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Sailing Separate Property Through the Community Sea

Much has been written about community property, a characteristic that causes an equal division between divorcing couples. But, just as important is the identification of property that is owned by one of the spouses which will not be divided in the divorce. Separate property is all property acquired before marriage, after the date of separation or during the marriage if acquired by gift or inheritance. Included are the rents, profits and income from the separate property.

What happens when the separate property gets intermixed with the community property? Wife buys a house six months before the wedding. Husband's paycheck pays the house costs for 10 years of marriage. Divorce comes and ...? Is the title for the house in Wife's name only? How much of the payments were to reduce the mortgage? Different answers may produce different results. Property title will determine what type of property it is unless there is a written agreement that states otherwise. If the property is separate, what is the non-owning spouse entitled to if expenses are paid by community funds? Generally, the community is entitled to reimbursement for reductions to principle, but not taxes, interest or insurance. However, like most divorce issues, the result will depend on the court's analysis and decision as to what the facts are.

An interesting legal twist is that an award for personal damages (as recovery for injuries in an auto accident) is community property if the accident occurred during the marriage. But the court may award 100% to the injured spouse.

What happens when a young couple marry and one works while the other is in school to acquire a specialized education and/or license (i.e., a doctor, lawyer, MBA, etc.). The husband finishes medical school and an internship and asks for a divorce. Is the wife entitled to anything special? While the license or special earning capability of the licensed spouse may not be divisible property, the community may be entitled to reimbursement for the costs of education. The greater earning power of the licensed spouse is also likely to influence support obligations.

In addition, there is a concept called "tracing" that will allow the owner of separate property to "trace" the property into community assets and either create a right to reimbursement from the community or an interest in the community.

In essence, the characterization of property is both important and complex. This is especially true when both separate property and community property co-exist and often become comingled. Professional help may be needed to sort things out.

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California divorce laws recognize that both spouses make valuable contributions to any marriage regardless of their employment. Property is labeled either "community property" or "separate property." Community property is all property, in or out of the state, that either spouse acquired during the marriage. Each spouse owns one-half of all community property. It does not matter if only one spouse worked outside of the home during the marriage or if this property is in only one spouse's name.
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