California is a Community Property State, which does not mean that the separate property of a bride and groom automatically becomes community property after the wedding. Nor does it mean that all property a spouse acquires during a marriage is community property. What it means, in short, is:
Any property a spouse acquires while domiciled in California during the marriage or domestic partnership and before separation that is not separate property and has not been validly transmuted into separate property is community property. A judge must divide all community property equally.
Simple enough? No.
Let’s walk through an example of how California Family Court judges legally characterize property in a legal separation or divorce, or the dissolution of a registered domestic partnership. (This as an introduction to, not an exhaustive explanation of, California community property law, which has nuance and complexity.)
How to define “Separate” or “Community” Property in a California Divorce?
Step One: Identify the property to legally characterize. Jack and Jane want to know if Jack’s San Francisco apartment and their Sausalito home are separate or community property—or both. Apartments and homes are “real property.” Real property is a type of property that can be or become separate and/or community property, and a judge can divide it in divorce.
Step Two: Determine the dates of marriage, acquisition, and separation. Jack and Jane got engaged on 2/14/11, and Jane moved into Jack’s San Francisco apartment that he bought on 04/14/2000. Jack and Jane married on 12/12/2011 and purchased their home in Sausalito on 08/08/2016. Jack used his income to make the down payment on the house. Jack’s employer deposited his salary and cash bonuses into a checking account that Jack opened before and continued to use during marriage and after separation; Jack paid the mortgage out of this checking account. On 01/01/2020, Jack and Jane made the decision to end their marriage.
Step Three: Discover who holds title to the property. “Title” to the property refers to the legal ownership and right to possess a piece of real property, like an apartment or house. A property deed is a legal document that transfers property ownership from a seller/grantor to a buyer/grantee. A deed contains a description of the property and signifies the seller/grantor and the buyer/grantee. Spouses commonly use four types of deeds to transfer ownership of property in California: Grant Deed, Warranty Deed, Interspousal Transfer Deed, and Quitclaim Deed. Spouses also often sign Trust Deeds to secure mortgages to their property.
The Grant Deed for Jack’s San Francisco apartment reads: “GRANTEE: Jack, a single man.” The Grant Deed for the Sausalito home reads: “GRANTEES: Jack and Jane, husband and wife, as community property.” The Trust Deed identifies Jack and Jane as the Borrowers and secures the mortgage in Sausalito. Jack and Jane didn’t sign any other deeds for these properties. Jack’s checking account is held solely in Jack’s name.
Step Four: Test for separate property. Under California Family Code § 770, the separate property of a married person or registered domestic partner includes all of the following:
(1) All property the person owned before marriage (that has not been legally transmuted)
(2) All property the person acquired during marriage by gift, bequest, devise, or descent
(3) The rents, issues, and profits of the separate property
(4) The earnings and accumulations of a spouse after the date of separation and after entry of a judgment of legal separation
Jack acquired his apartment on 04/14/2000 before getting married on 12/12/2011 and holds title as “Jack as a single man.” This criteria indicates the SF apartment is Jack’s separate property—but this only the first step to determine, or confirm that, a house or funds in an account at the time of separation is separate property.
If Jack used community property funds to pay the principal of a mortgage or otherwise increase the equity in Jack’s apartment, the community may have acquired an interest in Jack’s separate property apartment under Moore-Marsden.
Jack’s employer deposited his salary and cash bonuses into a checking account that Jack opened before marriage and after separation. Jack’s salary and bonus accumulated before marriage and after separation was/is Jack’s separate property.
If any of Jack’s premarital or post-separation salary and bonus remain in the account, or were transferred into another account where they remained unused in some form on the date of separation, they are Jack’s separate property unless the funds were commingled or legally transmuted.
Jack and Jane acquired the Sausalito house and Jack earned a salary and bonus during marriage; these facts do not meet the California Family Code § 770 criteria for separate property.
Step Five: Determine if separate and community property were commingled. Separate property may become community property if it is so commingled with community property that it is impossible to trace the property to a separate property source. For the sake of clarity, the simple act of depositing separate and community property funds into a single account, whether held in one spouse’s name or jointly, does not constitute commingling; it must be impossible for a party to trace the commingled funds to their separate property origin.
The spouse who claims a separate property interest has the legal burden of proof and must present substantial evidence that adequately traces the property in question to a separate property source. If separate and community property are commingled, such that no one can trace the contributions to the original separate or community property source, a judge will treat the entire account or property—including property acquired in exchange therefor—as community property per the California Family Code § 760 general community property presumption.
If Jack claims that the funds in his checking account on the date of separation are his separate property or that they used Jack’s separate property funds for the down payment on the Sausalito house, and Jane does not agree, Jack has the burden of proof. If Jack successfully traces the down payment on the Sausalito house to Jack’s separate property, and Jack didn’t expressly waive his rights, Jack can request reimbursement under California Family Code § 2640.
If Jack proves that: his premarital salary and bonuses remain unused and intact in some traceable form on the date of separation and trial, any property purchased therewith isn’t subject to the title presumption, and Jack hasn’t legally transmuted the property, a judge must affirm the income, appreciation and returns thereon, or the property purchased therewith, as Jack’s separate property.
