How is Dividing Property in a Community Property State Like California Different Than in an Equitable Distribution State?

The financial worries of people heading into divorce in California cause untold amounts of stress. Uncertainty plays a large role in upping the stress level because no one is quite sure what to expect. While couples are worried about alimony and child support, it is the division of property that causes the most concern. People hear that California is a community property state, and they begin to make many assumptions about how property will be divided here compared with in the way it would be allocated in other jurisdictions.

So what is the difference? And what can you do to protect your interests? Your attorney can provide the most complete answers to these questions, but here is some basic information to consider.

Community Property vs. Equitable Distribution

In theory, the property division plans created in a community property state can be extremely different from those created in an equitable distribution state. In practice, however, there is often not as much difference as you’d imagine.

Community property principles hold that most assets acquired during the marriage are the joint and equal property of both spouses and that they will be divided evenly in divorce. If one spouse earned wages and accrued retirement benefits during 15 years of marriage, half of those wages and retirement benefits belong to the other spouse. If one spouse bought a boat for the other for their 10-year anniversary and put that spouse’s name on the title, that boat is still the joint property of both spouses, and both are entitled to half the value in divorce. 

Property that a spouse owned before marriage or that a spouse received as an inheritance during the marriage is generally that spouse’s separate property and does not get divided in divorce. There are exceptions which we will explore in a moment.

When property is divided according to principles of equitable distribution, instead of a 50/50 division, courts can divide marital property however a judge finds to be “equitable” or fair. This could lead to a situation where one spouse ends up with almost all marital property while the other walks away with only the property they had when the marriage started.

How the Rules are Applied

In an equitable distribution state, even though equitable doesn’t mean equal, courts often start with the proposition that both spouses are entitled to an equal share of marital property. Then they may adjust the allocation to account for factors such as whether one spouse has greater earning potential or committed acts of domestic violence. Many times, the allocation comes out close to 50/50 just as in a community property state.

Some community property states actually follow the principles of equitable distribution. They start with the assumption of a 50/50 split but then make adjustments for “fairness.” California is a strict community property jurisdiction, but even in our state, if a spouse is found to have wastefully dissipated assets or committed domestic violence, that can change the allocation of property so that it is not strictly even. In many cases, the distribution of marital property in divorce is not tremendously different in a community property state than in an equitable distribution state if divorce attorneys make all the right arguments.

Property Classification is Key

In either a community property state or equitable distribution state, the way property is classified often has a much bigger impact on the financial outcome of divorce than how property is divided once it has been classified. Assets that are considered your separate property do not need to be divided under either principle. So that makes it important to work with an attorney who is prepared to help you ensure that your property is classified properly.

Assets that you owned before you got married or that you received via inheritance or gift (from someone other than your spouse) should be treated as your separate property. But if these assets got mingled with marital property or your spouse contributed to the value in some way, then those assets can turn to community property, at least in part. The best way to protect your separate property is to plan ahead and execute a premarital agreement specifying that your property will remain yours. If it’s too late and you’re already contemplating divorce, you can research to trace the history of your property, showing when it was acquired and any steps taken to keep it separate from marital assets. Your attorney can assist with the process and may recommend working with a forensic accountant to help trace the value of your separate property.

Holstrom, Block & Parke, APLC works to Ensure that You Receive the Right Allocation of Property in a California Divorce

When it comes to dividing property in divorce, it is important to pay attention to the details to ensure that all property is accounted for and that it is classified appropriately. You need an attorney willing to take the time to dig deep to get the full picture.

At Holstrom, Block & Parke, APLC, our team has 300+ years of collective experience helping clients achieve the right allocation of community property and protecting their separate property. We invite you to schedule a confidential consultation to discuss how we can work to ensure the most advantageous financial settlement in your divorce.

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