Most people in Sacramento County have been told that California is a “community property state,” but very few know exactly what the phrase means. The phrase refers to state laws that govern the division of property in a divorce or legal separation, but even understanding that part of the law does not adequately convey the effect of the law on divorcing couples.
All property that is acquired by the couple, either together or separately, during the marriage is defined as “community property.” Property that was owned by one spouse or the other before marriage is referred to as “personal property.” State law requires that a divorcing couple divide their community property equally between them. Personal property is not divided.
Community property includes all income earned by the two spouses during the marriage. This category includes wages, salaries, stock dividends, interest income and gains in retirement accounts. Community property also includes property acquired with funds earned during the marriage. The couple’s liabilities are then set off against the community property to obtain the value of the property to be divided equally. The divorcing parties may agree to divide their property differently if the divorce is uncontested.
Determining which assets are community property or personal property can occasionally be a complex process. For example, a business owned by one spouse prior to the marriage may have benefited from an investment during the marriage of money that is community property. Valuing the business and dividing it equally, in such an example, may require complex accounting analysis.