Step Six: Make the community property presumptions. According to the general community property presumption of California Family Code § 760, all property that a spouse acquires while domiciled in California during marriage or after registering a domestic partnership and before the date of separation is presumptively community property. “The fruits of a spouse’s expenditure of time, talent and labor during marriage and before separation are community property, while any intrinsic increase in separate property is separate property.” Property that spouses acquire during a marriage in joint form, including property held in tenancy in common, joint tenancy, tenancy by the entirety, or as community property, is presumed to be community property under California Family Code § 2581’s title presumption.
A spouse or judge also can presume that, if a spouse changes the title of a separate property residence, separate property bank account, or any other separate property during marriage, the property is community property under California Family Code § 2581, provided the property was validly transmuted into joint title under California Family Code § 852 and the advantaged spouse can overcome the presumption of undue influence.
The community property presumptions are rebuttable.
Jack and Jane bought the Sausalito home during marriage. Title to the house is held as “Jack and Jane, as community property.” Jack earned a salary and bonuses during marriage by working for XYZ corporation as a Software engineer. These assets are presumptively community property, as is the mortgage on the Sausalito house.
Step Seven: Rebut any presumptions. A spouse who makes a separate property claim can rebut the community property presumption, and if they carry the legal burden of proof successfully, a judge can find that property acquired during marriage is in fact a spouse’s separate property.
How might a spouse prove that an asset, income, debt, or expense acquired during marriage or held in joint title is separate property? The spouse must present substantial evidence, which may include:
(a) A clear statement in the deed or other title document by which the property was acquired that states the property is separate property and not community property.
(b) Proof that the spouses have a written agreement that satisfies the requirements and overcomes the presumption of undue influence that arises under California Family Code § 852.
(c) Provided the California Family Code § 2581 community property joint title presumption does not apply, a spouse may rebut the general community property presumption by tracing a marital acquisition to a separate property source. The spouse who claims a separate property interest must present substantial evidence that adequately traces the acquisition of an asset to a separate property source.
Jack may claim that the Sausalito house isn’t community because they used Jack’s separate property for the down payment and qualified for the mortgage based on Jack’s salary, but tracing the down payment for a home acquired during marriage to a separate property source cannot defeat the title presumption—that the Sausalito house was taken as community property. It will, however, establish a right of reimbursement under California Family Code § 2640.
Step Eight: Find and test the validity of any legal transmutations. During a marriage, a spouse can legally transform separate property into community property, community property into separate property, and separate property into the the other spouse’s separate property. This legal transformation is called a transmutation. Documents that commonly transmute property include prenuptial agreements, property deeds, transmutation agreements, and trusts.
The requirements for a valid transmutation on or after January 1, 1985 are: the transmutation must be in writing, the document must include an express declaration “made, joined in, consented to, or accepted by the spouse whose interest is adversely affected.” If an interspousal transaction advantages one spouse at the expense of the other, the California Family Code § 721(b) presumption of undue influence prevails over the California Family Code § 2581 presumption (character presumed by title to the property.)
The advantaged spouse has “the burden of dispelling the presumption that the transaction was tainted by undue influence.” If they cannot, a judge will restore title of the property to the pre-interspousal transfer character.
Jack and Jane didn’t sign a prenuptial or any postnuptial agreements concerning the properties. Jack and Jane didn’t sign any Deeds during marriage for Jack’s apartment or to transform the character of the Sausalito home. Jack and Jane don’t have any Trusts, but each signed a Will that said that the surviving spouse would receive the deceased spouse’s estate in the event of a spouse’s death. Therefore, Jack and Jane didn’t legally transmute Jack’s apartment into community property or the Sausalito home into either spouse’s separate property.
Step Nine: Make a conclusion about the character of the property. If Jack and Jane ask a judge to determine whether their apartment and house are community property, the judge must form a legal opinion and make a conclusion. The judge must apply the foregoing rules and presumptions to the evidence and enter a Judgment. In Jack and Jane’s case, a judge might rule as follows.
- Jack’s San Francisco Apartment is separate property, but the community may have acquired an interest in it pursuant to Moore-Marsden. The apartment is awarded to Jack, and if it exists, Jack must pay Jane a sum equal to one-half of the community interest.
- Jane and Jack’s Sausalito Home is community property subject to Jack’s right to reimbursement under California Family Code § 2640. If Jack traces the funds to a separate property source, Jack has a right to receive reimbursement before the parties equally divide the remaining community property interest. A judge can award the house and encumbrances to one spouse and award the other spouse, assets equal in value to one-half of the community property fair market value of the house. Jack or Jane also can refinance and borrow money to buy out the other spouse’s interest, or a judge can order the sale and distribution of the proceeds. If Jack used his post-separation salary to pay the mortgage on the Sausalito home he can request Epstein credit. (Marriage of Epstein (1979) 24 C3d 76) If a spouse lived exclusively in the Sausalito home after separation, a judge can charge the occupying spouse the fair market rent from the date of separation until the court order. (Marriage of Watts (1985) 171 CA3d 366)
- Jack’s premarital and post-separation salary and bonuses that Jack successfully traces from his employer to his checking account on the date of separation and at the date of trial, are affirmed as Jack’s separate property.
