Any property that you or your spouse acquired prior to your marriage will not be treated as community property in a California divorce. This property is considered separate property. For example, you owned a house before marriage, and you continue to own it after your marriage and earn rental income from it. In this situation, the house and income from the property may remain separate property, although the characterization of the property can depend on what happened to the asset during the marriage.
California Family Code §770 identifies property owned before marriage, property acquired during marriage by gift or inheritance, and the rents, issues, and profits from separate property as separate property.
Any gift or inheritance, which you may receive even after your marriage, will always be treated as a separate property under California marriage laws.
If you buy another property from the proceeds of your inheritance after marriage, it may also remain separate property if you can establish the source of the funds. This is where tracing can become important. The fact that an asset was purchased during marriage does not necessarily determine whether it is community or separate property; the source of the funds and how the asset was handled may also matter.
Once the divorce is finalized, income earned individually thereafter is generally separate property. California law also provides that earnings and accumulations acquired after the spouses’ date of separation are separate property.
Any student loans or other debts that you or your spouse incurred before marriage may be separate obligations, although the characterization of debts can depend on the circumstances. Property acquired after the spouses have separated may also be treated differently from property acquired while the spouses were living together. Because the date of separation can affect characterization, it is important to establish the applicable date and understand what happened to income and assets afterward.
What Is Separate Property in California?
Separate property generally includes:
- Property owned before marriage.
- Property acquired during marriage by gift or inheritance.
- Rents, profits, and other income generated by separate property, subject to applicable California law.
- Certain property acquired after the date of separation.
- Property that can be traced to a separate-property source.
California Family Code §770 specifically provides that separate property includes property owned before marriage, property acquired after marriage by gift, bequest, devise, or descent, and the rents, issues, and profits of that property.
However, an asset that starts as separate property does not necessarily remain entirely separate throughout the marriage. Separate property may become commingled with community property, or the character of property may be changed through a valid transmutation. These issues can make tracing and documentation particularly important in a divorce.
Commingled Property in California
If some of your separate property has become commingled during the course of marriage, you will need to resolve it legally with the assistance of a knowledgeable Orange County property division divorce attorney. Here is an example of commingled property: If you purchased a house prior to marriage, but after your marriage you sold that property and used the proceeds to purchase another home, the proceeds may need to be traced to determine their characterization.
If you have a mortgage on this marital home, the resulting home equity will be treated as community property. In other words, the ownership of the home becomes commingled. Another example of commingled property could be a pension where you contributed prior to your marriage. This will make it a separate property. But if you continued to contribute to the plan after your marriage, those contributions would be treated as community property.
Similarly, a bank account that contained separate property before marriage may become more difficult to characterize if community earnings are deposited into the same account and funds are subsequently withdrawn and used for different purposes.
A retirement account can present another example. Contributions made before marriage may be separate property, while contributions made during marriage may be community property. The characterization of the account may therefore require an analysis of the contributions and the applicable period.
Commingling does not necessarily mean that all of the property automatically becomes community property. Instead, the parties may need to trace the separate-property interest and determine what portion, if any, belongs to the community.
An experienced divorce lawyer in Orange County can help ensure that your property division in these situations meets all requirements of the law, while your rightful share in the property is fully protected.
Why Is Tracing Important for Separate Property?
Tracing is the process of following property or funds from one form to another to establish their source.
For example, if you owned $100,000 in a separate bank account before marriage and later used those funds toward the purchase of a marital residence, financial records may be relevant to establish that the contribution came from a separate-property source.
Tracing may involve reviewing bank statements, closing documents, account records, tax returns, investment statements, loan documents, and other financial records.
The more complicated the financial history, the more important the documentation may become. If separate and community funds were repeatedly deposited, withdrawn, transferred, or invested, determining the characterization of an asset may require a detailed financial analysis.
Transmutation of Property in a Divorce
When the characterization of a property is altered during the course of marriage, it is said to have transmuted. Spouses in a marriage in California reserve their right to transmute:
- Community property into separate property
- Separate property into community property
- One spouse’s separate property into the other spouse’s separate property
However, California law imposes specific requirements for many transmutations. Under Family Code §852, a transmutation of real or personal property generally must be made in writing through an express declaration meeting the statutory requirements. The law also contains specific rules concerning recording and certain exceptions.
