Property under the Family Code includes real and personal property and any interest therein. Family Code section 113. In discussing “Division of Property” most people think of real estate, the family home, a rental property, a vacation home. But the term property includes much more than that. Term life insurance is an asset that has generated substantial controversy over whether it is to be treated as “property” for purposes of marital actions. Client lists, sometimes referred to as “books of businesses,” may also be considered property subject to division. Accrued vacation time that cannot be taken in the form of cash is not property subject to division in marital actions. Accrued vacation pay, however, is probably divisible.
Before determining how “property” is going to be divided the judge must first determine the “characterization” of the property. Is it “Community Property” or is it “Separate Property”. Generally speaking, all property acquired during marriage by a married person domiciled in California (whether acquired by the husband, the wife, or both) is either community property or separate property.
Community property is all property, acquired by a spouse, during the marriage that is not, by statute, separate property. Family Code section 760. In other words, if it was acquired during marriage by one of the spouses it is “presumed” to be community property. The exceptions to this are
(1) Property acquired by gift or inheritance. Family Code section770 (a) (2)); for example if a husband inherits a home from his aunt at her death or wife is gifted a condominium by her grandparents. Those properties are considered “separate property”. (As long as they are not comingled or title is not transferred, see below).
(2) Produced by separate property (i.e., “rents, issues, and profits”) Family Code section 770 (a) (3)); for example, the wife has an income property that she acquired prior to marriage and the income from that property covers the expenses of the property and produces a profit. The profit and any investments acquired from the profit is separate property.
(3)Acquired after the date of separation Family Code section70, 771 (a)).
What Does “All Property” Mean?
All assets, including paychecks, salary, bonuses, dividends, retirement benefits, investments, stock, vacation homes, timeshares, collectibles, recreational vehicles.
Separate property includes all property owned before marriage Family Code section 770 (a) (1)) and property acquired by the three means above.
Here is a common issue that arises:
Spouse 1 has purchased a home prior to marriage, spouse 1 and 2 live in the home during the marriage with no change to the title, and during dissolution, spouse 1 believes the home is separate property because:
- It was purchased prior to marriage
- Spouse 1 name only is on title, and
- Spouse 2 did not contribute toward the monthly mortgage payments.
Is the property Spouse 1 separate property?
Well, it may be characterized as Separate property, but the Community has an interest in it. Remember, paychecks are community property, so any mortgage payments paid with a paycheck creates a community interest in the property.
Which leads to the question of “What happens if the separate property and community property are mixed together?” This happens often. There are many instances where separate property and community property are “commingled”. Or separate property and community property are both used to purchase an asset, then “tracing” needs to be done. Or title to an asset is changed creating a “transmutation”. These are situations where the facts of each scenario are very important in determining the outcome. If you are contemplating marriage and have substantial assets, it is worth your time to consult with an experienced family law attorney to learn how to protect your assets.
Commingling, Tracing, and Transmutation
“Commingling” refers to the mixing of community property funds and separate property funds. It commonly occurs when one spouse deposits his or her separate funds into a bank account in which community funds have been or are later deposited. When commingled funds are the source of an acquisition, a question may arise regarding whether the separate and community contributions can be traced and identified. Tracing cannot overcome a presumption arising from the form of title, but it can overcome the general presumption that property acquired during the marriage is community property.
Consequently, the importance of commingling and tracing in characterizing property acquired with commingled funds is limited to situations in which there is no written indication of ownership interests as between the spouses with respect to the property acquired. Tracing might, for example, enable a spouse to overcome the general community property presumption and show that furniture purchased during the marriage is wholly or partially separate property. But if separate and community funds are commingled in such a manner that it is impossible to trace the source of the acquisition, the acquisition will be deemed to be entirely community property.
“Tracing” is the method by which commingled funds used to acquire property might be traced to a separate property source. There are two types of tracing. The first method involves direct tracing, which requires that (1) the amount of separate funds on deposit be ascertainable; (2) the separate funds continue to be on deposit when a withdrawal is made for the purpose of purchasing the specific property in dispute; and (3) the drawer’s intention be to withdraw the separate funds. The second method involves consideration of family expenses and is based on the presumption that family expenses are paid from community funds. If it can be shown that, at the time of the acquisition of the property in dispute, all community income in the commingled account has been exhausted by family expenses, the remaining funds are necessarily separate funds.
“Transmutation” Spouses may agree to change the “character” of property at any point during the marriage by converting community property to the separate property of one of the spouses, by converting the separate property of one of the spouses to community property, or separate property of one spouse to separate property of the other. Family Code section 850-853–853 control these transmutations.
Transmutations must conform to the laws regarding fraudulent transfers. Family Code section851. They must also meet the requirements of Family Code section 852, which include the requirement that the agreement be reduced to a writing “made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” Family Code section 852 (a).
The writing requirement is not satisfied by a document that merely indicates that the title to the property at issue has changed. The writing must expressly state that the character of the property is changed, not just that title has been taken in a new or different form. Additionally, extrinsic evidence is not admissible to prove the existence of a transmutation, because that would effectively circumvent the legislative intent of Family Code section 852 to prevent unnecessary litigation relative to a transmutation issue.
