned before the marriage for the down payment.
Under that scenario, if the husband can trace the funds to his separate property source, he has a Family Code Section 2640 Reimbursement to a community property asset. Even though the asset is considered community, it does not necessarily mean that the equity in that asset will be divided 50/50. If his traceable separate property down payment was $100,000, he will be reimbursed this amount from the top, with no interest, and everything that remains will be divided equally between him and his spouse.
In many cases, a business that was acquired or formed before the date of marriage is divided. It is presumptively considered separate property, and let’s assume further that no title change occurred during the marriage, so it remained separate property for the whole course of the marriage. Nevertheless, the community could have an interest in the business if its value increased during the marriage.
Premarital Business + Pereira/Van Camp
California courts generally use one of two accounting methods to apportion that increase between the separate property owner and the community:
The *Pereira* method, generally applied when the growth is primarily attributable to the owning spouse’s skill and labor, and the *Van Camp* method, generally applied when the growth is primarily attributable to the nature of the business or asset itself rather than the owning spouse’s personal efforts. We use different accounting formulas to determine how much of that business is community interest.
For example, what if there is a community property business that one spouse has been running and after the date of separation they continue running the business. Let’s say you can prove that this spouse has been committing waste to the business intentionally. The business is now suffering not because of the economy or market forces, but because this spouse has sabotaged the business.
In this case, it would not be fair to value the business at the current value. We can argue that the other spouse’s goal is to get the valuation down as low as possible to pay out less to the other spouse. In that case, it would make sense to value the business as close as possible to the date of separation to get a higher valuation because one person is responsible for reducing the value.
How Is a Business Valued When One Spouse Runs It After Separation?
What if it is a business run entirely by one spouse. For example, let’s say it’s a law practice with one attorney and a receptionist and the value of the business increases after the date of separation. We could argue that because it is a business driven primarily by the success of the one spouse who runs it, the rise and the fall in value is because of that spouse working extremely hard after the date of separation to increase the value.
Our property division attorneys in Orange County can also argue that all the work that has been put in to increase the value of the business is separate effort and the increase in valuation is due primarily to that spouse’s time and energy.
Therefore, there are several scenarios in which you can request that a judge uses an alternate valuation.
Retirement Accounts and Stock-Based Compensation
Retirement accounts, pensions, and stock-based compensation (such as stock options or restricted stock units) earned during the marriage are generally divided as community property to the extent they were earned between the date of marriage and the date of separation. Benefits earned before the marriage or after separation are generally treated as separate property. Because these assets vest and accrue value over time — sometimes over many years spanning both the marriage and periods before or after it — an actuary or other financial expert is typically needed to calculate the community and separate property shares. A separate court order, often called a Qualified Domestic Relations Order (QDRO) for certain retirement plans, is generally required to divide these benefits without triggering early withdrawal penalties or tax consequences.
Timing of Property Division: Trial, Bifurcation, and Agreements
The issues of property division are generally dealt with at the time of trial. That implies that we don’t get to go to court early in the divorce or in the middle and ask the judge to divide property before we settle or go to trial. For example, you typically cannot file a motion to sell a house in the middle of a divorce unless there is some form of risk to the house such as foreclosure, being behind on the mortgage, waste being committed to the property, etc. In these cases, we can ask the judge to allow the parties to sell the house to preserve its equity. The parties could also agree to sell early and not wait until the end of the divorce.
Generally, you cannot distribute community property prior to the trial unless the parties agree to it. However, you can request a bifurcation. That is, you can ask the judge to deal with an issue of property prior to the ultimate trial. Therefore, rather than having one large trial that addresses every asset and property, you could convince the judge to have a “mini trial” earlier in the case on one or more pivotal issues.
The argument would be, “your honor, if you resolve this issue for us now, the rest of the case will be settled. This is the biggest issue we are fighting about and if you fix it for us we think we can work everything else out.”
For example, let’s say that two parties entered into a premarital agreement and now they are getting a divorce. Who is going to get what? It makes sense in this case to have a bifurcated trial on the validity of the agreement instead of waiting until the end of the case to divide up the property because once the judge decides whether the agreement is valid or not, it immediately dictates who gets what pursuant to that agreement.
That is another way to deal with the character of an asset. If you have a contract with your spouse that dictates whether something is community property or separate property, it means you have both agreed to opt-out of the standardized rules. As long as the agreement is not against public policy, spouses can agree/contract out of the standardized rules. Similarly, spouses can enter into a postmarital agreement to control how everything will be divided in the event of a divorce.
Property Division Cases in Orange County
Property division in a divorce is decided in the Superior Court of California, County of Orange. Local judicial assignments, courtroom procedures, and local rules can affect how discovery deadlines, valuation motions, and bifurcation requests are scheduled, which is one reason it helps to work with an attorney familiar with the local court’s practices.
Frequently Asked Questions About Property Division in California
Is California a community property or equitable distribution state?
California is a community property state. Property acquired by either spouse during the marriage is generally divided equally, rather than divided based on a broader fairness standard as in “equitable distribution” states.
What is separate property in a California divorce?
Separate property generally includes anything owned before the marriage, anything acquired after the date of separation, and anything received during the marriage individually as a gift or inheritance. Income earned from separate property, such as rent from a separately owned rental property, is also generally separate property.
Can separate property become community property, or vice versa?
Yes. When separate and community funds are mixed — for example, when separate property is used to make a down payment on a home purchased during the marriage — the asset may become a hybrid of both. Tracing the funds to their original source, as described above under Family Code section 2640, determines what portion, if any, remains separate.
How does the date of separation affect property division?
The date of separation generally marks the end of the community property period. Property and earnings before that date are generally community property; property and earnings after that date are generally separate property. Because so much depends on this date, it is sometimes contested.
How are retirement accounts and stock options divided?
Retirement benefits and stock-based compensation earned during the marriage are generally divided as community property, typically with the help of an actuary or financial expert and, for certain retirement plans, a separate court order.
Is a business owned before marriage automatically excluded from property division?
Not necessarily. While a business formed before marriage is generally the owner-spouse’s separate property, the community may still have an interest in any increase in the business’s value during the marriage, calculated using methods such as the Pereira or Van Camp accounting approaches described above.
Do I need a lawyer for property division in an Orange County divorce?
It is not legally required, but property division often involves technical valuation, tracing, and characterization issues that benefit from experienced legal guidance. General information like this page does not address how these rules apply to any specific marital estate.
This page provides general information about California property division law and does not constitute legal advice. Reading this page does not create an attorney-client relationship with Moshtael Family Law. Every case is different, and how these rules apply depends on the specific facts involved.
If you have questions about property division in your own Orange County divorce, contact Moshtael Family Law at (714) 909-2561 to schedule a consultation.