Therefore, simply saying that a spouse intended to give an interest in property to the other spouse may not be enough. The form and language of the written agreement can matter.
Property through Gift or Inheritance
If you receive separate property after your marriage by way of gift or inheritance, it will continue to be treated as your separate property. Any assets you purchase from that property or any income you earn from it will also continue to be your separate property after marriage. But if such property has become commingled after marriage, your attorney will have to trace the assets at the time of divorce to determine exactly what percentage of the property should be treated as separate or community.
According to California law, while income earned from a separate property or an intrinsic increase in the value of a separate property will continue to be separate after marriage, any investment of time, labor and talent from the community into that property will be treated as community property.
What Happens if You Utilized Your Separate Property to Contribute to the Community?
If you used separate property to contribute to the acquisition of community property during your marriage, you may have a right to reimbursement when the community estate is divided.
California Family Code §2640 addresses reimbursement for certain separate-property contributions used to acquire community property. Covered contributions can include down payments, payments for improvements, and payments that reduce the principal of a loan used to purchase or improve property. The statute does not treat interest, maintenance, insurance, or property-tax payments the same way.
For example, if you used an inheritance or money from a premarital account to make a down payment on a community residence, documentation showing the source and use of those funds may be important.
To claim reimbursement, the separate-property contribution generally must be traceable to a separate-property source. The statute also provides that reimbursement can be affected by a written waiver or other writing, and the amount is generally not adjusted for interest or changes in monetary value.
This is why maintaining financial records can be particularly important when separate property is used to acquire or improve property during marriage.
What Happens if You Contributed Time, Labor and Talent to a Separate Property?
If your spouse owned a business prior to marriage, and post-marriage you made contributions to the running of that business, you may have a reimbursement right at the time of divorce. The courts in California in the past have considered two different approaches to determine whether a part of a separate property (business) can be treated as community property, and if yes, how much:
- If the returns from the business during marriage to the community were higher than what you contributed to it, you may not have a reimbursement right because the community obtained a net benefit overall.
- If the valuation of the business increased during the course of marriage because of the owner’s endeavor, he or she would have a right to receive a fair return on investment. But whatever remains after that becomes the rightful due of the community (that must be reimbursed at the time of property division).
In simple terms, if the value of a separate property business did not rise during the course of marriage, no reimbursement is due. Similarly, if the community benefitted more from the separate property business during marriage than the individual efforts a spouse, no reimbursement is due.
However, in a situation where your contributions to the separate property business during marriage were higher than its value, you have a reimbursement right from it beyond the business owner’s reasonable ROI.
What Happens when You Used Your Separate Property to Pay for Your Spouse’s Obligations?
If you utilized your separate property proceeds to pay for your ex-spouse’s obligations during the course of marriage, you may have a reimbursement right at the time of divorce. Here are a few examples of the payments you may make from your separate property to pay for your spouse’s:
- Separate property debt or taxes
- Child support or alimony from a previous relationship
- Mortgage payments of separate property
- Improvements or renovation of separate property
- Maintenance expense of separate property
- Education, coaching or training
Does Separate Property Become Community Property After Marriage?
Not automatically.
Getting married does not, by itself, convert every asset owned before marriage into community property. However, separate property can become difficult to distinguish from community property when the assets are commingled, when community funds or efforts contribute to the property, or when the property is validly transmuted.
The key questions may include:
- When was the property acquired?
- What was the source of the funds?
- Were separate and community funds commingled?
- Did either spouse contribute community funds or labor?
- Was there a written agreement changing the property’s characterization?
- Can the separate-property interest be traced?
These questions can be particularly important when dividing a home, business, investment account, retirement account, or other significant asset in a California divorce.
What Happens to Separate Property When You Divorce?
Separate property generally remains with the spouse who owns it rather than being divided as part of the community estate. However, determining whether an asset is truly separate can require an analysis of its history.