These are very specific issues and require experience and knowledge of all aspects of family law to resolve favorably.
Fam C § 760
Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property. [Enacted by Stats. 1992, Ch. 162, Sec. 10. Operative January 1, 1994]
Fam C § 770
(a) Separate property of a married person includes all of the following:
(1) All property owned by the person before marriage.
(2) All property acquired by the person after marriage by gift, bequest, devise, or descent.
(3) The rents, issues, and profits of the property described in this section.
(b) A married person may, without the consent of the person’s spouse, convey the person’s separate property. [Enacted by Stats. 1992, Ch. 162, Sec. 10. Operative January 1, 1994]
Fam C § 70
(a) “Date of separation” means the date that a complete and final break in the marital relationship has occurred, as evidenced by both of the following:
(1) The spouse has expressed to the other spouse his or her intent to end the marriage.
(2) The conduct of the spouse is consistent with his or her intent to end the marriage.
(b) In determining the date of separation, the court shall take into consideration all relevant evidence.
(c) It is the intent of the Legislature in enacting this section to abrogate the decisions in In re Marriage of Davis (2015) 61 Cal.4th 846 and In re Marriage of Norviel (2002) 102 Cal.App.4th 1152. [Added by Stats. 2016, Ch. 114, Sec. 1. (SB 1255) Effective January 1, 2017]
Fam C § 771
(a) The earnings and accumulations of a spouse and the minor children living with, or in the custody of, the spouse, after the date of separation of the spouses, are the separate property of the spouse.
(b) Notwithstanding subdivision (a), the earnings and accumulations of an unemancipated minor child related to a contract of a type described in Section 6750 shall remain the sole legal property of the minor child. [Amended by Stats. 2016, Ch. 114, Sec. 2. (SB 1255) Effective January 1, 2017]
Fam C § 2640
(a) “Contributions to the acquisition of property,” as used in this section, include down payments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.
(b) In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division.
(c) A party shall be reimbursed for the party’s separate property contributions to the acquisition of property of the other spouse’s separate property estate during the marriage, unless there has been a transmutation in writing pursuant to Chapter 5 (commencing with Section 850) of Part 2 of Division 4, or a written waiver of the right to reimbursement. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division. [Amended by Stats. 2004, Ch. 119, Sec. 1. Effective January 1, 2005]
Prob C § 5305
(a) Notwithstanding Sections 5301 to 5303, inclusive, if parties to an account are married to each other, whether or not they are so described in the deposit agreement, and their net contribution to the account is presumed to be and remain their community property.
(b) Notwithstanding Sections 2581 and 2640 of the Family Code, the presumption established by this section is a presumption affecting the burden of proof and may be rebutted by proof of either of the following:
(1) The sums on deposit that are claimed to be separate property can be traced from separate property unless it is proved that the married persons made a written agreement that expressed their clear intent that the sums be their community property.
(2) The married persons made a written agreement, separate from the deposit agreement, that expressly provided that the sums on deposit, claimed not to be community property, were not to be community property.
(c) Except as provided in Section 5307, a right of survivorship arising from the express terms of the account or under Section 5302, a beneficiary designation in a Totten trust account, or a P.O.D. payee designation, may not be changed by will.
(d) Except as provided in subdivisions (b) and (c), a multiple-party account created with community property funds does not in any way alter community property rights.
[Amended by Stats. 1993, Ch. 219, Sec. 224.7. Effective January 1, 1994]
Fam C § 850
Subject to Sections 851 to 853, inclusive, married persons may by agreement or transfer, with or without consideration, do any of the following:
(a) Transmute community property to separate property of either spouse.
(b) Transmute separate property of either spouse to community property.
(c) Transmute separate property of one spouse to separate property of the other spouse. [Enacted by Stats. 1992, Ch. 162, Sec. 10. Operative January 1, 1994]
Fam C § 851
A transmutation is subject to the laws governing fraudulent transfers. [Enacted by Stats. 1992, Ch. 162, Sec. 10. Operative January 1, 1994]
Fam C § 852
(a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.
(b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.
(c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.
(d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined.
(e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply. [Enacted by Stats. 1992, Ch. 162, Sec. 10. Operative January 1, 1994]
Fam C § 853
(a) A statement in a will of the character of property is not admissible as evidence of a transmutation of the property in a proceeding commenced before the death of the person who made the will.
(b) A waiver of a right to a joint and survivor annuity or survivor’s benefits under the federal Retirement Equity Act of 1984 (Public Law 98-397) is not a transmutation of the community property rights of the person executing the waiver.
(c) A written joinder or written consent to a nonprobate transfer of community property on death that satisfies Section 852 is a transmutation and is governed by the law applicable to transmutations and not by Chapter 2 (commencing with Section 5010) of Part 1 of Division 5 of the Probate Code. [Amended by Stats. 1993, Ch. 219, Sec. 100. Effective January 1, 1994]