For example, a home purchased before marriage may have a separate-property component, while mortgage principal payments or other contributions made during marriage may raise separate reimbursement or community-property issues.
Likewise, a business that was established before marriage may remain separate property while still requiring an analysis of whether the community acquired an interest in some portion of its value.
The characterization of each asset should therefore be considered before assuming that an asset is entirely separate or entirely community property.
Work with a Dedicated Orange County Divorce Lawyer
Reimbursement rights and other aspects of separate property are vital to consider in a property division agreement at the time of your divorce. The complexity of asset and debt division may depend on several factors, including when an asset was acquired, how it was funded, whether separate and community property were commingled, whether a transmutation occurred, and whether the separate-property interest can be traced.
If you are dealing with a premarital home, inheritance, gift, business, retirement account, investment account, or other potentially separate property, an Orange County family law attorney can review the property’s history and the available documentation to help determine the issues that may need to be addressed during the divorce process.
Make sure you understand the characterization of your assets and potential reimbursement claims before agreeing to a property division settlement.
Frequently Asked Questions About Separate Property in California
Is property owned before marriage separate property in California?
Generally, property owned by a spouse before marriage is separate property under California Family Code §770. However, the property’s characterization can become more complicated if it is commingled with community property, if community contributions are made to the asset, or if a valid transmutation occurs.
Is an inheritance separate property in California?
Generally, property acquired during marriage by inheritance is separate property. California Family Code §770 specifically includes property acquired by gift, bequest, devise, or descent within separate property. However, using inherited funds with community assets can create tracing and characterization issues.
Can separate property become community property in California?
Yes, depending on what happens to the property during the marriage. Commingling, community contributions, and a valid transmutation can affect the characterization of an asset. A valid transmutation generally requires a written express declaration meeting the requirements of Family Code §852.
What is commingled property?
Commingled property is property in which separate and community funds or interests have been combined. For example, separate funds may be deposited into an account that also receives community earnings. Commingling does not necessarily eliminate the separate-property interest, but tracing may be necessary to establish it.
Can I get reimbursed for separate money used to buy a marital home?
Potentially. California Family Code §2640 provides reimbursement rules for certain separate-property contributions toward the acquisition of community property, including qualifying down payments, improvement payments, and principal payments. The contribution generally must be traceable to a separate-property source, and written waivers can affect reimbursement rights.
Are earnings after separation separate property?
Generally, earnings and accumulations of a spouse after the date of separation are separate property under California Family Code §771. The date of separation can therefore be important when determining the characterization of income and assets.
Does a spouse have to share an inheritance in a California divorce?
Generally, an inheritance received by one spouse is separate property. However, the way the inheritance is held, spent, invested, or combined with community assets can affect the analysis. Documentation showing the inheritance and its subsequent use may be important.
Can my spouse claim part of a business I owned before marriage?
Potentially. Ownership of a business before marriage is an important factor, but it may not end the analysis. Contributions made during marriage, the business’s growth, community compensation, and the methods used to determine the business’s value may all be relevant.
What records can help prove separate property?
Useful records may include premarital account statements, inheritance or gift documents, bank records, deeds, purchase agreements, mortgage statements, tax returns, investment statements, retirement account records, business records, and documents showing transfers between accounts.
Can separate property be divided in a divorce?
Generally, a spouse’s separate property is not divided as part of the community estate. However, an asset may contain both separate and community interests. The court may therefore need to determine the characterization of the property before the community estate can be divided.
Why is tracing important in a California divorce?
Tracing can help establish the separate-property source of an asset or contribution when separate and community property have been combined or transformed. Financial records can be important evidence when determining the characterization of an asset.
Talk to an Orange County Family Law Attorney
Separate property issues can become complicated when assets were purchased before marriage, inherited during marriage, commingled with community funds, or used to acquire marital property.
If you have questions about how your property may be characterized in a California divorce, the Moshtael Family Law team can help you understand the property-division issues that may apply to your circumstances.
Contact Moshtael Family Law to schedule a consultation about your California property-division matter.
